UPDATE 2-Lithuania wins cheaper Russian gas after LNG sabre rattling

Thu May 8, 2014 9:18pm IST

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* Price discount to last until late 2015

* Oil link to remain in place

* Lithuania seeks first LNG imports in 2015 (Adds LNG deal, links)

By Nerijus Adomaitis and Andrius Sytas

LONDON/VILNIUS, May 8 (Reuters) - Lithuanian utility Lietuvos Dujos said on Thursday it has won cheaper gas from Gazprom until the end of 2015, as the pressure of competing liquefied natural gas (LNG) and a European pricing probe put pressure on the Russian giant.

The deal was announced a day after Energy Minister Jaroslav Neverovic said Lithuania was in talks with leading global suppliers of LNG, including Norway and Qatar, and wanted to sign the deal as soon as possible.

Lithuania has accused Moscow of manipulating gas prices for political gains and the European Commission has been investigating Gazprom's pricing policies in eastern Europe based on complaints from a number of countries in the region.

"Lietuvos Dujos has entered into an agreement with Gazprom that involves a significant reduction in the price of natural gas," the company said in a statement to the stock exchange in Vilnius.

It did not disclose the price but company officials said that Gazprom, which owns 37.1 percent of Lietuvos Dujos, had kept a link to oil prices in place.

"The agreed price level provides a good basis to negotiate gas supplies after 2015, and the price formula could look different then," Joachim Hockertz, deputy general director at Lietuvos Dujos, told Reuters.

Lithuanian prime minister Algirdas Butkevicius has said he expected Gazprom to lower the price by around 20 percent, as high gas prices had hurt producers and households.

Lithuania had paid $465 per 1,000 cubic metres of gas at end-2013, data from the energy market regulator showed.

Russia raised the gas price for Ukraine last month, almost doubling it in three days to $485 per 1,000 cubic metres, much more than the average price paid by consumers in the European Union.

"I think that it's quite a significant breakthrough if we are talking about price discounting by 20 percent or more, but I don't think that it could stop the European Commission's investigation," former energy minister Arvydas Sekmokas told Reuters.

Germany's E.ON has 38.9 percent of Lietuvos Dujos, and state-owned energy group Lietuvos Energija 17.7 percent. The latter is seeking to buy E.ON's stake.

Lietuvos Dujos has 40 percent of the domestic market.

Lithuania's floating LNG import terminal, named "Independence", is to start operating at the end of the year. It will allow imports of gas on tankers of up to 2 billion cubic metres (bcm) annually, enough to meet two-thirds of domestic demand.

Lithuania's biggest gas consumer, fertilizer producer Achema, told Reuters it was considering buying up to 200 million cubic metres of gas via the LNG import terminal as it was struggling to agree price discounts with Gazprom.

It said it was being forced to half its production from mid-May to limit losses as fertilizer prices dropped while gas prices, the bulk of production costs, remained high.

"By offering cheaper gas Gazprom is making the LNG terminal less attractive to potential customers," said Tadas Povilauskas, an analyst at Vilnius-based Finasta bank.

Lithuanian President Dalia Grybauskaite has said the ability to import LNG would put an end to the "existential threat" of a dependence on Russian energy supplies.

Lithuania's efforts echo moves by others in the region - including Poland, Estonia and Finland - to improve gas infrastructure and diversify sources.

(Editing by Henning Gloystein and William Hardy)

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