On the designated supply contract of liquefied natural gas with Equinor ASA
AB “Ignitis grupė” (hereinafter – Ignitis Group or the Company) informs that on 27 August 2021 the Management Board of the Company’s subsidiary UAB “Ignitis” (hereinafter – Ignitis) approved the amendment and signing of the purchase contract (hereinafter – Contract) with Equinor ASA regarding liquefied natural gas intended for designated supply operations. The Company will not inform about the signing of the Contract separately.
In order to ensure diversification of natural gas supply to Lithuania and operations of the liquefied natural gas terminal in Klaipėda, on February 2014 Ignitis, by a process of procurement, was appointed to conduct designated supply operations for the period of 2015–2024 and to provide mandatory supply volume, the size of which is determined by the Government of the Republic of Lithuania (hereinafter – the Government), for the liquefied natural gas (hereinafter – LNG) terminal in Klaipėda. For this operation, in 2014 Contract was concluded in 2014, amended in 2016 and remains effective until 2024. According to an effective legislation, the difference between the price paid for purchasing LNG cargoes under the Contract and an average price of imported gas to the Republic of Lithuania shall be covered and compensated to Ignitis using LNG terminal security component, which is paid by the final consumers of natural gas in Lithuania.
The Company reminds that in 2019 the Government had to approve a mandatory supply volume for the LNG terminal for the period of five years (until the end of 2024), which amounts to 4–6 conventional LNG cargoes per year. However, a volume of four conventional LNG cargoes per year was approved for one-year period only both in 2020 and in 2021, while, from that point forward, both the Ministry of Energy of the Republic of Lithuania and Ignitis have been looking for ways to reduce the designated supply costs.
Respectively, during the meeting of 30 December 2020 (meeting minutes No 59), the Government adopted a minute order, which established the Government’s expectations to ensure the preparation of economic efficiency improvement measures for the designated supplier of the LNG terminal, Ignitis, and monitoring of its implementation to ensure lowest costs and lowest negative effect on the price of natural gas by 31 March 2021. The Ministry of Finance of the Republic of Lithuania was also instructed to prepare an analysis of cost reduction alternatives for the mandatory supply volume operations of the LNG terminal, together with the Ministry of Energy of the Republic of Lithuania. Additionally, on 17 February 2021, in the supplemented letter of expectations, the expectation set out by the Ministry of Finance of the Republic of Lithuania, i.e. the majority shareholder, owning 73.08 % of Company’s shares, to AB “Ignitis grupė” to implement rational measures for improving the efficiency of operations of the designated supplier of the LNG terminal, which would allow to ensure the lowest negative effect on the price of natural gas as well as contribute to the implementation of goals of the National Energy Independence Strategy.
Considering the above, Ignitis has been actively conducting negotiations with Equinor ASA and on August 2021 reached an agreement with Equinor ASA to amend the Contract. Amendment of the Contract established a more favourable LNG cargo supply structure. This together with an optimised gasification and boil-off will allow to save EUR 14–17m during the remaining period of the effective Contract, i.e., from 2022 until the end of 2024. Additionally, after the amendment of the Contract, the difference between the price paid for purchasing LNG cargoes as per the Contract and the average price of gas imported to the Republic of Lithuania will become much more stable.
The conditions of the Contract guaranteeing continuity and assurance of responsibilities regarding Ignitis as the designated supplier fully comply with interests of both energy independence of Lithuania and the Company and all its shareholders.
The Company informs that the mandatory supply volume necessary for the LNG terminal will be submitted to the Government of the Republic of Lithuania this autumn for their approval.
For more information please contact:
Public Relations Manager at Ignitis Group
+370 687 48080