Lithuania seeks energy Independence

Lithuania seeks energy Independence
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Following Russian threats, Lithuania is seeking to pursue energy independence, as its current energy imports firmly in Moscow’s hands.

The Russian Federation has been in the headlines as of late for its active role in the mediation of the Syrian conflict. Rightfully so. But there is also a European front in Russia’s recent foreign and strategic policy offensive. Military, political and economic tensions have come to a head in recent months, particularly between Russia and the former Soviet republic of Lithuania. An emboldened Russia feels an imperative to advance its economic and political hegemony in an increasingly Western-oriented Eastern Europe.

The current strain on Russo-European economic relations is multi-faceted. First is the inability of Russia and Lithuania to reconcile their differences on energy supplies. Russian energy giant Gazprom’s exports supply all of Lithuania’s natural gas consumption, with 3.3 billion cubic meters being imported in 2012 alone. Problems stem from current disagreements over the negotiation of a new gas supply contract. Lithuania and the European Union claim that Gazprom, a Russian state-owned firm, charges Lithuania prices that burden Lithuania with the highest wholesale gas prices of any country in the EU.

The situation is further complicated by the fact that the EU is investigating Gazprom, a gas supplier to many EU member states, for monopoly statute infringement and unfair pricing practices. Lithuania has been a leading proponent of the investigation, and its influence over the process is heightened because of its status as the current holder of the rotating EU presidency.

In response to this deteriorating energy-sharing relationship, Lithuania has increased its exploration of domestic energy resources. A liquefied natural gas terminal on Lithuania’s Baltic Sea coast is due to be up and running by the end of 2014, and efforts are made to fund a gas pipeline to Lithuania across the Polish border. Within Lithuanian territory, the government has begun to exploit domestic gas resources by giving a permit to US energy company Chevron to look at possible underground shale gas sources. Should these shale oil and gas deposits prove to be exploitable, they would provide enough energy to meet Lithuania’s domestic consumption requirement and even allow the small state to export energy to surrounding states.

The other major issue currently damaging Russia’s relations with the EU and Lithuania is the imposition of strict customs checks on Lithuanian vehicles, both private and commercial, at the countries’ mutual border. The results have damaged Lithuania’s economy and its links to other countries, with border crossings declining by 90 percent and transportation companies posting average losses of €2 million euros per day.

These harsh restrictions have likely been put in place because of both Lithuania’s pursuit of domestic energy production and its strong promotion of EU trade links and free trade agreements with former Soviet constituent states, which include Georgia, Moldova and Ukraine. This policy, supported by the United States and aggressively promoted by Lithuanian President Dalia Grybauskaite, has drawn the ire of the Russian government, which is attempting to dominate trade and economic activity with those countries.

President Grybauskaite has alluded to what she calls unsatisfactory bilateral relations between her country and Russia and indicated that military and economic “intimidation” and Russian “mistrust” have worsened ties. The severity of the border checks has even led Lithuanian Prime Minister Algirdas Butkevicius to suggest that the measures, along with energy conflicts, could be seen as a form of economic war against Lithuania and the West.

The economic implications of tensions between the two countries are huge. Foreign and domestic energy companies will see an opportunity to invest in the nascent Lithuanian energy industry. Like many countries who wish to reduce their dependence on Russian energy imports, Lithuania will most likely continue to explore such prospects in the near future. This loss of business may make Russia very nervous, which in turn could lead to further punitive economic measures being imposed by Russia.

With regard to the intensification of vehicle checks at Lithuania’s border with Russia’s Kaliningrad exclave, this situation is indicative of a much larger macroeconomic struggle. As Russia attempts to shore up its weakening grasp on economic activity in Eastern Europe, its stance on economic issues may become even more aggressive. This will be especially true if the efforts of Lithuania’s government, and President Grybauskaite in particular, to integrate eastern states into EU economic apparatuses are successful. Whatever the outcome of the multitude of regional economic conflicts, the West will surely want to wake up and pay attention.

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