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Oct 15, 2015 | 09:15 GMT

5 mins read

Poland and the Baltics Find New Energy Options

Lithuania's first liquefied natural gas (LNG) floating terminal docks at the port of Klaipeda, October 2014.
(PETRAS MALUKAS/AFP Photo/Getty Images)
Summary

The Kremlin may lose influence in Eastern Europe as the region diversifies its energy resources. At an EU summit Oct. 15, Poland and the Baltic states — Estonia, Latvia and Lithuania — will sign an agreement to build a natural gas pipeline that will play a key role in integrating their energy networks. The deal comes within a week of the inauguration of a Polish liquefied natural gas (LNG) import terminal in the port city of Swinoujscie and less than year after the opening of a Lithuanian LNG terminal in Klaipeda.

These developments symbolize an important evolution in Baltic and Polish efforts to break their dependence on Russian natural gas supplies. While the construction of natural gas pipelines and LNG import infrastructure will not necessarily eliminate Russia as an energy provider to these countries, it will significantly weaken Moscow's ability to use its natural gas as a political tool in the region, which could undermine Russia's influence in Eastern Europe in the long run. 

Energy security has long been a controversial issue for Poland and its Baltic neighbors for two reasons, both of which have to do with Russia. First, Russia has historically held a monopoly on supplying natural gas to Poland and the Baltic states. Second, Russia has often used its monopoly for political gain, whether by enacting discriminatory pricing schemes against individual states or by intentionally disrupting supply flows for political reasons. Because Poland and the Baltic states have integrated into the European Union and NATO and are leading anti-Russia voices within both blocs, they are particularly vulnerable to Russia's use of energy as a political tool. 

Consequently, diversifying energy sources away from Russia has become a crucial component of each of these countries' national security strategies. Both Poland and Lithuania have already launched LNG import terminal projects in pursuit of this goal. And unlike similar plans made by other states in Central and Eastern Europe, which have largely stalled, construction companies broke ground on the Polish and Lithuanian projects in 2012. By October 2014, Lithuania had inaugurated its floating import terminal in Klaipeda, which began receiving commercial deliveries of LNG from Norway's Statoil in early 2015. While Poland's Swinoujscie LNG terminal was initially subject to several delays, it was formally inaugurated Oct. 12 and is set to receive its first shipment of LNG from Qatar in December.

The new infrastructure is already having clear benefits for Lithuania, whose terminal's capacity exceeds its domestic needs. (The Lithuanian LNG terminal has an annual capacity of 4 billion cubic meters, significantly higher than Lithuania's annual consumption of only 3.27 bcm.) As a result, Lithuania has been able to send some of its imported LNG to its neighbors, Estonia and Latvia. Although Lithuania has not fully diversified away from Russia — the two have a contract in place until the end of the year — it already has been able to negotiate with Russia over future supplies from a more favorable position than in the past.

Poland can expect to see similar results. Its LNG terminal will have an annual capacity of 5 bcm, roughly half of the country's consumption of 10.6 bcm in 2014. Poland has also proposed to expand the LNG terminal's capacity over the next few years to about 10 bcm, which would cover nearly all of its annual natural gas needs.

The construction of several interconnector pipelines between Poland and the Baltic states will further enhance their leverage over Russia. With the help of EU funding, Estonia, Latvia and Lithuania have already strengthened their own interconnections, enabling them to transfer energy supplies such as natural gas and electricity to each other with ease. The new natural gas pipeline between Poland and Lithuania, which will be announced Oct. 15, will integrate the Baltic region even more. The project has already secured EU funding for about 300 million euros ($344 million) of the projected total 560 million euros needed. Construction of the pipeline, which will have an annual capacity of 2.5 bcm, will begin next year and is slated for completion by 2019.

Weakening Russia's Hold in Eastern Europe

As such energy projects move forward, Poland and the Baltic states will continue to gain leverage in their dealings with Russia. This clout will not necessarily come from any commercial advantage, which will depend on the price of LNG and the price of piped natural gas at the time of import. (Lithuania currently pays $397 per thousand cubic meters for its Norwegian LNG, roughly 10 percent more than it pays for Russian piped natural gas.) Rather, it will come from the political advantage of having a supplemental, non-Russian source of energy that the countries can use to meet their natural gas needs. Poland and Lithuania have already proved able to negotiate more commercially oriented contracts with Russia in recent years, the terms of which will likely only improve as these countries expand their natural gas infrastructure. Though Russian energy probably will not be phased out of Poland and the Baltic states entirely, the Kremlin's use of its natural gas as a political tool almost certainly will.

The new energy projects could have important implications for the broader Eastern European region, too. Poland and Lithuania have led efforts within the European Union to bring former Soviet states, including Ukraine and Belarus, into the European bloc by supporting initiatives such as the Eastern Partnership program and advocating greater security assistance for Ukraine. The future integration of Ukraine and Belarus into the expanding energy infrastructure in Poland and the Baltic states could go a long way in weaning these countries off Russian natural gas in the future. Already, Poland is sending small but notable reverse natural gas flows to Ukraine as its conflict with Russia drags on. As further transport infrastructure develops and boosts energy flows within the region, Poland and the Baltics will become increasingly important players within the broader standoff between Russia and the West. 

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