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10 Sep, 2009 05:58

Gazprom to boost Kaliningrad supply through Lithuania

The launch of a new Russian pipeline is set to boost supplies to energy-starved countries in Eastern Europe. Gazprom’s CEO Aleksey Miller met Lithuania's Premier to discuss the deal.

Surrounded by the countries of the European Union, Russia's most Western territory of Kaliningrad has so far lacked sufficient gas to meet the needs of households and industry.

Gazprom Deputy CEO, Valery Golubev, says the launch of the second branch of the existing trunk pipeline will provide it with enough blue fuel.

“With the building of this pipe we will double the capacity to 2.5 billion cubic meters a year.”

Kaliningrad will enjoy cheaper gas than the EU countries around it and this will give local industry a boost.

Depending on the industry the cost of fuel may account for up to 15% of production costs. Having substantially cheaper gas than its EU neighbors, Kaliningrad will enjoy a competitive advantage, and this could make it a more attractive investment opportunity.

Denis Borisov, Analyst at Solid Investment also pointed out the geopolitical risks involved in improving gas supply to the enclave.

“From the geopolitical angle the new pipe will not only bring gas but will also help integrate the enclave with mainland Russia. People will see it as a fulfillment of the government's responsibility. But yes there are transit risks here. Unlike Belarus so far there have been no serious conflicts over gas transit with Lithuania. But they cannot be completely ruled out.”

Despite the crisis and falling revenues from gas sales, state owned Gazprom has not given up its investment plans. The work on the North and South Stream projects to avoid tricky overland routes is full steam ahead.

Back home Gazprom has built some 3 thousand kilometers of gas networks last year, with the increase in domestic consumption expected to help the gas giant offset falling prices abroad.