Gas supply worry spur Lithuania to boost efforts for new nuclear

London (Platts)--23Jan2006

Led by Lithuanian President Valdas Adamkus, top Lithuanian politicians are
stepping up efforts to build a new nuclear power unit at Ignalina, citing
renewed concerns about natural gas supply from Russia.

Before the end of the month, the Ministry of Economic Affairs is expected to
formally invite 25 selected investors to participate in financing a reactor of
about 1,600 megawatts. But Economy Minister Kestutis Dauksys said the
government should maintain at least a 34% stake in any new reactor project.

Prime Minister Algirdas Brazaukas has also called for continued operation of
Ignalina-2 beyond Dec. 31, 2009, the deadline by which Lithuania has promised
the European Union the unit would be shut down. 

Meeting with journalists in the city of Kaunas earlier this month, Adamkus
said that Russia's decision earlier this month to cut off gas supply to
Ukraine?an action that also affected western Europe?shows that "those who
possess the gas and oil 'weapons' can not only (theoretically) blackmail one
state, but can also paralyze half a continent.

"I said back in 2002 that Lithuania's only choice was to have an independent
source of energy, which should be a third, modern nuclear reactor."

In addition, in a statement on behalf of the government last week, Brazauskas
said that because Lithuania and Poland are unable to agree on a plan to
connect their power grids, closure of Ignalina-2 would "isolate" Lithuania
from western Europe's electricity grid.

Power from Ignalina is exported to neighboring Latvia and Estonia, but power
from fossil-fired plants is only partly exported and imported because of
interconnection limitations. 

As part of its EU accession treaty, Lithuania agreed to shut both
1,500-MW-class Ignalina RBMKs, units that the EU says can never be brought up
to modern, Western safety standards. The first unit was shut at the end of
2004 and the second is scheduled to be closed at the end of 2009. Unlike
Brazauskas, Adamkus has repeatedly said Lithuania must honor its shutdown
commitment and not violate its EU membership agreement. 

Although Lithuania has sufficient conventional generating capacity via gas,
oil and hydro power plants to meet domestic demand, the plants are old and
need major renovation. In addition, Lithuanian officials have repeatedly said
they want to reduce dependency on Russian oil and gas, their only source of
supply.

Following the disagreement between Russia and Ukraine over natural gas prices
at the beginning of the month, Russian state-owned gas vendor Gazprom on Jan.
1 abruptly cut off Ukraine's gas supply (NW, 5 Jan., 1). That led to a
reduction in daily supply for European customers for two days and raised
concerns about Russian reliability to deliver gas as contracted.

Citing the Russia-Ukraine disagreement, Adamkus said that, in addition to a
new reactor, Lithuania needs to build gas storage facilities to maintain
energy independence. Talks are going on with the Latvians about storage, since
they have salt domes that are well-suited to store liquefied natural gas. 

But many see a new reactor as the best way to ensure security of electricity
supply and produce export power. Dauksys has said that the government should
make a decision this year to build a new unit, so that it could be on line by
2013. 

However, a study done by the Lithuanian Energy Institute and Kaunas Technical
University concludes that, given the cost of a new reactor, Lithuanian prices
for export power would not be competitive in the nearby Nordic and Russian
markets. Domestically, the study suggests that importing electricity is a
better alternative than building a new reactor.

This story was originally published in Platts Nucleonics Week. Request a free
trial at http://www.platts.com/Request%20More%20Information/

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.