Loan Lifeline Thrown to Lithuania's LNG Terminal Project

The European Investment Bank (EIB) threw a lifeline to Lithuania for its plan to build an LNG import terminal by signing a 87 million euro ($111.9 million) loan on Tuesday after the project failed to raise funds from commercial banks.

"This investment is critical for Lithuania to diversify and secure its energy supply as well as provide backup in the event of gas supply failures," the European Union's long-term lending institution said.

The Baltic state wants to start importing liquefied natural gas (LNG) from 2015 to move away from total dependence on gas imports piped from Russia, but questions remain about the project's economic viability.

"It (the terminal) will bring transparent competition to the gas market, with national and possibly regional consumers set to benefit," Lithuania Energy Minister Jaroslav Neverovic said on Tuesday, adding that the EIB loan was "vitally important" to keep the project on track.

Klaipedos Nafta, the company in charge of the project, had failed to raise 73 million euros in loans and $50 million in guarantees from commercial banks in March.

Lenders were concerned that Russian gas export monopoly Gazprom could cut its price to keep theLNG terminal idle or that global LNG prices might rise over pipeline gas prices in Europe.

Klaipedos Nafta said the 20-year loan from the EIB will cover as much as 50 percent of infrastructure investment costs estimated at 600 million litas ($223.6 million), but it still needed to raise up to 150 million litas in additional loans.

Klaipedos Nafta has already signed an agreement to lease a floating storage and regasification unit, which will serve as an import terminal, for 10 years from Norway's Hoegh LNG and expects to wrap up talks on LNG import contracts in the third quarter.

It also has already signed contracts for building a jetty for mooring the vessel at Klaipeda port and connecting it to the national gas grid.

The terminal will have the capacity to import up to 2 billion cubic metres (bcm) of gas from 2015, and its capacity could be boosted up to 4 bcm if pipelines are upgraded, its business plan showed.

Lithuania consumed 3.3 bcm of gas in 2012, all of which was supplied by Gazprom. ($1 = 2.6840 Lithuanian litas) ($1 = 0.7773 euros)

Reporting by Nerijus Adomaitis; editing by Jane Baird (C) Reuters 2013.