Among the pine forests of north- eastern Lithuania, a dried-up oil pipeline called Druzhba -- Russian for friendship -- has become a symbol for the increasingly hollow relations between the Baltic states and Russia.
A year ago, a reported leak on Russian territory blocked the flow of oil into AB Mazeikiu Nafta, the only refinery in the three former Soviet republics. While deliveries have stopped before at politically tense moments, this time the refinery didn't wait for the leak to be fixed. It now pays more to buy oil off tankers from Russia -- and from as far away as Venezuela.
Weaned from the pipeline, the last vestige of a communist centralized system that once provided life-support, Lithuania is exploring other ways to reduce its dependence on the world's largest energy supplier. The new liberation is a sequel to the political independence it won 16 years ago.
``It is a very dramatic breakthrough for Lithuanian society,'' says Laimonas Talat-Kelpsa, an undersecretary at the ministry of foreign affairs in Vilnius.
Like its Baltic neighbors, this nation of 3.4 million people has fretted about the energy network that ties it to Russia.
`Big Changes'
``We are talking about a pipeline that was part of the URSS,'' says Valery Nesterov, an analyst at Troika Dialog, a Moscow brokerage. ``Since then, big changes have happened. An empire fell apart, economic relations have been disrupted and new ties have not yet stabilized.'' One cause for concern has been Russia's use of its pipelines as a tool to wield power over smaller neighbors.
``We are talking about a pipeline that was part of the URSS,'' says Valery Nesterov, an analyst at Troika Dialog, a Moscow brokerage. ``Since then, big changes have happened. An empire fell apart, economic relations have been disrupted and new ties have not yet stabilized.'' One cause for concern has been Russia's use of its pipelines as a tool to wield power over smaller neighbors.
In 2002, OAO Transneft, Russia's oil-pipeline monopoly, shut down another Druzhba spur that shipped crude to the Latvian port of Ventspils. OAO Gazprom, Russia's natural-gas export monopoly, blocked gas supplies to Ukraine in January 2006, and Transneft cut oil to Belarus a year later over price and transit-fee disputes, reducing deliveries to western European customers.
``For Russia, oil and gas are a vital part of foreign policy,'' says Eric Kraus, who manages the Nikitsky Russia Fund in Moscow.
Lithuanian President Valdas Adamkus says the Druzhba drought is ``political'' and won support from fellow European Union members at a May summit in Samara, Russia.
Victim
While Russia still hasn't given Lithuania a report on the pipeline's future, Russian Energy Minister Viktor Khristenko told reporters in Paris on May 31 it won't reopen. He called the issue ``technical'' and ``economic,'' and said the only victim was some refinery he'd never heard of.
In fact, Russia has kept a close eye on Mazeikiu, which the Soviets built in 1980 and Lithuania took control of after the breakup of the USSR in 1991.
In 1999, Lithuania sold the refinery to Tulsa, Oklahoma- based Williams Cos. In 2002, the plant was resold to OAO Yukos, the Russian oil company that the Kremlin later forced into bankruptcy. In 2006, Yukos sold control to PKN Orlen SA, Poland's largest oil company, which gets most of its oil from Russia.
Each time the refinery changed hands, the new owner beat out bids from companies backed by the Russian government. On May 21, the government approved construction of a new $2 billion pipeline to deliver 50 million tons of oil a year to Primorsk, on its own Baltic Sea coast, bypassing Belarus and Lithuania.
Russia's Embrace
Ever since Russia withheld oil and gas supplies on the eve of Lithuania's independence in 1991, the Baltic country has been trying to slip out of its neighbor's embrace.
Ever since Russia withheld oil and gas supplies on the eve of Lithuania's independence in 1991, the Baltic country has been trying to slip out of its neighbor's embrace.
By the mid 1990s, together with Estonia and Latvia, Lithuania paid Russia world prices for oil and gas, ending years of subsidies. In 1999, it opened the Baltic Sea Butinge terminal to receive oil deliveries on tankers to reduce dependence on Druzhba.
For Mazeikiu, 10 percent owned by the Lithuanian state, the switch to the tankers from the pipeline ``has affected the refinery's economics, but it will not destroy it,'' said P. Nelson English, the director of the refinery until this week. ``We are just not earning as much as we could have.''
Costly Switch
The switch costs an estimated $2 to $2.50 more a barrel, says Tamas Pletser, an oil analyst at Erste Bank AG in Budapest. Given Mazeikiu's annual capacity of 73 million barrels, that means at least an additional $146 million in expenses a year. Still, Orlen, the Polish parent company, has pledged to invest $1.6 billion in the refinery by 2012.
The switch costs an estimated $2 to $2.50 more a barrel, says Tamas Pletser, an oil analyst at Erste Bank AG in Budapest. Given Mazeikiu's annual capacity of 73 million barrels, that means at least an additional $146 million in expenses a year. Still, Orlen, the Polish parent company, has pledged to invest $1.6 billion in the refinery by 2012.
Lithuania, meanwhile, is working on more ways to reduce its energy dependence, says Vytas Navickas, the nation's economy minister.
It is close to accords with Sweden and Poland to join their electricity grids by 2012. It may buy excess electricity from Ukraine and gas from Poland. It expects to build a $5 billion nuclear reactor with Poland and the two other Baltic states by 2015. Russian gas, which accounts for 75 percent of Lithuania's heating fuel, poses a more difficult problem. When Lithuania closes its Chernobyl-style nuclear reactor at Iglanina in 2009, 75 percent of its electricity demand will be met by Russian gas, more than double 34 percent now.
``That is too much dependence on one gas supplier and on one state,'' Navickas says. ``It's like drugs. We have to have diversity.''
by Celestine Bohlen
