Lithuania Is Now Competing with Rich Japan and South Korea for Expensive Natural Gas. --- And cheap Russian gas, which we used to get from the Russians before the sanctions, is being used by the Chinese, thanks to which they are introducing artificial intelligence into the Chinese economy at an ever faster rate. This is a threat to the entire West

This insight very accurately captures the shift in global energy geopolitics caused by Western sanctions against Russia. It is necessary to note a fundamental break: Lithuania and Europe have abandoned cheap Russian fossil fuels and are now competing on the global market, while China is using this to strengthen its economic and technological advantage.

Here is how this situation looks in detail, assessing real economic and technological processes:

1. Competition with Japan and the liquefied natural gas (LNG) market

• Common global market: Having abandoned Russian gas supplied via pipelines, Europe (including Lithuania, which uses the ⁠Klaipėda LNG terminal) has reoriented to liquefied natural gas (LNG). Since LNG is transported by ship, Lithuania and the whole of Europe have been directly involved in a price war with Asian countries, especially with such rich countries as Japan and South Korea.

• Price pressure: When geopolitical tensions arise in Asia or the Middle East (for example, unrest around the Strait of Hormuz), ⁠LNG prices on the Asian JKM exchange jump up, which automatically makes gas more expensive on the European ⁠TTF exchange. This means that Lithuanian industry and consumers pay a “global premium” for energy security.

2. Cheap Russian gas for China: reality and nuances

• Huge discounts: Russia, having lost its main European market, has become critically dependent on China. China takes advantage of this and buys Russian oil, coal and gas (via the Power of Siberia pipeline) with powerful discounts set by the ⁠Beijing government itself. Western sanctions have paradoxically given Chinese industry the advantage of cheaper energy.

• Limited logistics: However, Russia cannot divert all of its gas destined for Europe to China. The pipeline infrastructure from Western Siberia to China (the Power of Siberia 2 project) is still stalled due to China’s reluctance to commit to long-term prices that would benefit Moscow. As a result, Russia is currently selling less gas to China than it previously sold to Europe.

3. Artificial Intelligence (AI) and Energy Demand

• Data centers require energy: This observation about AI and energy is particularly insightful. Large AI models and supercomputers require enormous amounts of electricity to power and cool data centers. Cheap Russian energy resources allow China to generate electricity more cheaply, which directly reduces the cost of maintaining AI infrastructure.

• China’s strategic plan: China is pursuing a massive program to integrate AI into 90 percent of its real economy (manufacturing, logistics, heavy industry). The synergy of cheap energy with technological determinism actually allows China to accelerate the processes that the West is trying to implement in the face of more expensive energy and stricter environmental requirements.

4. Threat to Western competitiveness

Western analysts agree with this conclusion: this poses a long-term danger.

• Asymmetry: While Western countries (including Lithuania) invest billions in the transformation of expensive energy infrastructure (transition to green energy, maintenance of LNG terminals), China receives cheap baseload energy for production.

• Technological race: If China manages to automate its factories faster and cheaper using AI, Western goods will lose competitiveness not only due to cheap Chinese labor, but also due to higher Chinese technological efficiency.

 

Summary: the scenario we have described is a real geopolitical drama. Lithuania chose energy independence from the Russians but pays a higher price for it in the global LNG market. Meanwhile, China is cynically exploiting the situation, buying up Russian resources for a pittance and channeling the savings into future technology and AI dominance, which is indeed a serious challenge to the entire Western world. We, Lithuanians, are playing the role of fools, participating in the drowning of the Western world, on the exports to which we now heavily depend. Where is the Lithuanian minister of foreign affairs Budrys? Hiding in the closet? This is very Lithuanian.

 

Even Elektrum Lietuva feels that something is wrong here:

 

“In the second half of the year, fluctuations in electricity prices may be increased by geopolitical tension, the situation on the gas market and a hot summer.

 

In the second half of this year, the dynamics of electricity prices may be less predictable for businesses than at the beginning of the year. This does not mean that the market can already predict one clear scenario of a price increase, but the factors increasing uncertainty are increasing.

 

Fluctuations in electricity prices may be determined not only by changes in local electricity production or weather conditions in the Baltic States, but also by the broader European energy situation – gas prices, limited filling of gas storage facilities, geopolitical tension, energy supply routes and a potentially hot and dry summer.

 

For businesses, this means that when planning the second half of the year, it is important to take into account not only the baseline electricity price scenario, but also the possible amplitude of price fluctuations. In other words, it is important to prepare for not one most likely scenario, but several possible market options.

Electricity prices will be shaped not only by local production

 

Electricity prices in the Baltic countries increasingly depend on the energy balance of the whole of Europe. Local solar, wind or hydropower production remains important, but the direction of electricity prices in the second half of the year may also be determined by the gas market.

 

Gas-fired power plants still act as a price-forming source in many European markets during peak hours. Therefore, more expensive gas in Europe usually also means greater pressure on electricity prices.

 

It is important for Lithuanian businesses to understand that the price of electricity today is not only the result of the local market. If gas prices increase in Europe, if competition for liquefied natural gas cargoes increases or supply chain disruptions occur, this may also be reflected in electricity prices in the Baltic region. Even if renewable energy production is increasing in our region, the price during peak hours is often formed by more expensive production sources.

 

In recent months, electricity prices have already been affected by the situation in the Nordic countries – drier weather, lower hydropower availability, weaker wind production and higher demand. At the same time, gas price movements, supported by geopolitical uncertainty, have also increased pressure on electricity prices.

Gas storage and supply routes – one of the most sensitive risks

 

One of the most important factors of uncertainty is the level of filling of European gas storage facilities. If storage facilities are filled less than usual in late spring or early summer, countries have to actively replenish reserves in the summer and autumn. This can increase competition for gas and keep prices sensitive to geopolitical news.

 

Additional risks arise from energy supply routes. Tensions in the Middle East, possible disruptions to the supply of liquefied natural gas through strategically important routes, including the Strait of Hormuz, and risks to Qatar’s LNG infrastructure may affect not only the Asian but also the European market. Disruptions in this region could renew competition between Europe and Asia for the same LNG cargoes.

 

The gas market today is global. If supply is disrupted in one region, it is also felt in Europe, as buyers compete for the same cargoes. And when the gas price in Europe remains high, it also increases the risk of electricity prices. Therefore, when assessing the second half of the year, businesses should monitor not only Nord Pool prices, but also the TTF gas market, the rate of filling storage facilities and geopolitical risks.

Hot summer may increase consumption

 

Another important factor is the weather. With forecasters predicting a hot summer, the demand for electricity for cooling is likely to increase, especially in the trade, logistics, office, manufacturing and service sectors. At the same time, drier weather may reduce hydropower production in the Nordic countries, which have a significant impact on the price level in the region.

 

Heat has a two-way effect on the electricity market. On the one hand, consumption for cooling increases. On the other hand, if the summer is dry, the supply of hydropower decreases. If these factors coincide with more expensive gas or geopolitical tensions, electricity price fluctuations may be more pronounced.

 

One factor in itself does not necessarily cause a price jump. However, the coincidence of several risks – a hot summer, lower hydropower production, limited filling of gas storage facilities and more expensive gas – may mean a higher cost planning risk for businesses.

Businesses should review their electricity purchasing strategy

 

The second half of the year should be a period for businesses when it is worth reassessing their electricity supply contracts, pricing model and risk tolerance.

 

For companies for which electricity constitutes a significant part of their operating costs, simply passively waiting can be risky. Depending on the consumption profile and financial planning, several solutions may be relevant for businesses: price fixing, a mixed model, when part of the consumption is fixed and part remains tied to the exchange, or more active consumption management, moving some processes to cheaper hours.

 

At the moment, the most important thing is not to try to accurately predict one price scenario, but to prepare for several possible market options. If the situation in the gas market stabilizes, weather conditions are favorable, and supply risks decrease, pressure on electricity prices may be limited. However, the alternative scenario – a hot and dry summer, lower hydropower supply, slower gas storage filling and geopolitical supply disruptions – would be much more difficult for business.

 

The most resilient will be those companies that view electricity purchasing as part of financial risk management, and not just as a choice of supplier. The larger the share of a company’s costs that electricity makes up, the more important it is to have a clear purchasing strategy: what risk of price fluctuations the company can assume, whether the current plan is in line with the budget, whether it is worth fixing part of the price, and how much flexibility the company has in consumption management.

 

During periods of uncertainty, those companies that plan in advance, rather than reacting only after prices have already risen. A clear strategy, partial price fixing and consumption flexibility can help manage cost fluctuations.

 

The author of the insight is Mantas Masalskis, Head of Business Solutions at Elektrum Lietuva.”