Management Board of KN, the operator of oil and liquefied natural gas  terminals, has taken a decision on the acquisition of the FSRU Independence at the end of its lease agreement. In 2021, a market research initiated by KN and an international procurement procedure showed that the currently leased FSRU is the most economically advantageous option. This proposal submitted by the company will be subject to the approval of the company’s shareholders at the Extraordinary General Shareholders’ Meeting to be held on 25 February, 2022.

The Law on LNG Terminal provides that the LNG terminal operator shall select the most economically advantageous offer for the acquisition of a floating storage and regasification unit (FSRU) and shall acquire FSRU upon ownership right and become the owner by 31 December 2024 at the latest. The operation of the terminal shall be guaranteed until 31 December 2044.

In order to implement the project on time and in the most cost-effective way, while ensuring the principles of transparency, equal opportunities and the promotion of competition, external expertise was used in the process of selecting the most cost-effective solution. KN invoked experts – commercial, legal and technical service providers – to advise the company in the process of selecting the most economically and technologically advantageous FSRU.

The market consultation and research on the acquisition of the FSRU identified three possible alternatives to the current option: a newly built FSRU, used FSRU or a converted LNG carrier.  The optimal size of the FSRU and other relevant parameters were defined in cooperation with the consultants, as well as through interviews with potential suppliers of FSRUs and LNG terminal users, on the basis of which the technical specification for the purchase of FSRUs and other procurement documents were prepared. When deciding on a specific FSRU, KN considered the life cycle costs of the vessel, not only the purchase price: the age, size, expected operating costs and some technical features of the proposed vessel were very important in the decision-making process. One of the essential requirements for the vessel is the compatibility of the technology with the investments already made, i. e. the construction of the quay and the pipeline.

After taking into account all the elements – the maximum purchase value of the FSRU, technological aspects and other market conditions – during the procurement procedure, the potential suppliers in principle acknowledged that they could not offer a more cost-effective solution than the current option, namely FSRU Independence.

“In deciding on the most economically and technologically advantageous solution, our aim was to provide maximum transparency and a common ground for all market participants to offer alternative solutions to the current FSRU Independence and to ensure a competitive tender. The market research invoked international expertise, interaction with more than 11 potential FSRU suppliers, took into account the views of the terminal’s existing customers, also an open public procurement procedure was initiated. The entirety of the actions taken had shown that there was no other more cost-effective option than the current one”, says Darius Šilenskis, KN CEO.

KN submits a resolution to the shareholders to approve the acquisition of the FSRU Independence and the terms of the acquisition as set out in the vessel’s lease agreement in 2012. Following the shareholders’ approval, KN shall inform Höegh LNG of its decision to exercise the option to redeem the FSRU Independence within the timeframe set out in the lease agreement, with a set deadline in December 2022. The purchase contract should be concluded no later than 6 December 2024. The purchase price of Independence is 153,5 million USD, excluding value added tax (VAT).

The National Energy Regulatory Council has approved the KN investment in the FSRU on 6 January 2022. The independent regulator has thus acknowledged the benefits of the project.

“The steps taken by the company last year to check the parameters of the FSRU, such as, for example, the size of the tanks and the regasification capacity, only confirmed that prudent and rational decisions were already taken in 2012 to meet Lithuania’s needs. The current size of the terminal is in line with the country’s energy security interests, as the Klaipėda LNG terminal is able to dispense as much as Lithuania needs during the coldest time of the year. At a time when Europe is facing an energy crisis and there are concerns about ensuring sufficient gas supplies, Lithuania’s decision to operate the LNG terminal on a long-term basis is a far-sighted, and it can only be reaffirmed how important this infrastructure is for the country’s and the region’s energy security,” says D. Šilenskis.

Once the shareholders adopt decision on the acquisition of a particular FSRU, KN will have to take additional decisions regarding the operation and management and registration of the vessel. This is planned to be done in 2022.