In July, Klaipėda LNG terminal ensured reliable natural gas supply to consumers of Lithuania and neighbouring countries, when gas supply from Belarus was cut off due to planned gas pipeline repairs for three weeks in the neighbouring country. This and favourable situation on international gas markets determine highly intense and effective operation of the terminals in Klaipėda managed by KN operator of the liquefied natural gas (LNG) and oil terminals.
 
The regasification at the LNG terminal in July amounted to 2.2 TWh gas, i.e. 2.7 times more than in the same period last year. The LNG terminal was highly productive in stevedoring as well - in July, the terminal received three large-scale gas carriers, which brought approximately 411 thousand cubic meter LNG and 4 small-scale gas carriers, which brought approximately 38 thousand cubic meter LNG. In July, two LNG reloading operations of approximately 7 400 cubic meter LNG were carried out.
 
Same as in previous months, not only Lithuanian consumers but also other Baltic States were provided with gas, since the terminal degasified 1.5 times more gas than needed for Lithuania in July. Great majority of gas, i.e. 91 per cent was brought to Klaipėda LNG terminal from the gas liquefaction plant in Norway.
 
'Favourable situation on international markets gives growth to demand for services of Klaipėda LNG terminal. The terminal operating reliably, intensely and effectively in July not only ensured energy security of Lithuania but also raised the interest of potential terminal users in potential new business opportunities. We hope to sustain the good indicators until the end of this year – terminal users are actively making reservations of capacities of the terminal for next gas year – arrivals of large-scale gas tankers for all winter months are already approved', said Head of Klaipėda LNG Service of KN Arūnas Molis.
 
The LNG terminal is planning to receive one large-scale and three small-scale gas tankers in August, and two LNG reloading operations are planned.
 
Besides, the world's largest LNG feeder and bunker vessel Kairos is planned to arrive to Klaipėda for the sixth time, 10 per cent of shares held by KN in the freight agreement of Kairos will be transferred to German company Nauticor from 30 September under the agreement reached in the beginning of April. Around that time, ship-to-ship LNG reload operation will be carried out at Klaipėda LNG terminal for 100th time.
 
In the first half of 2019, LNG regasification and reload of KN at Klaipėda LNG terminal was 6.4 million MWh (4.7 million MWh in July -December 2018; 4.5 million MWh in the first half of 2018).
 
Clients of degasification services of Klaipėda LNG terminal include Lietuvos energijos tiekimas UAB, Achema AB, from May – Imlitex UAB.
 

Together with the Klaipėda State Seaport Authority (KSSA), oil and liquefied natural gas (LNG) terminal operator KN has signed a tripartite agreement on reconstruction of KN berth No 1 with the winners of the public tender. The winners of the public tender, which was valued at EUR 22.5 million (excl. VAT), were joint venture partners UAB Tilsta and UAB Fegda. It is planned that the partners will carry out construction and dredging work over the course of almost two years.
 
On the basis of the tripartite construction agreement signed this week, it is planned to adapt the currently unused 235-metre section of Berth No 1 for stevedoring and to dredge the adjacent ship channel to a depth of 17 metres. Once the three planned stages of reconstruction are completed, KN will be able to receive and load three tankers at a time at the Klaipėda oil terminal – currently, it can only receive two tankers.

“The market has been dictating the need for these changes for some time now – the amount of cargo is growing, new types of cargo are emerging, and customer expectations are changing. The new KN oil product storage tank park that is currently operating in pilot mode demonstrates this need – we are already loading a greater variety of products and testing a wider range of loading schemes. This dictates the need to develop and adapt the existing infrastructure, which will give us a competitive edge over other terminals in the region, and also allow us to retain existing customers and attract new ones. The berth reconstruction project will bring added value not only to KN, but also to the entire logistics chain consisting of the Port of Klaipėda, the railway, shipping companies, and Lithuanian and international business partners,” said Darius Šilenskis, KN Oil Business Director and acting CEO.

Under the tripartite agreement signed, KN undertakes to invest in installation of the superstructure for the works planned to be carried out, and the Port Authority undertakes to invest in the quay infrastructure.

“These are extremely significant jobs that will increase the competitiveness of the Port of Klaipėda even more. Once the berths are reconstructed and a maximum depth of 17 metres is ensured next to them, KN will be able to receive more and larger vessels.  Reconstruction of the berths is planned to be carried out in several stages, doing the work in such a way that throughput is not disturbed. In the first phase, the Port Authority will invest EUR 22.52 million. In parallel with this project, the Port Authority is also implementing other public infrastructure improvement projects, such as pier reconstruction and dredging of the canal. All this will create even better conditions for KN to accept the largest tankers that can enter the Baltic Sea,” said Vidmantas Paukštė, Klaipėda State Seaport Authority Infrastructure Director and acting Director General. 

After completion of the first stage, two more berth reconstruction stages are planned, each with an estimated duration of about two years. During Stages II and III, there are plans to reconstruct the berth infrastructure currently being used by installing Bolverk-type (anchored sheet pile) berth walls. Reconstruction of the breakwaters (port gates) and dredging of the ship canal to a depth of 17 metres are planned in parallel. Once the project is complete, KN will be able to receive vessels with a draught of up to 17 metres and increase throughput. 

The new infrastructure project will be subject to the highest safety and environmental standards and will incorporate progressive technologies that will make the process even more efficient and expeditious without interfering with the stevedoring process during the reconstruction.
“Reconstruction of the KN-managed berths is being planned in close coordination with the KSSA and other parties – we are striving to ensure that the work being done has no impact on the services we provide to our customers and that we are able to receive tankers at two berths throughout the duration of the project,” emphasises Mr Šilenskis. 

The cost of the Stage I works assigned to KN comes to just over EUR 1.7 million. Stage I reconstruction work is scheduled to begin within a month.         
 

The first half-year of 2019 was full of challenges often caused by circumstances beyond the company’s control. Despite these challenges, both KN Oil Terminal and the Liquefied Natural Gas Terminal in Klaipėda demonstrated high performance indicators, which make the first half-year of 2019 more efficient if compared to the first half of 2018.
 
During the first six months of this year, KN earned EUR 51.2 million in revenues, the growth of which amounted to 8% if compared to the period from July to December 2018. The company’s EBITDA indicator (adjusted result) demonstrated growth as well – in the first half-year of 2019 it amounted to EUR 11.4 million, if compared to the indicator of the preceding half-year amounting to EUR 9.7 million. KN’s net profit (adjusted result) in the first half-year of 2019 reached EUR 4.7 million (EUR 1.4 million in the period from July to December 2018).   
 
“The first-half of 2018 was most successful for KN in many aspects, yet the loading volume has been decreasing since the mid-2018. When assessing this year’s results, we see that we are on the right path – we are focused on higher efficiency, we are more flexible when working with clients, and we are proactive what helped us to cope with the challenges of the previous year and to achieve higher results in the first half of this year despite all the external factors beyond our control,” highlights KN Chief Financial Officer Jonas Lenkšas.
 
KN Oil Terminal Infrastructure
In the first half-year of 2019, KN loading of oil products at the oil terminals managed by KN reached 2.9 million tons (3.1 million tons in July-December 2018, 3.6 million tons in the first half-year of 2018).
 
The contaminated oil incident in the Druzhba pipeline highly affected the first half-year loading results of KN and also those of many other companies of neighbouring countries. This event has also slowed down the operations of the company’s main clients. KN loading results have also been negatively affected by the decision of AB Orlen Lietuva to refer bigger quantities of production to neighbouring markets by rail.
 
The development of the infrastructure of Klaipėda Oil Terminal in the last 3.5 years (investments amounting to EUR 45 million) produced the first results in the first half-year of 2019 – the new KN tank farm, operating in trial mode, accepted several oil products in June 2019. 
 
“Thanks to ongoing investments, Klaipėda Oil Terminal has been increasing its flexibility and competitiveness. Despite the challenges and the harsh competition, Klaipėda Oil Terminal remains the most efficient terminal in the first half of this year among all oil terminals of the Baltic countries, and we will strive to further keep the same level in the future,” says KN Chief Financial Officer Jonas Lenkšas.
 
Operation of Klaipėda LNG Terminal – most efficient since its launch
In the first half-year of 2019, KN LNG regasification and reloading at Klaipėda LNG Terminal reached 6.4 million MWh (4.7 million MWh in July-December 2018, 4.5 million MWh in the first half-year of 2018).
 
The favourable situation in the international gas markets has been determining the highest operative efficiency of the LNG Terminal in the last months of the first half-year of 2019 since the launch of its activities. In first half-year, Klaipėda LNG Terminal accepted 15 LNG carriers (5 LNG carriers in the first six months of 2018), which brought 402 thousand tons of liquefied natural gas (300 thousand tons in the first six months of 2018). The successful first half-year of LNG Terminal operation in Klaipėda can be also witnessed by an agreement signed with the third user of Klaipėda LNG Terminal, i.e. UAB Imlitex. The capacities of the LNG Terminal have been fully booked until October, which marks the end of the current gas year.
 
After the Seimas passed a decision at the end of last year with regard to acquisition of a storage-vessel after 2024, KN plans to ensure long-term LNG import to Lithuania, with optimum distribution of the terminal costs throughout the period from 2019 until the end of 2044.  Among other KN goals for 2019, there is a goal to contribute to the reduction of LNG Terminal maintenance costs with respect to all gas consumers until the end of this year. The best alternative of performance efficiency improvement has been selected – clarification of the LNG Terminal operation by transferring operations regulated by the LNG Terminal to the subsidiary UAB SGD terminalas.  According to Jonas Lenkšas, despite the adjusted plan, KN’s management expects to implement necessary decisions to achieve the said goal.
 
Significant impact on the accounting result
Jonas Lenkšas highlights that this year’s financial (accounting) result of KN was affected by the International Financial Reporting Standard “Leases” (IFRS 16), which came into effect in the beginning of the year.  This change has significantly affected KN’s statement of financial position, statement of comprehensive income, and financial indicators. Upon coming into effect of the amendments to the standard, leases have been recorded as assets and liabilities (right of use the assets and financial lease liabilities).
 
“With regard to the impact of the International Accounting Standards, i.e. the 16th standard, which largely disorders the announced financial results and does not provide any possibility to compare the actual operational results, from now on, in our financial statements, we will also indicate the adjusted numbers, i.e. we will specify the managerial (adjusted) result, which will allow investors and those interested in the company’s activities to obtain a more precise understanding of the company’s results within the reporting period thus eliminating further impact of the factors, which the company does not actually experience, for example, changes in currency rates, and which, due to the specifics of the regulated activities, are compensated and do not have any impact on the operational results,” says KN Chief Financial Officer Jonas Lenkšas.
 
In the first half-year of 2019, compared to the first half-year of 2018, the main KN’s financial indicators changed as follows:
 

(thousand) EUR	H1 2019 accounting result	Change 2019 vs 2018	H1 2019 adjusted result (exd. IFRS 16)	Change 2019 vs 2018
Sales revenues	EUR 51.2 million	-2.8%	EUR 51.2 million	-2.8%
Net profit	EUR 2.5 million	-75.1%	EUR 4.7 million	-54.0%
EBITDA	EUR 32.3 million	87.2%	EUR 11.4 million	-34.1%
EBITDA margin	62.9%	30.2 p.p.	22.2%	-10.5 p.p.

 
 

KN (AB Klaipėdos nafta) is partnering with the market leaders in the tender procedure for the design, construction and operation of the Cyprus LNG import terminal. If successful, KN will provide long-term operation and maintenance services for this terminal.
 
DEFA, The Natural Gas Public Company of Cyprus, announced an international public call for tenders for development of an LNG terminal in Vasilikos Bay in October 2018. According to the published specifications, LNG Terminal will include a floating storage and regasification unit (FSRU), a jetty for mooring the FSRU, a jetty borne gas pipeline and related infrastructure to secure supply of natural gas to the largest Vasilikos Power Plant in Cyprus. After the project is accomplished, Cyprus electricity system will shift to gas-fired power generation, which will not only secure reliable supply of cleaner fuel for power generation but will also help the country to comply with the EU environmental requirements. The project has been granted EU support accounting for over EUR 100 million. The total project budget is estimated at around EUR 500 million.
 
“KN possesses the most relevant experience of delivering and operating a very similar LNG import terminal in Klaipėda. Within the European Union Klaipėda LNG terminal is the most recent FSRU project, meeting high quality and efficiency standards. If selected, KN would become the largest operator of floating LNG terminals in Europe, offering further benefits of operational excellence to our clients,” underlines Tadas Matulionis, KN’s LNG Business Development Director.
 
Together with two other European subcontractors, KN is acting as major subcontractors to heavily support and contribute to the strength of the consortium consisting of Samsung C&T, Posco E&C, Mitsui O.S.K. Lines and Osaka Gas. Consortium parties have vast experience in the design and development of LNG infrastructure, operate one of the largest LNG carrier fleets worldwide and supply FSRUs to the global market as well as operate numerous LNG terminals. If successful, KN will team up with Mitsui O.S.K. Lines and Osaka Gas to operate and maintain the floating terminal for a period of up to 20 years. 
 
Mr. Matulionis notes that the demand for the management and operations of floating technology based LNG import terminals emerged only in the recent years, with two to three tenders announced annually. Therefore, the opportunity to participate in this tender is a significant acknowledgement of KN’s expertise.
 
DEFA should select winners of the tender later this year. The terminal in Cyprus is planned to start operations in 2021.