Filenews 7 November 2021 - by Chrysanthos Manolis
Interview of Simeon Kassianidis by Chrysanthos Manolis
The term of office of the current board of directors of the Public Natural Gas Corporation, a state-owned private law company, expires in November and the government's intentions regarding the reappointment of the members or some of them are not yet clear.
It is also not clear whether the current Board of Directors and especially the president Simeon Kassianidis can be appointed as the first chairman of the Board of Directors of DEFA, when it, probably in 2022, will be transformed into a semi-state organization. However, the most important thing at the moment is the progress of the works for the completion of the natural gas regasification terminal at Vassilikos, in order to put an end to the state's long-standing effort to finally import natural gas, for cleaner and perhaps cheaper electricity production, from the EAC or from private producers.
In the following interview, Mr. Kassianidis acknowledges, probably for the first time officially, that the operation of the project is extended by a few months and will be possible in the first half of 2023, instead of summer 2022, which was the original planning. The delay is largely attributed to the problems caused on many levels by the pandemic. Mr. Kassianidis avoided specifying a forecast for the percentage of reduction in the cost of electricity after the utilization of natural gas, given the skyrocketing price in recent months. It takes for granted, however, the savings of many millions per year from the significant reduction in the cost of purchasing greenhouse gas emission allowances.
In the first half of 2023
Please explain to us, Mr. Kassianidis, what stage the works for the liquefied gas terminal at Vassilikos are currently and where the work is on the conversion of the Galea ship into an FSRU.
The works for the liquefied gas terminal at Vassilikos began in September 2020, through a period when the pandemic has brought significant difficulties to all sectors of the economy and of course to the implementation of the projects. As you can imagine, we had to face a series of difficulties, such as, indicatively, availability of raw materials and materials/components, restrictions on the movement of personnel, workers and shipping.
However, despite all the challenges and adversities we have faced, today we can confirm that work is progressing normally and at an intensive pace, and the work will be completed soon, albeit with slight deviations in the planned timetable. According to the new estimates presented by the contractor, the completion of the project is determined in the first half of 2023.
Already today, one of the important objectives has been achieved. The design of the terminal and FSRU infrastructure has been completed. The necessary land area on the coast of Vassilikos has been prepared and the construction works for the facilities for the transport of natural gas have already begun, in the first stage to the EAC power station. At the same time, with the participation and supervision of leading, global, companies, the conversion of the liquefied natural gas carrier, ship "ETYFA PROMETHEAS", at the shipyard in Shanghai, is proceeding, in order to transform it into a high-tech and safe gas storage and regasification unit.
How much time do you think the remaining works at Vassilikos and the work on building the FSRU will take?
As I have already mentioned, the estimate is that the terminal is feasible to be completed and delivered in the first half of 2023. In 2023 we will be able to operate immediately, according to the data so far, which inspire optimism as to the project's plans for the implementation of the project. Etyfa, at the same time, examines the circumstances that caused the delay, and if it appears that it occurred through the fault of the contractor and not objective difficulties, strict clauses may be applied.
The licensing of the terminal and DEFA
Is there any pending issue regarding the securing of licenses for the operation of the terminal and the activation of DEFA as the terminal operator and as a natural gas transmission/distribution operator?
The permitting process of the project is complex and quite large, as due to its nature (land, sea and shipbuilding projects), many bodies, services and authorities are involved. With the progress of the planning, it became possible to submit the planning permission and, within days, the application for a building permit is expected to be submitted.
In addition, the licenses provided by CERA, based on the legislation, concern the following:
1. LNG Facility Management
2. Ownership and Management of Transmission System (TSO)
3. Ownership and Distribution System Management (DSO)
4. Supply of PE
To date, DEFA has secured the Transmission System Ownership and Management License (TSO) and the LNG Facility Management License. The procedure for the license for the Ownership and Distribution System Management (DSO) is expected to proceed soon.
The application for the license for the Supply of PE will be submitted upon completion of the procedure for the conversion of DEFA from a Legal Entity of Private Law into a Public Law Entity, in its new form and substance. This is a process that needs to be done in order for the relevant strategic planning for the development of the domestic PE market to be properly implemented. The relevant bill also passed through the stage of public consultation and is in the final stages of preparation before it is approved by the Parliament.
Finally, it is particularly important to note here that Etyfa with its consultants and the contractor, as well as the various departments /services/authorities give the utmost importance to safety and environmental issues, applying strict standards and procedures, aiming at the delivery of a terminal of the highest level.
What is the optimistic scenario for starting to supply the producers with gas from the terminal and what is the pessimistic scenario?
Now in the phase we are in, where the project is visible, there is no optimistic and pessimistic scenario, except of course for new extraordinary circumstances. Consequently, we aim to inaugurate the project that will allow the introduction of natural resources in the Republic of Cyprus, in the first months of 2023.
The quantities of natural gas
Have the quantities of natural gas to be delivered to EAC and private producers been finalized? Can we know them? Which individuals have you agreed to specific quantities and what guarantees have you been given that they will draw these quantities?
The quantities of PE we need in the Republic of Cyprus amount annually to approximately 1 BCM. DEFA will soon launch an open procedure for expression of interest (OPEN SEASON) by all interested buyers of PE, in order to determine the points of supply and development of the transmission system. Discussions with the EAC are already at an advanced stage. Also, so far there have been several contacts with licensed independent producers. The specific terms and guarantees will be announced together with the call for interest.
At what stage are the procedures for signing contracts to secure LNG quantities on a long-term basis and on what basis are the procedures for securing quantities from spot markets?
Determining the quantities to be covered in the base quantity contract is a complex process that is still ongoing.
Our energy security strategy provides for a mixed process to ensure energy security and the best possible economic benefit.
The supply of LNG will be made by an LNG Sales and Purchase Agreement (SPA) contract, for the basic quantities, with a duration of 3-5 years and the remaining required quantities will be covered by the spot market, through the development, negotiation and conclusion of multiple Master Sales Agreement (MSA) agreements with several suppliers, taking advantage of the potential market opportunities. We have already completed the evaluation process of the 25 applications that had been submitted and we have decided on the companies that will be invited to the second stage. The process is scheduled within the next few months and is expected to be completed much earlier than the start of operation of the project and will involve the selection of the base contract supplier (through the SPA), and the conclusion of as many MSAs as possible.
The procedure aims to determine the quantities that will give on the one hand the required flexibility required by the Cyprus market, with its particularities as emerging and on the other hand to make an effort to optimize the benefit of the different price of PE from the 2 supply options.
The rise in prices and Cyprus
Has the recent surge in gas prices available on European markets also affected LNG prices? At what rate is LNG more expensive today than in 2020 or 2019?
A series of circumstances have led to unprecedented rallies, globally, as the decline in supply spiralled prices to its highest point in 13 years.
Europe, in particular, is most affected, since it is completely dependent on energy. It is worth mentioning that Dutch contracts, which are also a benchmark, increased to €29.90 per MWh in the Transfer Transfer Facility (TTF) during the summer, surpassing the previous daily record of €29,675 in 2018.
The situation is particularly worrying, which has motivated the energy and finance ministers, since the increase in the price of energy is creating inflationary tendencies.
However, energy crises and fluctuations have existed, exist and will exist in the near future. It is worth mentioning that, during the pandemic, LNG prices were set at $2/mmBtu, compared to about $8/mmBtu just before. Although there will certainly be a de-escalation and normalisation of the market, I believe that the increased energy needs at international level, in connection with the shift to more environmentally friendly forms of energy, such as vat, will not easily and simply allow a return to previous prices. In any case and based on the chart you publish, the curve that concerns us is that of the Brent Index, which shows the smallest range of changes.
Do you still believe that the use of natural gas in Cyprus will reduce the cost of electricity generation by close to 25%? There are many who are concerned that the "momentum" has been lost and that the use of natural gas will not bring a reduction in wholesale electricity prices.
Today, Cyprus produces energy from the burning of fuel oil and pays for pollutant costs that burden the cost of use by the Cypriot consumer. It is worth mentioning that the price of CO2 emission allowances soared to €62/ton, an increase of more than 150% compared to 2020, while it is noted for reference purposes that 6-7 years ago it was below €10/tonne. At the same time, the price of oil today stands at over $80 a barrel for the first time since 2014.
Therefore, we are not in a position to make such assessments in the midst of such instability, but what I can say is that in the current circumstances, the non-use of gas in electricity generation costs us hundreds of millions of euros. This is due to the costs of purchasing greenhouse gas emission allowances that the Cypriot state and, by extension, the Cypriot citizen have to pay.
At the same time, the import of natural gas in the Republic of Cyprus will create conditions of competition in the electricity and energy market, with all that this means in reducing energy prices, enhancing security of supply, diversifying fuel sources and avoiding one-dimensional dependence on oil derivatives.
Board of Director Term expires, unknown if and how it will be extended
Really, Mr. Kassianidis, when does the term of office of the current Board of Directors of DEFA expire, can an extension of the term of office be granted? What will be the next day for DEFA and ETYFA?
The term of office of the present Board of Directors expires within the current month, i.e. in November 2021. I am happy and proud to have had the opportunity to work with people who put the national interest above their daily obligations, responded to every call and all together we succeeded in ensuring that Cyprus, after years of fruitless efforts, can now gain access to the most economical and at the same time more environmentally friendly fuel. I would like to thank from the bottom of my heart all these people, who, with seriousness, realism and responsibility, launched together the largest energy project that is being carried out on the island. Its completion will be another developmental pillar for the Republic of Cyprus.
As far as the procedure and the possibility of extension are concerned, I do not know how to tell you. This falls within the competence of the Ministry of Energy and the government. I can only mention that the next day for DEFA/ETYFA is today. The project is underway, natural gas, even with a small time deviation, will first of all enter the power generation and much more needs to be done to get it into every sector of business (industry, shipping, transportation, etc.) but also into the life and everyday life of the Cypriot citizen.
Cypriot investments in natural gas and compatibility with the green transition
Is the operation of the terminal at Vassilikos for a number of years compatible with the EU's policy of green transition, with specific - ever stricter - restrictions on the emission of greenhouse gases after 2030?
The advent of natural gas, however, as has been mentioned many times, does not only have economic benefits. Perhaps even more important are the environmental benefits generated, which, although self-evident, are not easy to quantify their economic impact, while making a significant contribution to the economy's transition to green sustainable development.
PE is considered to be the means of transition from the use of conventional fuels, such as oil and fuel oil, to electricity generation to renewables. At present, RES do not have the capacity to fully meet the electricity needs and this is because storage technologies have not been fully developed. However, natural gas is considered to be a cleaner fuel than oil and fuel oil, which is why its pollutant values are lower than other conventional fuels. It should be noted that in all countries the introduction of PE as a fuel for electricity generation has increased the use of RES.
Therefore, at this time, when RES does not have the ability to fully meet our electricity needs, the alternative is either oil or fuel that is greener, friendlier to the environment and more economical, namely Natural Gas. At this point it is important to mention that the gas infrastructure will be able to play a major role in the next day, using the pipelines for hydrogen and/or other green fuels.
The exploitation of Venus, the perspective of Energean and Hoegh's proposal
Have you been concerned, Mr. Kassianidis, about the possibility of using part of the Aphrodite deposit, with a pipeline connecting the deposit with Vassilikos, for power generation purposes in Cyprus? Would such a prospect be advantageous for the Cypriot consumer? Have any steps been taken in this direction?
The Aphrodite consortium continues with its development and production plan. Possible synergies between the own reserves of the Republic of Cyprus and the LNG terminal are already being discussed but will be examined and finalized at a later stage.
The possibility of exploiting for power generation purposes in Cyprus part of the Aphrodite deposit, with a pipeline connecting the deposit with Vassilikos, does not seem to justify the necessary investment, given that Cyprus is a small market and the quantities of PE needed for electricity generation are not enough to justify such an investment. However, as already announced, the scenario under consideration envisages the transfer of gas from the Venus field to Egypt via a pipeline, which would be liquefied and sold as LNG.
Finally, with further exploration, discovery and exploitation of new deposits and quantities of PE, the contribution to the EU's energy security will be expanded and its potential will be enhanced in many ways. I believe that the prospect of exporting gas resources is entirely realistic. Cyprus expects that the natural gas production of the Aphrodite field will begin between 2024 and 2025.
Were there any contacts for cooperation between DEFA/ETYFA and Energean, for the exploitation of part of its deposits in Israel's EEZ?
ETYFA is responsible for the construction of the infrastructure for the import of Liquefied Natural Gas (LNG), while DEFA is responsible for the import, marketing, management of infrastructure and supply of natural gas in the Republic of Cyprus. Neither as DEFA nor of course as ETYFA we did not have any impact, discussion or other interaction with Energean.
Defa's primary objective was and remains the completion of the project for the LNG terminal at Vassilikos. The terminal is important for Cyprus to ensure security of supply. We did not rule out the possibility of importing in the future GAS by pipeline from the deposits of Energean or others from the EEZ of Israel and the wider region. However, it remains a reality that we must not forget, that many countries, which have gas pipelines, also operate LNG import terminals with FSRU and/ or land to ensure the supply of NATURAL gas and to provide flexibility in supply. For information, we should mention that, in the Eastern Mediterranean, Egypt and Israel operate such terminals, while Greece has begun the process to acquire a new terminal with FSRU in Alexandroupolis, in addition to the land terminal in Revithoussa.
I understand that, perhaps, from Energean's point of view, discussions have taken place with the Ministry of Energy, which also has the power to evaluate such proposals.
Would natural gas be available for Cyprus sooner, and at a lower cost, if the government and DEFA were to take advantage of Hoegh LNG's proposal for some kind of interim solution?
We had the opportunity to discuss and evaluate Hoegh LNG's proposal. It is not appropriate to go into detail. Both for us and for the Cypriot government, above all, the faithful observance and implementation of the existing legislation and the safety of citizens are paramount.
I would just like to mention that this company, together with its partners in Cyprus, has filed a series of complaints against the Republic of Cyprus in the EU, but these have been rejected in their entirety, justifying our choice.
