Filenews 5 November 2023 - by Dr Christos E Christodoulides
Brief history of efforts to bring natural gas to Cyprus
The history of the efforts that have been made since 2005 for the arrival of natural gas in Cyprus and its use as fuel in power plants, is a dark aspect in the history of energy in Cyprus, which must be recorded and highlighted, in order for society to understand the tragic course in which the country is led by the respective rulers and various circles of influence.
- The first attempt
The first attempt to bring natural gas to Cyprus was undertaken by the Ministry of Energy, Commerce and Industry around 2005, with the aim of building an onshore liquefied natural gas (LNG) storage and regasification terminal in Vasilikos. Natural gas would be used as fuel in EAC's conventional production units at Vasilikos power station. It would directly contribute to a more orderly and efficient operation of production units and at the same time bring significant environmental and economic benefits, compared to the use of fuel oil.
And while the whole process had proceeded normally and had reached the stage of tendering for the construction of the onshore terminal, suddenly, around 2006, a strong reaction against this proposal/solution appeared and new proposals/suggestions for a floating unit or even the import of compressed natural gas began to be put forward, instead of the onshore terminal provided for in the original design. And this eventually led the whole effort to collapse, with all the negative consequences. The prestigious technical consultants hired by the Ministry of Energy for this project were forced to leave after the state agreed to pay substantial compensation.
- The second attempt
In 2008, assessing the situation and the need to use natural gas as soon as possible in the production units at the Vasilikos power station, EAC was assigned to proceed with the whole process for the arrival of natural gas. And while the whole process proceeded normally and everything was ready for the contracts to be signed, between EAC and KOGAS and DEFA with SHELL, suddenly towards the end of 2010 reactions and interventions began, resulting in January 2011 leading to the collapse of this very important and remarkable effort.
In addition to the unsubstantiated allegations that had been made, in order not to proceed with this process, the justification that there was also a possibility that we might discover our own natural gas had also been put forward in the public debate. Therefore, we should not go ahead with this task.
The results are known. We are now at the end of 2023 and although natural gas has been discovered in the Aphrodite field towards the end of 2011, we have not yet managed to bring natural gas to Cyprus for power generation purposes, with all the negative consequences. Nor has the Aphrodite deposit been exploited.
- The third attempt
The liquefied natural gas (LNG) storage and regasification terminal under construction in Vasilikos.
After almost a decade, during which there has been no substantial progress or development for the arrival of natural gas in Cyprus, DEFA has launched a new effort. After completing the procedures for the preparation, announcement and award of the relevant tender, in December 2019 the Contract/Contract was signed with the successful contractor for the liquefied natural gas (LNG) storage and regasification terminal in Vasilikos. In May 2020, the foundation stone of the project was laid.
Despite the long-standing problems and serious delays that the project presented in the early stages, according to recent reports it seems that several of them have been overcome and the project has shown significant progress in the last two years and is now in the final stages of completion. According to the same reports, the completion of the construction of the infrastructure concerning the pier and the natural gas supply system/pipelines to the production units of EAC and independent producers in the area of Vasilikos is still pending.
In relation to the energy problem of Cyprus, especially for natural gas and DEFA's new effort to import natural gas, which concerns the terminal under construction in Vasilikos, the honourable Minister of Energy, in his public statements, has stated, inter alia, the following:
(i) The price of electricity in Cyprus is very high and unprofitable and the primary objective is to reduce its price. Specifically, he has repeatedly stated and stressed that our goal is to reduce the price of electricity from 35 cents / kWh, which it is now, to 14 cents / kWh, in order for our economy to be competitive. To achieve this, natural gas will have to be imported by pipeline, which will be used for the electricity production of Cyprus.
Liquefied natural gas (LNG) that will arrive by special ships in Vasilikos and will be regasified at the terminal under construction in Vasilikos, will be an expensive and therefore unprofitable solution as fuel for conventional power generation. This is despite the expected reduction in the cost of pollutants, compared to the fuel oil and diesel that EAC now uses.
(ii) In view of this, we should proceed as an alternative option, for study by interested companies, with the import of natural gas in gaseous form through a pipeline, either from our own Aphrodite field, or from the fields of Israel for our electricity production or for liquefaction in a natural gas liquefaction terminal to be built, for export to other countries. The priority is not the export of natural gas (LNG) but to meet the needs of Cyprus.
(iii) With the import of natural gas in gaseous form through a pipeline, either from our own Aphrodite field or from the Israeli fields for our electricity production, the liquefied natural gas (LNG) storage and regasification terminal under construction in Vasilikos will remain as an alternative backup solution, in order to have security of supply in the country.
Related to the above is the content of the honorable minister's interview with Insider magazine, Issue 35, June 2023.
B. Questions and concerns raised, as well as findings and impacts on the place.
Based on the above and despite the fact that the liquefied natural gas (LNG) storage and regasification terminal under construction in Vasilikos is in the final stages of completion, it seems from the statements of the Minister of Energy that this third important effort for the arrival of natural gas has now begun to receive serious criticism and doubt. Instead of receiving all possible help and support from the state, it has already been judged that it will be an unprofitable solution, as the fuel produced for power plants will not be competitive and therefore will not contribute to the reduction of the price of electricity.
The Minister of Energy has publicly stated that with the introduction of natural gas in gaseous form, through a pipeline, for our electricity production, the storage and regasification terminal of liquefied natural gas (LNG) in Vasilikos, will remain simply as a backup solution, in order to have security of supply.
That is, despite the huge investment that has been made for this project, which is almost completed and will cost more than EUR 300 million. It is proposed that it remain inactive and practically disused, simply to provide security of supply to the place, in case there is a failure in the supply of natural gas, which will come in gaseous form through a pipeline, which will be built from the Aphrodite field or the fields of Israel.
In view of this, the following question arises:
The price of natural gas produced by the liquefied natural gas (LNG) storage and regasification terminal in Vasilikos may be higher than the price of gas in gaseous form coming via pipeline from the Aphrodite field or from Israeli fields.
Even if this is the case, such a decision can be justified and this project remains inactive, given the enormous cost of EUR 300 million. euros that the country has already been burdened with, for one of the largest projects undertaken in Cyprus by the state? Would it not be better and wiser to do everything possible to enable such a large, important and costly project to be fully exploited?
Shouldn't the state finally proceed immediately with the preparation of a long-term strategic energy plan for the country's energy mix and especially for natural gas, so as not to present all these uncertainties that exist today?
On the basis of this planning, could not the possibility be explored whether, within the framework of legality, collaborations and synergies that will be developed, a contract with good and advantageous prices for the liquefied natural gas (LNG) that Cyprus will need for its electricity production from Egyptian terminals could not be explored?
If this is possible, will it not contribute to the amortization of the large capital costs that the liquefied natural gas (LNG) storage and regasification terminal in Vasilikos will cost the site and make it more competitive and thus contribute directly to the reduction of the price of electricity?
In summary, with the Minister's suggestion, a few billion will be needed for the construction of a pipeline to Cyprus and the construction of a natural gas liquefaction terminal, while the Liquefied Natural Gas (LNG) regasification terminal under construction in Vasilikos will remain as an alternative backup solution to ensure security of supply.
C. Deadline: The LNG terminal in Vasilikos is urgent
Every assistance and support should be provided to DEFA in order to complete the necessary infrastructure works in the important project under construction of the LNG storage and regasification terminal in Vasilikos, in order to enable the use of natural gas in electricity production as soon as possible.
This is absolutely necessary because:
(i) The savings from the reduction in the high cost of pollutants from the use of fuel oil and diesel are estimated to be more than €80 million. euros per year.
(ii) the use of gas will contribute to increasing the efficiency of conventional power plants. EAC's conventional units in Vasilikos have been very negatively affected and often present serious problems and failures, due to the long-term use of fuel oil and diesel but also due to the use of anti-pollution systems installed in recent years.
(iii) the information indicates that EAC's 6th combined cycle plant in Vasilikos, with a capacity of 160 MW, scheduled to operate in 2024, will operate only with natural gas. Therefore, it must be possible to supply gas to Vasilikos within 2024.
(iv) The same problem will be faced by the plant of the independent producer PEC, with a combined cycle plant with a capacity of 260 MW, which is under construction in the Vasilikos area, as well as the Paramount Energy plant, with internal combustion engines, with a capacity of 100 MW, which will also be built in the area.
If the operation of the terminal under construction is delayed, it will not be possible to supply natural gas to the above facilities, with all the negative consequences.
There may also be an issue of production adequacy during peak periods, depending on the availability of EAC's existing conventional units and especially the obsolete polluting units of Dhekelia, which often present serious problems and failures.
Based on the above, it is obvious that the operation of the LNG storage and regasification terminal in Vasilikos is absolutely necessary for the country and must begin as soon as possible. Unlike fuel oil and diesel, natural gas is a much friendlier and more suitable fuel for use as fuel in conventional power plants.
Storage and security of supply
With regard to security of fuel supply, which must cover a period of 90 days, the following question arises:
Could the necessary security of supply not be ensured by liquid fuels if the infrastructure already exists and is operational?
If this is not allowed due to environmental constraints, could the necessary security of supply not be ensured by increasing the storage capacity of natural gas from about 45 days (estimated at the terminal) to 90 days? The relatively low storage capacity of the Vasilikos storage and regasification terminal under construction is a disadvantage that has probably resulted from an incorrect estimation of the quantities necessary for the needs of Cyprus' electricity production.
Former Director of Cyprus Transmission System Operator (TSO)
