articles | 16 January 2015

DEFA has ‘more than one bid’ for LNG and pipeline supply

A meeting chaired by President Nicos Anastasiades was held recently, to review the remaining valid offers in a tender put out by the Natural Gas Public Company (DEFA) for importing gas to be used for local electricity production, for a possible contract worth upwards of €3bn.

Cyprus is reliant on heavy fuel oil imports for electricity generation, and wants to switch to the cheaper and cleaner natural gas.

Attending the meeting was Energy Minister Giorgos Lakkotrypis and ministry officials, as well as officials from DEFA, the Electricity Authority of Cyprus and the Cyprus Energy Regulatory Authority.
Under the terms of the tender, DEFA is not obligated to accept any bid.

Sources told the Mail that ‘more than one’ bids were at the final stage of evaluation. These included both liquefied natural gas (LNG) and the pipeline solutions.

Indirectly, the sources confirmed that Israel’s Delek was still theoretically in the running, as the company was the only one, which has proposed to supply gas by undersea pipeline.

However, press reports suggested that though Delek’s bid was still valid, it was not among the two best offers being considered.

The two top offers, price-wise, came from Dutch energy firm Vitol and Greek conglomerate M&M, comprising the Mytilineos and Vardinoyiannis (Motor Oil) groups in cooperation with Dutch giant Trafigura.

Politis reported, however, that the prices quoted by these two did not lead to a substantial drop in the cost of electricity generation, which is the ultimate goal of the tender.

The daily said Vitol’s and M&M’s offers would bring down the cost of production by a mere 2% to 3%.

The same sources declined to say whether a final decision on the tender should be expected from the meeting.

Depending on the Energy Minister’s recommendation to the President, DEFA could decide to again extend the validity period of its tender, which currently expires on January 31, 2015.

Extending the period would give DEFA the chance to pursue final-stage negotiations in a bid to get the preferred bidders to further lower their price – though not by much.

The so-called ‘interim gas solution’ is indirectly related to the fate of the Aphrodite reservoir in offshore block 12, operated by Texas-based Noble Energy.

Should the DEFA tender come to nothing, DEFA could turn to Noble Energy for the supply of gas for domestic electricity generation.

But because only a tiny percentage of Aphrodite’s gas would be piped ashore to feed power plants, the rest of the gas must be developed for export, and Noble is looking for potential buyers.

The Mail learns that Noble is expected to prepare its development and production plan for Aphrodite and hand it over to the government by March.

The likeliest scenario for developing Aphrodite at this time is via pipeline, the sources said. Noble is currently exploring the option of piping the gas to Egypt. Concurrently, Cypriot authorities are in talks with the Egyptian Natural Gas Holding Company (EGAS).

Last November, the governments in Cairo and Nicosia agreed to jointly carry out a technical study for a Cyprus-to-Egypt pipeline. It’s understood that this is nowhere near being completed.

The DEFA tender calls for the supply of between 0.7 and 0.95 billion cubic metres of natural gas annually to the Cypriot market through two delivery routes. One route will begin supplying gas in early 2016 and the other no later than the second half of 2017.

DEFA is by law the sole importer and distributor of natural gas in Cyprus. Once it concludes a deal for natural gas with a supplier, DEFA will then sell the fuel to the EAC.

Source: Cyprus Mail

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