articles | 09 January 2013

Talks to begin on importing gas

Cyprus expects soon to begin negotiations with natural gas suppliers with a view to importing by January 2015 says Commerce Minister Neoclis Sylikiotis.

As a stopgap, the government wants to import gas for electricity production until such time as the island is able to exploit its own offshore hydrocarbon reserves.

Using natural gas to fire power plants would drive down the price of electricity, though not dramatically, Sylikiotis said.

Electricity prices in Cyprus are currently the highest in the EU.

Back in October, the Natural Gas Public Company (DEFA) issued a call for interest to supply the island with up to 1.2bn cubic metres per year of natural gas until the end of September 2018 – around the time that Cyprus expects to have infrastructure in place to process its own gas reserves.

At present, the island is heavily dependent on imported oil products. By switching to gas-fired power generation, DEFA expects total gas demand to be 0.4, 1, or 1.2bn cubic meters per year, depending on the number of gas-fired units put online.

The entry point for natural gas would be the Vassilikos power station on the south coast of the island. As well as being the landing point for domestic gas and a possible liquefaction terminal. The LNG would be brought into a floating receiving point and re-gasified offshore. Whether that would be done via a floating storage re-gasification unit or a re-gasification vessel with onshore storage is still undecided.

Having received expressions of interested, DEFA has shortlisted 14 companies which meet the minimum criteria. Earlier this month, DEFA sent these companies the tender documents so that they would submit their proposals by February 4. From then on, the negotiations leading to the selection of a supplier would take some weeks.

The process would not be sidetracked by the upcoming elections and a possible change in government, the minister said, because the negotiations would be conducted by DEFA and the Electricity Authority (EAC), who would also take the final decision.

According to Sylikiotis, the approximate date of January 2015 - by which the island should generate power from natural gas - was set for two reasons. The first is to allow time for the necessary receiving infrastructures to be built and go online.

Secondly, the EAC has undertaken to begin electricity production from natural gas by 2015 as a condition for qualifying for a €130m loan from the European Investment Bank.

Last year the bank agreed to finance the EAC for the construction of unit 5 at Vassilikos power plant to boost electricity supply on the island.

Sylikiotis said the imported gas would be either in compressed or liquefied form. Meanwhile the government is in talks with Israel over the possibility of the neighbouring nation supplying gas from its Tamar field – expected to come on tap mid-year. Assuming a deal with the Israelis is clinched, compressed natural gas would be imported here on ships, in compressed form.

Also yesterday, lawmakers had a chance to take a closer look at a government-drafted bill governing the creation of a national hydrocarbons fund.

Sylikiotis urged MPs to pass the law as soon as possible to allow the anticipated €200m from signature bonuses from the second offshore licensing round to be transferred to the treasury and then to the hydrocarbons fund. 

Unless this is done by January 17, he said, the government might miss the chance to ‘lock in’ the cash, and the €200m might end up going toward paying off the national debt.

January 17 is just four days before eurozone finance ministers meet to likely discuss Cyprus’ bailout request and the island’s debt.

The government legislation provides that part of the proceeds from natural gas exploitation would go toward investing in LNG infrastructures, another part to the state budget, and a fraction set aside for future investments. It does not, however, specify the respective percentages.

It’s understood that a copy of the draft bill has been sent to Cyprus’ international lenders – the troika - who have taken an interest in the island’s natural gas reserves as possible collateral for a loan.

The preliminary bailout agreement struck between the government and the troika late last year called for a resource fund to “receive and manage the public revenues of offshore gas exploitation”. It further proposed that “clear rules governing inflows and outflows should be established as part of Cyprus’ budgetary framework, giving due respect to the need to develop the hydrocarbon industry, including the necessary infrastructure, the importance of bringing Cyprus’ public debt on a steady downward path and the need to invest for future generations.”

Source: Cyprus Mail

Cooperation Partners
  • Logo for Love Cyprus Deputy Ministry of Tourism
  • Logo for Cyprus Chamber of Commerce and Industry
  • Logo for CYFA Cyprus
  • Logo for Ministry of Energy, Commerce, Industry and Tourism
  • Logo for Association of Cyprus Banks
  • Logo for Cyprus Shipping Chamber
  • Logo for Cyprus Investment Funds Association
  • Logo for Invest Cyprus
  • Logo for Cyprus International Businesses Association