Greek oil and gas company Energean offered to the Cyprus government to build a pipeline from its Israeli offshore gas fields and import 0.5 to 1 billion cubic metres (bcm) of gas per year to the island, Reuters news agency reported this week.
Such a deal would help Cyprus meet its obligations to switch to cleaner energy such as natural gas and renewables by 2020 if it is to avoid hefty fines by the European Commission.
This is not the first time such an offer has been made. An article released by Cyprus News Agency in December 2017 said that Energean had made an informal approach to the government to develop and take Aphrodite gas by pipeline to the FPSO (Floating Production Storage and Offloading facility) it proposes to use to develop its Karish and Tanin gas fields in Israel, treat it and export it to Cyprus. The offer was not confirmed by the government.
Given that Energean is offering gas to its Israeli clients at less $4.50 per million btu (about 1000 cubic feet), such an offer could have been interesting and possibly compete with Cyprus’ liquified natural gas (LNG) import plans. With Aphrodite running the risk of remaining stranded due to the low global gas prices, it merited consideration. Unfortunately, it was not considered and the offer lapsed.
It now appears that Energean, emboldened by the success of its Tanin and Karish projects, has come back with a more direct and formal offer.
“We submitted a proposal to sell gas from the FPSO (Floating Production Storage and Offloading) facility to Cyprus. We sent it last week,” Mathios Rigas, CEO of Energean, told Reuters on Thursday. This gas will be transported to Cyprus from its Tanin and Karish gas-fields in Israel by building a 200 km pipeline.
Energean acquired the Tanin and Karish gas-fields from Delek Group in 2016 for close to $148 million. The combined resources of the two fields are 67 bcm of natural gas and up to 33 million barrels of oil equivalent (boe) of light hydrocarbon liquids.
It submitted a field development plan which was approved by the Israeli government in August 2017. This is based on the development of the two gas-fields using an FPSO and a 90 km pipeline to connect to the Israeli natural gas transmission system.
Energean has secured gas sales agreements to supply about 4.2 bcm/yr to a dozen companies in Israel and has confirmed that any gas it produces above that level may be exported. The average price of these deals is estimated to be less than $4.50 per mmbtu, close to 30 per cent lower than the price that Israel Electric Corporation pays Noble and its partners for its gas.
Cyprus’ plans to import LNG
Cyprus is planning to import LNG for power generation, as it must switch its electricity generation from burning heavy fuel oil to natural gas by 2020 to avoid the hefty EU fines.
A decision was made in 2017 to proceed with the import of LNG, initially 1 bcm/yr, through two projects, one for natural gas procurement and a second for infrastructure development, including acquisition of a floating storage and regasification unit (FSRU). The tenders for these projects should have been issued by now, but for reasons not made clear so far, they have been delayed.
Excluding the cost of port facilities, the estimated cost of infrastructure development is €250 million. This excludes the FSRU, but includes the building of a jetty, as well as infrastructure, metering facilities and onshore pipelines to transport the regasified gas to the Cyprus Electricity Authority’s (EAC) power generation plants. Port facilities and emergency shelter for the FSRU in case of adverse weather conditions are estimated to add another €100 million to the cost of the project.
The project attracted €101.5 million funding from the European Commission for the energy-related components of the infrastructure project. This does not include the construction of port facilities or the acquisition of the FSRU.
Why Energean’s offer is worth considering
The proposed import of LNG could contribute to the reduction of carbon dioxide emissions, but not to the electricity price. It could be quite the opposite, due to the cost of LNG, which may reach $8-10 per million btu, and the cost of fixed installations which, even after the allocation of the €101.5 million grant by the EC, could add more than $1.50 per million btu. This would make the price of gas delivered to EAC exorbitant.
This has been presented in Cyprus as necessary for the achievement of the new carbon emission reduction target beyond 2020. But such a reduction can be achieved efficiently by switching to renewable sources, which will also satisfy EU’s new renewables target and also result in a significant reduction in electricity prices.
Energean’s offer is worth considering very seriously as it will achieve what LNG imports are designed to do, but at a substantially lower cost.
With Energean selling its gas in Israel at less than $4.50 per million btu, adding the cost of the pipeline would mean that gas can be delivered to Cyprus at less than $6.50 per million btu. This is substantially lower than the cost of the proposed LNG imports. Based on 1 bcm/yr over 10 years, the saving could be as much as $1.4 billion. It will also lead to substantial reductions in the price of electricity.
Source: Cyprus Mail