Cyprus Mail

DEFA given till end of month to wrap up tender for buying natural gas

Officials from DEFA and the EAC met president Nicos Anastasiades on Monday

By Elias Hazou

THE Natural Gas Public Company (DEFA) has been given until the end of the month to wrap up its tender for the purchase of interim natural gas.

During a meeting at the palace on Monday, DEFA was instructed by President Nicos Anastasiades to reach a decision – or not – as soon as possible.

At the meeting, attended by all the state energy operators, it was decided that an offer by Russia’s Itera was economically unattractive.

However, officials said the current tender procedure will not be terminated, and DEFA will reportedly be making one last effort to get an improved offer from preferred bidder Itera.
If negotiations with Itera go nowhere, DEFA might start talking to Vitol, whose offer was ranked second-best.

It’s been a year since DEFA invited calls for expression of interest for the supply of natural gas as an interim solution until the extraction of natural gas located in offshore Block 12.

The tender covers two alternative forms of supply: either compressed natural gas (CNG) or liquefied natural gas (LNG) via a Floating Storage and Regasification Unit (FSRU).
As per the tender’s provisions, “of paramount importance for the selection of the successful party is the earliest possible delivery of the gas and the gas price.”

The gas was to be delivered to the Vasilikos power plant for electricity production purposes.

Based on original estimates, DEFA expected that the demand for natural gas in the period to September 2018 for use at power stations would be either 0.4, 1.0 or 1.2 billion cubic meters per annum.

According to reports, a key reason why DEFA and the electricity utility (EAC) rejected Itera’s bid is the decrease in energy needs.

Due to the ongoing financial squeeze, the electricity utility now anticipates a sharp drop in demand this year – hence less fuel needs to be purchased. Initially the utility had projected spending €650m on fuel purchases for 2013; they are now projecting around €480m.

Moreover, the short duration of the supply contract, as well as the need to build infrastructures from scratch, leaves suppliers little leeway to lower their price to meet expectations for a significant drop in the price of electricity.

But daily Phileleftheros yesterday raised a storm by suggesting that the electricity utility’s own flaws are to blame for the rejection of any interim gas solution.

The paper said the EAC’s three steam turbines at Vasilikos power plant are so inefficient at burning natural gas that they would need excessive amounts of this fuel to generate sufficient electricity.

The three steam units at Vasilikos run on heavy fuel oil (mazut), but have been converted to burn natural gas as well. But according to Phileleftheros, their efficiency is just at 37 per cent – which negates any benefits resulting from the higher efficiency (at around 50 per cent) of the two dual-fired turbines which can run on natural gas.

The power station consists of three steam/heavy fuel oil-fired units of 130 MW each, one gas turbine (38MW) burning distillate oil, and two dual-fired combined cycle gas turbines (natural gas/diesel) of 220 MW each.

Reacting to the paper’s report, the Greens said yesterday that if this were true it would also imply that Cyprus’ own natural gas reserves- whenever they come on tap – would not lead to a significant decrease in the cost of electricity, due to the inefficiency of the machines.

MP Giorgos Perdikis wondered whether Cyprus has spent €100m on repairing the turbines at Vasilikos only to discover they are not cost-effective when burning natural gas.

The Greens deputy called for a discussion on the interim gas solution to be tabled at the next session of the House commerce committee.

There’s been a great deal of conjecture about the interim gas tender, partly due to the lack of information due to a confidentiality clause between DEFA and the bidders.

Philelefheros also claimed to possess a classified report by the energy regulatory authority indicating that the current cost of fuel (using mazut and diesel) comes to €0.114 per kilowatt-hour, or €33.41 ($45.1) per million BTU.

Itera’s latest offer reportedly provided for natural gas at €11 ($14.75) per million BTU.

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