Cyprus Mail

 ‘Tripartite’ gas would be double the price, experts say

Likewise the planned electricity cable connecting Israel, Cyprus and Greece

By Elias Hazou

Despite being talked up by the leaders of Cyprus, Greece and Israel at the recent tripartite confab in Nicosia, the proposed East Med gas pipeline project remains commercially unrealistic, an energy expert has told the Sunday Mail.

The East Med pipeline aims to connect the region’s reservoirs with Greece through the island of Crete.

But for all the hype,  also propagated by the press here, the pipeline makes little economic sense, said Charles Ellinas, CEO of e-CNHC (ECP Natural Hydrocarbons Company).

“Both the East Med pipeline as well as the Euro-Asia Interconnector are highly challenged projects,” he observed.

Currently, Russian gas is selling in Europe from $4.7 to $5 per mmbtu (million British thermal units). By comparison, the proposed East Med gas, factoring in the cost of the pipeline, would in the best-case scenario likely go for around $9 to $10, making it uncompetitive.

It is clear that a pipeline running through the Cyprus Exclusive Economic Zone and up to Turkey is the fastest and least costly method for the Israelis to export their gas.

Ellinas therefore surmises that Israel is more likely than not paying lip service to the much longer East Med pipeline.

He noted that both Israel’s Energy Minister Yuval Steinitz and Israeli Prime Minister Benjamin Netanyahu did not omit to stress that their country is also keen to export to Turkey, in addition to exporting to Europe.

Likewise Constantinos Hadjistassou, assistant professor of Engineering Science at the University of Nicosia, pointed to the engineering challenges of the East Med pipeline, which inevitably have a direct bearing on its cost.

“The deeper you go, the smaller the diameter of the pipeline, even if you somehow increase the pressure…hence less capacity,” he explained.

And with a project of this financial magnitude, capacity is of the essence.

If built, he added, the East Med would be one of the deepest pipelines ever laid.

“It would truly be an engineering feat, taking into account not just the enormous depths in the Aegean but also the complex geological terrain off Crete with its slopes and so forth.”

The bottom line, said Hadjistassou, is that no buyers of the gas have been lined up yet.

“No one is going to pour money into this until they’ve seen hard engineering data,” he added.

“On paper you can draw up whatever scenario you can imagine, but who is going to buy the gas? You can probably count Greece out, as it is already importing LNG at relatively low prices.”

To quote from a June 2014 report by The National Interest magazine: “The estimated cost for a pipeline from Cyprus to Crete alone is $20 billion, which according to one expert is ‘an amount that could be justified only in case further natural gas discoveries will materialise in the offshore eastern Mediterranean’.”

The magazine went on to say: “As German Marshall Fund Senior Advisor Sir Michael Leigh recently noted, ‘This whole Ukrainian business has increased interest in diversification, but the Eastern Mediterranean is usually mentioned last and there’s good reason for that’.”

Similar economic considerations apply to the Euro-Asia Interconnector, a planned sub-sea cable to connect the electricity grids of Israel, Cyprus and Greece.

The 1,518km-long cable would connect Israel with Cyprus, Cyprus with Crete, and Crete with the Peloponnese, from where electricity supply can be distributed to Greece or further afield.

It would have the capacity to transmit 2,000 MW of energy along its east-west cable, selling Israel Energy Corporation’s excess electricity production to Cyprus or any other buyer further west.

Electricity in the domestic Israeli market sells for $5. Already this is approximately identical to the price of electricity in Europe, Ellinas said.

But add to this the cost of the cable, and it’s clear that the Euro-Asia Interconnector cannot compete.

For example, said Ellinas, the proposed cable would land in either Greece or Italy. Today, Greece buys Russian gas for less than $5. The gas is then converted to electricity and distributed.

Work on the initial 329-kilometre cable link between Israel and Cyprus is expected to begin in 2017 and be completed in 2019. The second phase will connect the Greek island of Crete to Attica in mainland Greece in 2020 and the third and final phase will connect the cable from Cyprus to Crete with a view to full implementation of the “electricity highway” by 2022.

The power transmitted via the cable might beat Cyprus electricity rates, but that’s about it.

But, as Ellinas stressed, the project is envisaged as a whole.

“Due to the large capacity of the cable, it would make no sense to build only the section linking Israel to Cyprus, in other words having Cyprus as the sole consumer of Israel excess electricity.

“Hypothetically, you’d have to shut down the whole EAC grid in order to absorb the Israeli electricity,” remarked Ellinas.

Moreover, the length of the Israel-Greece cable, once laid, would almost certainly pose technical challenges, one being transmission loss.

Asked meanwhile to comment on more recent news of the first contract for the sale of gas from Israel’s Leviathan reservoir, the expert said that it had little impact on Cyprus.

Last Sunday it was announced that the Leviathan partners signed a contract with Edeltech for the supply of 6 BCM (billion cubic metres) of natural gas over 18 years. The contract is worth $1.3 billion.

The gas will be supplied to Edeltech’s two new power stations, the Tamar station (140 MW) and the Solad (77MW) power station in Ashdod.

Edeltech is Israel’s largest private power producer. The Tamar and Solad power stations are under construction by companies owned by Edeltech and Turkish company Zorlu.

“This is a domestic gas sales agreement, not for exports, and involves relatively small quantities. So in and of itself I do not see it affecting Cyprus’ own gas export plans,” Ellinas offered.

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