Cyprus Mail
Guest ColumnistOpinion

Cyprus: The new energy gate of Europe

The government is giving priority to the exploration and exploitation of hydrocarbons and the development of energy

By Charlies Ellinas

CYPRUS: The new energy gate of Europe was the title of the 5th Energy Symposium organised by IENE and Financial Media Way (FMW), held in Nicosia on  November 1.

Costis Stambolis, executive director of IENE, opening the Symposium praised Cyprus on the achievements of its exploration programme. He added that Cyprus has the potential to play a key role in Europe’s energy and that energy could also be key to the solution of the Cyprus problem.

The Symposium was addressed by President Anastasiades, Demetris Syllouris, Nicos Kouyalis, Giorgos Lakkotrypis and Fidias Pilides. Greek energy minister Giorgos Stathakis also sent a message. The key highlights from these presentations were:

The government is giving priority to the exploration and exploitation of hydrocarbons and the development of energy, including renewable energy sources (RES) and energy efficiency.

The government is also supporting the EuroAsia interconnector and now the EuroAfrica interconnector between Egypt-Cyprus-Greece.

The President was emphatic that “we are carrying on with our programme despite Turkey’s harassment”, but we should be pragmatic in our expectations.

Minister Stathakis emphasized that energy challenges know no boundaries and can only be solved through cooperation.

In December, at a tri-partite meeting to be held in Nicosia between Greece, Cyprus and Israel, an agreement will be signed, taking the EastMed gas pipeline forward.

Minister Lakkotrypis said that the government’s hydrocarbons strategy is based on four pillars: Geopolitical alignment, exploration, exploitation and implementation.

He concluded that there are no easy solutions. Gas prices are low and the road forward will be long.

These have already been covered extensively in Cyprus Mail. In this article I will concentrate on the technical contributions by the pre-eminent experts and panelists who made presentations to the Symposium.

Dr Andreas Poullikas, president of energy regulator RAEK, talked about energy supply and prices. A properly regulated internal energy market as it transitions to renewable energy sources (RES) is key to the EU. This transition and the introduction of new technology and interconnections are transforming Europe’s electricity market. However, more needs to be done in south-east Europe.

Cyprus needs to harmonise and align its regulatory system to that of the EU. RAEK has set-up a timetable to achieve this. It is introducing a new regulatory system and a new market model, and hopes to have these in place by July 2019.

RAEK has also prepared a report on the development of an internal natural gas market and is in the process of preparing a gas regulatory system.

I focused on the role of LNG in exporting Cyprus and East Med gas. Global LNG supply is outpacing demand, creating a very competitive market and a decisive move towards short-term and spot LNG, with buyers having the upper hand. The inexorable growth of RES and a new wave of low cost LNG will maintain prices low for the longer-term.

In Cyprus much hangs on the more optimistic indications that block 10 may hold significant amounts of natural gas. However, there is still a long-way between discoveries and successful exploitation, through international gas sales, due to low global gas prices. Ultimately, collaboration will be key to keeping development costs down. In a low-price environment, only integrated projects which minimise costs from well-to-export will stand a chance to become financially viable and secure export markets. And even then, it will be challenging.

This can be achieved if all Cyprus gas discoveries by the end of 2018 are pooled together into a single joint-venture. They can then be developed as an integrated project, with no doubling on interfaces and risks. Pipelines can then take the gas to Egypt to be liquefied through new trains and exported. But even then, it will be challenging commercially.

Panayiotis Tylliros, Ministry of Finance, talked about the link between the economy and natural resource development. Much can be learnt from the experience of resource-rich countries and the challenges they faced. Key among these is how to deal with corruption. He suggested that setting up of the sovereign wealth fund could provide security against corruption and ensure accountability and transparency.

Dimitris Fessas, CEO of CHC, expanded on the role of CHC and the new round of exploration and drilling. He said negotiations with Egypt on the sale of Aphrodite gas intensified during the last few weeks. CHC is investigating all possible gas export options and he is convinced of success.

Dr Solon Kassinis made an interesting presentation with suggestions on how natural gas can be used to develop a petrochemical industry in Cyprus. He is promoting the setting-up of a methanol production plant. He said preliminary studies have been completed and demonstrate the feasibility of the project. Meetings are being planned with DEFA over the next few weeks to discuss the proposals.

George Papanastasiou, CEO VTTV, spoke about the geopolitics and risks involved in the development and trading of natural gas, and the challenges these pose to East Med countries. The cooperation between Cyprus and Greece and all neighbouring countries, except Turkey, is key to counter-acting such problems and ensuring security. Turkey has chosen not to cooperate and is isolated in the region due to its policies.

Interestingly, he revealed that Cyprus was chosen by Vitol as the best location to base oil-product storage and trading facilities, after considering all other countries in the region. This bolsters Cyprus’ aspirations to become the regional energy hub.

Spyros Paleogiannis, MD of MEDGAS, spoke about natural gas markets. Climate concerns led to a change in the global fuel mix since 2005, with increasing penetration of RES. Low prices driven by rapid technological changes are leading to RES taking the upper-hand in electricity generation and are changing the EU energy business environment.

The greatest challenge for gas is that low RES prices are for the longer-term and are undermining upstream investments. The global gas market will be quite different in the years to come. This is driven by increasing use of LNG, particularly spot LNG, and increasing trading through gas hubs. Cheaper LNG, use of FSRUs and liberalized contractual arrangements are attracting new buyers.

Cyprus and Greece have the potential to become the new route for East Med gas entering Europe. In this respect Cyprus should learn from and replicate Singapore’s drive to become an LNG hub. The proposition that all gas from the region should go to Europe through Turkey is risky. Cyprus and Greece provide a more reliable and dependable route.

Dr Konstantinos Papalucas, University of Cyprus, talked about the advantages and disadvantages countries in the region offer to become energy trading hubs. All want to become a hub and the EU appears to be supportive of all claims. A gas hub requires liberalised, transparent and regulated markets. Of all countries in the region, Egypt is the most advanced in fulfilling most requirements. Cyprus has a great potential but needs a grand plan, which at present is lacking. He also recommended Cyprus follows the Singapore example.

Dr Michalis Andreou, DEFA, presented the road-map for the import of LNG. He explained that previous attempts failed mainly due to difficult market conditions at the time, short duration of proposed contracts and small quantities of LNG at the early stages. The new LNG import project is based on tendering two, separate, parts:

Infrastructure, including a jetty, port facilities and an FSRU

LNG imports

In addition, a domestic gas pipeline network will be needed between Vasilikos and Dhekelia, following the highway. Commerciality requires financial support from the EU and appropriate proposals are being submitted. The plan is to announce public tenders during the first half of 2018.

Very much related to this, Theodore Arseniou, Head of Energy J&P AVAX, a major Cypriot-Greek engineering contractor, presented the company’s achievements in building LNG and power generation plants. It has unique experience in the region, including major LNG and power projects in Greece, the TAP pipeline, in Malta and Vasilikos power plant in Cyprus.

John Chadjivassiliades, Chairman of IENE, spoke about electricity in the 21st century, emphasising that the global market is undergoing radical change. Use of RES is spreading rapidly, not just because of environmental reasons, but also due to low cost. RES is now cheaper that gas-fired power generation. The price quoted recently for a PV power plant in Saudi Arabia was about $18/MWh. RES is now firmly part of Europe’s energy strategy, with many countries implementing road-maps with targets for 2050. For example Germany’s target is 80% of its electricity should be generated by RES by 2050. Does Cyprus have such a road-map?

In the run up to 2050, natural gas and electricity storage will contribute to the progressive penetration of RES into the grid, making electricity the energy form of the future. The transition to the new era is rapid due to the very low cost of RES and requires a new business model and many new services for consumers. What is needed is a strategic plan with clear targets, timely modernization of the electricity system, and inter-connection with Europe. Cyprus should give this high priority.

Andreas Marangos, Chairman of EAC, took this up and spoke about the need to implement RES and energy efficiency to cut emissions in line with EU targets. In Cyprus 91% of electricity generation is still oil-based, there are no inter-connections to other countries and there is uncertainty about when natural gas may become available. EAC has a strategy to adapt to the new era of clean energy. It is looking at including RES in its power generation mix so that it can reduce dependence on oil and gas and reduce electricity costs to consumers.

Pavlos Liasides, Cyprus Business Association for the Competitive Energy Market, welcomed the opening up of the RES market in Cyprus after 10 years of waiting. He was optimistic that this can help Cyprus become an energy gate to Europe, not just for natural gas but also for renewable electricity. If used correctly, the new market offers huge opportunities given that during the next 10 years power needs will double. Inter-connection with Europe and Africa opens-up new prospects for Cyprus.


Dr Charles Ellinas, is Nonresident Senior Fellow Global Energy Centre Atlantic Council

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