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Concerns that state gas deals could lead to higher energy prices

Greece’s Energean is offering to pipe natural gas to Cyprus from its Israeli offshore leases

In a move that could smother competition and drive electricity prices higher, the government has taken the step of declaring the natural gas market in Cyprus as isolated and emerging, a derogation from EU regulations.

The decision was taken last week by the cabinet. It effectively means the Natural Gas Public Company (Defa) is now not only the sole lawful importer and distributor of natural gas on the island, as it was until now, but also the sole entity permitted to supply the fuel.

Although Defa is a company registered under private law, it is owned by the state. Its sole shareholder is the ministry of energy.

Defa’s lockdown on the market would squeeze out other players who would like to supply the island with natural gas.

In theory, private suppliers could still sell their gas directly to Defa, who would then sell it on to consumers.

But according to daily Politis, this too is doubtful. That is because under the cabinet decision, and given the market was declared an emerging one, the energy regulator has been granted an exemption from a relevant law that obliges it to accept and examine applications from companies wanting to secure a supply permit.

The upshot is that the regulator is now not required to even review applications from companies such as Greece’s Energean, who is offering to pipe natural gas to Cyprus from its Israeli offshore leases – and reportedly at a competitive price.

Energean had entered into letters of intent to develop the pipeline project with Vitol subsidiary VTTI Cyprus, operator of the
Vasilikos terminal, and to supply gas to private electricity producer PEC Powerenergy Cyprus. Another licensed independent power producer, a company by the name of Lyssarea, is also said to have expressed an interest in buying Energean’s gas.

In addition, Paramount Energy Corporation Ltd, owned by Cypriot businessman Akis Ellinas, has applied for a permit to build a 105-megawatt power plant running on conventional fuel.

Meantime, the government is running two separate tenders for the import of liquefied natural gas (LNG) for the purposes of electricity generation.

The state has settled on the liquefied form of the fuel – which automatically excludes companies like Energean.

Energy analyst Charles Ellinas has previously said that Defa’s plan to import LNG will prove to be costly.

“By the time gas arrives at the EAC not only will it have to pay for the cost of imported LNG, but also for the recovery of the cost to build and operate the necessary installations – Floating Storage Regasification Unit, gas storage and regasification, jetty, port facilities – and profit.”

Based on World Bank estimates for the price of gas in Europe averaging at $7.50 in the period between 2020 and 2030, the final cost could rise to $11-12/mmbtu.

By comparison, Ellinas calculates that Energean’s offer to deliver gas would cost about $6.50-7.00/mmbtu, leading to a substantial reduction in the price of electricity.

In the meantime, the Employers and Industrialists Federation (OEV) has weighed in on the issue.

Last week OEV met with a delegation of Energean, who presented their proposal to sell gas.

Asked by Politis to comment on his impressions of the company, OEV director Michalis Antoniou described them as “serious professionals who, at first sight, come to us with a very serious proposal.”

Later this week OEV will be meeting with the board of Defa to be briefed on the two LNG tenders underway.

“Our sole criterion is the interest of business and the economy. Crucial decisions are pending on energy,” Antoniou said, alluding to businesses’ concern over the already high operating cost of electricity in Cyprus.

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