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New impetus for tardy LNG project

feature elias the fsru is now just under 90 per cent ready
The Fsru is now just under 90 per cent ready

The recently-appointed energy minister George Papanastasiou seems to have injected a sense of purpose

Construction of a €300 million liquefied natural gas (LNG) import terminal at Vasilikos, plagued by a series of delays, has finally picked up some steam. And whereas not all the ducks are lined up in a row, so to speak, a more assertive stance by Cypriot authorities means the project as a whole could be delivered by the end of the year.

The previous deadline set for completion was October 2023. That target – probably intended for public consumption – was announced only a month ago. To put things into perspective, it was way back in December 2019 when Cyprus signed the contract with a consortium led by China Petroleum Pipeline Engineering Co Ltd. The project’s kickoff meeting didn’t take place until September 2020.

“Realistically, we’re now looking at end of 2023 for completion, or beginning of 2024,” Energy Minister George Papanastasiou told the Sunday Mail.

The LNG terminal will include a floating storage and regasification unit (Fsru), a jetty for mooring the Fsru, a jetty-borne gas pipeline and related infrastructure.

The project has secured a €101 million grant from the EU under the Connecting Europe Facility (CEF) financial instrument. The rest of the financing comes from the European Investment Bank and the European Bank for Reconstruction and Development.

The Fsru – the purpose-built vessel that will convert imported LNG into gaseous form so that it can be fed into the Vasilikos power station to generate electricity – has been the biggest stumbling block.

The vessel is currently in dry dock at Cosco’s shipyard in Shanghai. Papanastasiou said it will be delivered by July this year.

The approximate date was confirmed by another source, who said the vessel should begin its voyage from China to Cyprus in June. It will take the ship about a month to get here.

Asked about the state of play overall, the minister said the Fsru is now just under 90 per cent ready, and the rest of the project at around 30 per cent.

The ‘consensus’ view goes something like this: the delays are down to supply-chain problems caused by the Covid lockdowns.

Asked for his take, the minister also puts it down to implementation on the part of the Chinese-led consortium.

The majority of the materials are on site, says Papanastasiou, and the long-lead items will not delay. But the issue lies in the way in which the consortium works.

“The Chinese operate differently than Europeans do,” he offers.

“In Europe, you draw up a plan and set delivery timetables. In China, they’ve got a laxer attitude toward timetables. There, and unlike in Europe, they can tap into manpower resources at a moment’s notice and speed things up. Let’s put it this way: matching resources to the timetable is what’s been challenging for the consortium.”

The minister, who’s been more upfront and candid compared with the previous administration, also acknowledges what we reported in an expose a year ago  that the consortium’s choice of subcontractors left a lot to be desired.

“True, the selection of some of their subcontractors was sub-optimal,” he comments.

Coming into office in early March, Papanastasiou – who has a background in engineering – seems to have injected a new energy and sense of purpose. He immediately requested a briefing from all involved agencies, including the Natural Gas Public Company, the project owner, as well as from Hill International – the owner’s engineer, otherwise known as the government’s ‘eyes and ears’ on the project.

Under his watch, a team of Cypriots were dispatched to the shipyard in Shanghai to see for themselves the status of the Fsru there.

And Papanastasiou reveals that next week he’ll see a senior executive of the Chinese-led consortium, summoned here to Cyprus for a face-to-face talk.

“If you ask me whether I’m happy with the situation to date, I’m going to say no. I’ve been to the site [Vasilikos] myself many times, and it’s plain to see that things are lagging behind.

“We’ve escalated our pressure on the contractor…and we’ve got room for even more escalation,” he says without elaborating, though he’s understood to be alluding to contract clauses providing for delay-related penalties.

It turns out the jetty, where the Fsru will be moored, has been a major stumbling block. Even under the extended deadline, it was supposed to have finished by September 2022.

Work in earnest on the jetty got underway only last month.

We contacted Multimarine, the subcontractor tasked with building the pier.

Company director Pavlos Foka said construction on the jetty began about four to five weeks ago. They’ve started placing the piles in the seabed that support the jetty.

“For our part, we’re proceeding on schedule,” Foka said, asked about reports of delays in the project as a whole.

Queried about a new schedule and/or deadline for completing the jetty, Foka declined to comment, citing a confidentiality agreement with the contractor – the Chinese-led consortium.

He said the first batch of piles arrived at Vasilikos from China by ship in October 2022. Then more batches followed in November, December, and more recently in January of this year.

We also asked about information that the piles ordered were not of the correct specifications – which ostensibly led to them being unused and left lying there at the site.

Foka denied this, attributing it to misinformation. “There’s a great deal of that in the media,” he offered.

The Sunday Mail also passed on to Foka information that Multimarine had never built a jetty before. He did not respond directly, but suggested it was a moot point, given that there are very few piers on the island anyway – hence likewise few opportunities to build one.

Sources knowledgeable about the subject, but who preferred not to be identified, tell us that because the jetty is a critical component, it has bottlenecked the project as a whole.

They clarified that the jet piling – placement of the piles in the seabed underneath the jetty – has started but on a test basis. Actual pile placement is expected to begin within the next few weeks.

A pipeline will connect the jetty to the land-based infrastructure, then transporting the gas to the power turbines at Vasilikos. But in between are a so-called buffer zone (a storage area of some 3,000 square metres) and the Prms – the pressure-reduction and metering station.

These are all key components, but they can’t progress as fast as they could precisely because the jetty needs to be ready first.

Asked what might happen should the tests come up with issues with the pile placement, the same sources acknowledged this potential difficulty but thought it a remote possibility.

Last but certainly not least, there’s the matter of securing the actual LNG supplies for the terminal.

“The Sunday Mail learns that just this Friday [March 31] an application was filed to the energy regulator for a supply licence.”

The regulator has two months to review the application. Assuming it gives the green light, next the Natural Gas Public Company will proceed with inviting expressions of interest from LNG suppliers. The entire tender process should wrap in about 12 months’ time.

Earlier, it had been widely reported that somewhere along the way the Chinese-led consortium asked for an extra €100 million to cover the rising cost of materials (steel and so forth). Our sources confirmed this incident, saying it happened around the November 2021 timeframe.

“It came like a bombshell. The Cypriot side managed to negotiate that demand down to €25 million.”

A great deal is riding on the LNG import project. Use of the cheaper fuel (power plants currently run on heavy fuel oil) should drive down electricity costs, while also cutting down the island’s emissions which translate into millions of euros a year in ‘fines’ (greenhouse gas allowances) from the European Commission.

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