.
Israel may supply LNG by 2014
The proposal by Israel’s Delek Group to build an LNG facility on the island are likely to hold consequences for a plan under consideration by the Cyprus government to import LNG through an agreement with Shell, according to a leading energy journal.
Commerce and Industry minister Antonis Paschalides told parliament last week that Cyprus could draw natural gas from its own offshore resources by 2016. Referring to the drilling that Houston-based Noble Energy intends to undertake offshore Cyprus, Paschlides told the committee that iIf there is a large reserve, experts suggest that an undersea pipeline can be built to carry gas to Cyprus.
The Middle East Economic Survey said that “if that is the case then it is likely that Delek’s proposal to pipe natural gas from Tamar – where full-scale development is expected to get underway this year – and Leviathan to Cyprus for processing at an LNG plant is feasible.”
Furthermore, MEES sources suggest that Israel’s Tamar gas could be developed to arrive on the island as early as January 2014.
The government and the Natural Gas Public Company (DEFA) announced in December that they had reached an initial agreement with Shell for the supply of LNG over a 20-year period. The importation of LNG to Cyprus would require the construction of an LNG regasification terminal at the island’s designated Energy Centre near Vassiliko, at a cost of some EUR 600 mln. The supply of natural gas by Shell over a 20-year period was estimated at around EUR 4.5 bln.
When the cost of the supply deal was announced in early January it created an uproar among the political parties and the media. A week later, Delek made its proposal for an LNG plant in Cyprus, creating further confusion and debate within the island’s political and business circles.
Now, however, with the minister of commerce publicly acknowledging that Cyprus could be drawing on its own natural gas resources by 2016, the Shell/LNG import/regasification terminal scenario is very likely to change.
Asked by MEES if the Shell LNG deal is still under consideration, Costas Ioannou, Chairman of DEFA said: “Yes. We are waiting for the government to assess all the information that is now available and give us direction in which way to go. So the option is still there.”
However, Ioannou agreed that the possible arrival of Cyprus’s own natural gas by 2016 would make a difference on the gas supply decision process. “The government will probably have to rethink its whole strategy regarding natural gas, not just LNG, and I am sure they are doing this right now,” he said.
Should the government decide to forego the Shell LNG deal, Cyprus would need to examine short term solutions to its energy supply problem. Right now the island relies on heavy fuel oil to generate power, but possesses the capability of running its power plants off natural gas. The new situation stands the chance of reopening a debate on the island over how it might best reduce the usage of heavy liquid fuel – and improve its standing with EU regulations – by turning to natural gas.
A law passed in 2007 gave DEFA – which is 56% owned by the government and 44% by the state-owned Electricity Authority of Cyprus (EAC) – exclusive right to import LNG, but only to an onshore regasification terminal. As the law stands, Nicosia has essentially painted itself into a corner by excluding proposals to import LNG through an offshore floating regasification facility or import compressed natural gas (CNG).
If the Shell LNG supply deal is set aside, these proposals may need to be revisited with a view that they will be interim solutions until Cyprus gets its own energy production industry underway. Shell and several other companies, including Golar LNG, could give the island the option for a floating storage and regasification unit (FSRU), while the prospect of natural gas delivery by CNG tanker might be complicated by a lack of tanker availability.
If the Cypriot government should decide to work with Delek and Noble towards the joint development of offshore fields and Delek could deliver natural gas to Cyprus by pipeline for the purpose of power generation in 2014, the island could decide that that in itself is the short term solution, the MEES report concluded.
