Cyprus’ attempts to import gas as an interim solution until Aphrodite comes on line have come to a dead end. This was decided at a meeting at the presidential palace February 7. The key participants at the meeting were the energy minister, the regulator Cera, the gas company Defa and the electricity company EAC.
The government rejected as unfavorable the proposal of the Dutch company Vitol. It said Vitol wanted to sell about a quarter more than the originally proposed quantities. This would benefit Vitol, but could increase Cyprus’ risk of being left with quantities of gas it could not use, in a "take-or-pay" contract. Moreover, there could be a risk that losers would argue that the rules of the tender had changed, benefiting Vitol.
In any case, it is understood that Defa’s tender evaluation did not demonstrate any benefits to Cyprus. This is because the low oil price would negate any savings in the production of electricity from gas.
There were views that the use of gas would allow faster adaptation of the Cypriot electricity generation and other sectors of the economy to a greener fuel, and facilitate compliance with COP21 commitments.
Some believe that this is linked to the expectation that a submarine cable from Israel to transfer cheaper energy would materialise, given the commitment to this project during the recent Cyprus-Greece-Israel summit in Nicosia. There is also hope of greater penetration of renewable energy sources in the energy balance. The problem is that both the cable and renewables are still at the drawing board without clear plans for implementation. The commercial viability of the cable is still to be demonstrated.
The fall-back position is to wait for Aphrodite to come on stream. However, with such plans still unclear, it may be the early 2020s before the switch from oil to gas for power generation in Cyprus happens. That would make compliance with COP21 commitments by 2020 that much more challenging.
The process to bring gas to Cyprus for power generation started in 2005 when Golar applied for a license to construct and operate a floating electricity power plant (FPGP) on a barge off the coast of Cyprus. Eleven years and seven attempts later, Cyprus still does not have an answer to this ‘interim’ gas supply quest. In 2005 Golar noted that the delay was due to lack of overall LNG strategy. After more than a decade, this is still the case.
The stark conclusion from this is the lack of overall strategy and planning and the reactive approach to the issue. It also left most companies responding to the various attempts to export LNG into Cyprus very unhappy with the process, with many deciding not to bid such projects in Cyprus again owing to the lack of credibility. With plans for the development of Aphrodite still to be finalised, the timing of availability of gas to Cyprus for cheaper power generation is still unclear.
Dr Charles Ellinas is non-resident senior fellow at the Atlantic Council's Eurasian Energy Futures Initiative
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