Can gas drive down our electricity prices

first_imgBy Elias HazouCYPRUS inches closer to making up its mind on whether to import interim supplies of natural gas – but the million-dollar question still stands: will it drive down sky high electricity prices?Talks between the Natural Gas Public Company (DEFA) and preferred bidder Itera are set to continue into next week, after negotiations on Wednesday and Thursday did not yield an agreement.Cyprus is seeking to secure a short-term supplier of natural gas not exceeding 1.2 billion cubic metres (bcm) per year as a stop-gap solution until it can bring ashore its own natural gas. The interim gas would be used for domestic electricity production.Under the terms of the call for expression of interest, the supply of gas was to begin no later than early 2015 and last up until September 2018, when the island should be able to start using its own resources from the natural gas discovery in its Exclusive Economic Zone (EEZ).In terms of technology, DEFA’s tender is open-ended: liquefied natural gas (LNG), compressed natural gas (CNG), or any other technology. The top criteria are time and cost, and DEFA has reserved the right not to finalise any deal if the price of electricity generated by natural gas will be higher than that currently produced from diesel.Under the circumstances, the import options are predictable. Should CNG be selected, Cyprus (or the gas supplier) will have to build the first CNG ship in the world. Currently no such ship has been built. The American Bureau of Shipping (ABS) – a classification society – has approved one such concept but no shipyard has built one to date.The second option is to lay a submarine pipeline either from Israel’s Tamar field, which has just come online, or from the Aphrodite gas field. Here, the engineering challenges are significant. Considering that the pipeline will be laid in water depth at times reaching 2,200m, the project would take three to four years to complete.Another scenario would be to import liquefied natural gas on LNG ships with onboard regasifigation facilities which will convert cryogenically cooled LNG into its gaseous form. These ships are known as floating, storage and regasification units (FSRUs).Electricity prices in Cyprus are among the highest in the EUDetails of the bids are bound by a confidentiality agreement, but it’s understood that Itera’s proposal envisages the deployment of FSRUs. Local media reports this week said Itera’s offer would see the gas sold to Cyprus just under $16 per million British Thermal Units (mBTU). Reportedly, DEFA is trying to get Itera to drop its final price a little more in order to clinch a deal.But $15 or $16 per mBTU is not much lower than the electricity utility’s current cost of producing electricity from diesel, believed to be between $17 and $18 per mBTU. The EAC will not disclose its cost of electricity production, keeping it a closely guarded secret.Just as talks with Itera were entering an advanced and delicate stage, it was leaked to the press that Noble Energy, which has a concession on offshore Block 12, has approached the government with its own idea for short-term supply of gas.For the time being Noble’s proposal is ‘informal’, in that it falls outside the bidding process conducted by DEFA. That’s likely why the government – wary of being accused of acting in bad faith with Itera – has not confirmed Noble’s pitch, although industry sources have since corroborated that such an offer was made.The US energy firm is said to be proposing to deploy a spar platform at the Aphrodite well to produce a gas flow smaller than conventional drilling platforms but still enough to cater to domestic electricity needs.Reports said Noble is suggesting bringing the gas to the Vasilikos power plant by early 2016 – later than Itera – but at a cheaper price, $12 per mBTU.Now, the Sunday Mail hears that yet another company is making a play: Sea NG, which specialises in the development and commercialisation of technology for marine transportation of CNG.The Canadian company, which bid for the tender but did not make the final cut, claims it can deliver gas by 2015 and for a lower price than the others. Sea NG, sources said, would secure gas from Israel’s Tamar field and ship it to Cyprus.Israeli currently pays $5.8 per mBTU for electricity from its own gas. Even assuming a slight mark-up on that price were the Israelis to sell to Cyprus, and with Sea NG adding another $5 for delivery, that would bring the tariff to between $10 and $11 per mBTU.Meanwhile the Sunday Mail understands that in its tender DEFA cited two different maximum distances for the source of the gas. Though not naming the countries, it is evident that DEFA had Egypt and Israel in mind. Analysts say the CNG method is ideal for markets within 2,000km of the gasfield, and CNG is economical over short sea journeys compared with LNG.Still, it would take some convincing officials here since CNG has yet to be implemented anywhere in the world.On the back of Noble’s spar platform proposal, Sea NG is now floating the idea of shipping gas from Cyprus’ Block 12. They would do this by deploying ships to Noble’s spar platform, and from there, the ships would fill up with the fuel in its gaseous form, compress it on board and transport it to a receiving facility at Vasilikos. Again, this proposal is outside the DEFA tenders process. Presumably, both Sea NG’s as well as Noble’s offers might be considered later should no deal be struck with Itera in the bids process.Sea NG’s ‘taxi service’ to and from Block 12 would become relevant, for example, should Noble encounter difficulties in building a pipeline from its spar platform to the island’s south coast, and might choose instead to ship the gas in compressed form.Sea NG estimates the total tab of its project to be in the vicinity of €500m.By contrast, a pipeline alone running from the Aphrodite well to Vasilikos might cost double that. And besides the higher overheads for the related infrastructure, LNG is more expensive than the fuel in its gaseous form.Moreover, sources said, Sea NG is willing to put up all the capital and to offer standard industry guarantees in the event of supply disruption.The Sunday Mail is told also that the company has briefed both the Electricity Authority of Cyprus (the prospective buyer of natural gas) and the Cyprus National Hydrocarbons Company.Successive reports by Eurostat have shown the price of household and industrial electricity in Cyprus to be among the highest in the EU. The electricity utility here has invested millions in acquiring dual-fuel combined-cycle gas turbines that run on either fuel oil or natural gas. For the moment, the machines continue to burn only the more expensive diesel.Using LNG or CNG as an interim solution would almost certainly bring down electricity costs – but by how much? Will the cost be ‘substantially lower’ than current costs, as DEFA has specified in its tender? And how does one define ‘substantially lower’?You May LikeLivestlyChip And Joanna’s $18M Mansion Is Perfect, But It’s The Backyard Everyone Is Talking AboutLivestlyUndoPopularEverythingColorado Mom Adopted Two Children, Months Later She Learned Who They Really ArePopularEverythingUndoGundry MD PrebioThrive Probiotic SupplementCardiologist: This Is What Happens When You Eat GlutenGundry MD PrebioThrive Probiotic SupplementUndo Pensioner dies after crash on Paphos-Polis roadUndoRemand for pair in alleged property fraud (Updated)UndoConcern over falling tourism numbersUndoby Taboolaby Taboolalast_img

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