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FACTDROP: Comment: Meeting Cyprus’s Interim Natural Gas Needs
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11/27/2012

Comment: Meeting Cyprus’s Interim Natural Gas Needs

It is striking to note that natural gas costs about one tenth of the price of a barrel of oil equivalent.

Πηγή: Famagusta Gazette
By Constantinos Hadjistassou Ph.D.
Nov 26 2012

Owing to its numerous uses natural gas is the most versatile hydrocarbon. Predominantly consisting of methane (CH4) natural gas can be used to power vehicles, generate electricity, produce fertilisers, heat homes, cook food or even be converted into diesel.

It is striking to note that natural gas costs about one tenth of the price of a barrel of oil equivalent.

How about using natural gas to lower atmospheric emissions and reduce the price of electricity?

These two reasons partly explain why natural gas power stations have recently gained considerable popularity in relation to coal fired power plants. Whatsmore natural gas resources are more geographically distributed than oil.

Yet the cost of developing natural gas fields and transporting the gas to the markets can be in several occasions prohibitively expensive.

According to statistics from Eurostat, during the first half of 2012, Cypriot domestic consumers incurred the highest electricity price tag in Europe amounting to 0.2338 euro per kilowatt hour (kWh).

To a large extent this is attributed to the high price of diesel used to generate electricity and the Mari levy.

As a direct consequence the high electricity prices exacerbate inflation and negatively impact the competitiveness of the country hence hampering economic recovery.

Paradoxically, Cyprus following the discovery of the Aphrodite natural gas field with an estimated 200 billion cubic meters (bcm) has abundant natural gas both for the domestic market and for exports.

With only one caveat: developing an ultra-deep water natural gas field is a capital intensive business hard to justify solely for Cyprus’s natural gas domestic needs.

If the Electricity Authority of Cyprus (EAC) were to meet all of the island’s electricity demands with natural gas then about 1.2 bcm of natural gas per annum will be sufficient.

Carrying out the appraisal work, installing the subsea equipment, procuring the floating platform (if chosen) and laying the subsea pipeline from the Aphrodite field is expected to cost about 1.6 billion euros and could take from 4 to 5 years at the earliest optimistic scenario.

In the meantime, is it economically sustainable and rational to continue to rely on diesel and heavy fuel oil given that alternatives exist?

This is not to say that renewable energy sources, such as wind and solar energy, cannot be incorporated into the energy mix.

Their intermittent nature though makes it necessary to maintain an installed capacity of power generation usually utilising fossil fuels should wind is not blowing and/or the sun is not glowing.

Recently, Cyprus’s Natural Gas Public Company (DEFA) invited bids regarding the supply of natural gas to the Vasilikos power station. The invitation did not specify the form at which the natural gas will be imported in Cyprus hence leaving all options open to suppliers.

More importantly, DEFA specified that the supply of natural gas was for the duration of five years ending on the 30th of September 2018. Given the low volume of the natural gas supply, the lack of infrastructure in Cyprus to permit the import of natural gas, and the short time window of the supply it is unlikely companies will pursue expensive investments.

As a matter of fact natural gas will be imported either in liquefied or in gaseous state. Subsequently, we explore the different options available for introducing natural gas to the island.

Compressed Natural Gas (CNG)

Compressed natural gas (CNG) constitutes an attractive technology for importing natural gas. Methane compression ranges from 130 to 275 bars.

Because the gas is transported in its gaseous form, CNG does not require an expensive regasification terminal. Only a jetty will be needed or a flexible submarine pipe (riser).

However, CNG is economical over short to medium range sea journeys in relation to liquefied natural gas (LNG) which becomes economically viable over longer sea routes.

If the CNG technology is selected it means that Cyprus (or the gas supplier) will need to build the first CNG ship in the world.

Currently no such ship has been constructed. To date, several CNG ship concepts have been proposed but none has yet to materialise.

The American Bureau of Shipping (ABS)– a classification society– has approved one such design but it remains to be seen if the ship will become a reality.

Nevertheless, three distinct designs namely the coiled pipelines and the vertical or horizontal steel pipes featuring also composite materials have been proposed as a way of storing onboard pressurised natural gas.

CNG ships will be very expensive to build and will absorb the majority of the costs of importing natural gas to Cyprus.

Developing the Aphrodite Gas Field or Importing Gas from Israel

The second option is to lay a submarine pipeline either from Israel’s Tamar field, expected to start producing natural gas in 2013, or from the Aphrodite gas discovery to Vasilikos.

This is an expensive engineering endeavour and it is highly unlikely for such a project to become a reality unless some of the gas is destined for export. Possibly a Cyprus-Israeli joined LNG export terminal will justify the cost of the Israel-Cyprus pipeline.

The submarine pipeline will be laid using a J-type semisubmersible platform. Before pumping natural gas from the Aphrodite gas field the discovery will need to be appraised, subsea wells completed, and either a floating platform or a subsea (wet) development will be used to pump the gas to shore.

Considering that the pipeline will be laid at a water depth at times reaching 2,200 m the project will take at best 3 to 4 years to complete. A detailed survey of the seabed will be necessary to identify the optimal path the pipeline will follow.

Geo-hazards such as highly corrosive sea areas or an unstable sea bottom will need to be addressed. An environmental study is also a critical part of the process.

The cost of the pipeline from the Aphrodite gas field to Vasilikos a distance of about 185 km ranges from 615 million euros to 1.76 billion euros. These estimates are based on existing pipelines laid at similar water depths.

Namely the Blue Stream siphoning gas from Russia to Turkey and the Green Stream exporting gas from Libya to Italy.

An alternative option will be to lay a pipeline from Israel’s Tamar gas field without developing the Aphrodite gas field. Such a plan will be faster to implement that developing Block’s 12 gas field but will require a longer pipeline of about 240 km in length which comes at a higher cost.

Floating, Storage and Regasification Vessel (FSRU)

A Floating, Storage and Regasification Vessel (FSRU) is an LNG ship temporarily or permanently moored on the sea or a jetty capable of storing LNG and converting it back to its gaseous form on demand.

Natural gas is stored in the cryogenically cooled ship containers therefore obviating the need to construct natural gas storage tanks onland.

This floating natural gas solution was shortlisted back in 2004 to supply Cyprus with natural gas but was later on ruled out. Although the technology existed at that time no such FSRU ship was ever constructed or converted then.

Since 2009 four FSRUs have entered operation while another three are under construction.

Gas replenishment of the FSRU is accomplished via feeder LNG carriers. Worth noting that current FRSUs can deliver up to 5 bcm per annum well above the 1.2 bcm maximum demand of the EAC.

Deploying an FSRU requires a much shorter time window of about 2 to 3 years versus an onland regasification facility which takes 5 to 7 years. Depending on whether the FSRU is a new building or converted from an existing LNG carrier the costs may range from 120 to 200 million euros.
Shuttle and Regasification Vessel (SRV)

The Shuttle and Regasification Vessel (SRV) is again an LNG vessel which unlike the FRSU is not permanently or temporarily moored. Instead the SRV can transport natural gas from a natural gas liquefaction plant to Vasilikos.

Onboard regasification equipment can be used to convert LNG into compressed natural gas prior to pumping it onshore for storage via a jetty or a submarine pipeline connected to a flexible marine (pipe) riser.

Thus an SRV will discharge her LNG cargo to the receiving terminal in gaseous form and then another ship could drop-by when natural gas is needed to refuel the tanks on land.

Like in the case of the FRSU, natural gas will need to be sourced from an LNG export plant necessitating the need to sign a premium priced short term contract or divert LNG from another supplier.

Given the short duration of the contract which DEFA alludes to, this will push the unit price of natural gas to a much higher price than that of traditional LNG 15 to 20 year contracts. Currently, Japan pays $10 to $12 per million BTU.

Provided that existing SRVs will be delivering natural gas to Cyprus this option will be the fastest to implement.

The subsea pipeline and marine riser are expected to take about a year to construct with estimated costs of 20 to 40 million euros.

The availability of SRV vessels is the major consideration here. On-land natural gas storage tanks will be used to store the gas and could take at most 2 years to erect. Because this is a temporary solution Cyprus consumers will pay a premium for the natural gas.

LNG Regasification Terminal

This is the most expensive and time consuming option unlikely to be completed within the five year time horizon which DEFA specifies. Typically, an LNG receiving terminal including the natural gas storage facilities takes 5 to 7 years to construct and costs about 500 million euros (for about 8 million tonnes per annum).

Cyprus needs do not conform to the preceding requirements and hence this is the least likely option to be selected.

What the Future Holds

Ironically, Cyprus (and Noble Energy) despite having discovered about 200 bcm Cypriots pay the most expensive domestic electricity in the EU.

Coupled with the small volume of about 1.2 bcm needed to meet Cyprus’s electricity demands economic considerations dictate most decisions of importing natural gas.

Several options are therefore ruled out in favour of temporary solutions which command a premium natural gas price. Nevertheless, estimating the costs of inaction and comparing them with the costs of the interim solutions can help reach the best solution possible under the prevailing circumstances.
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Constantinos Hadjistassou Ph.D.is a researcher at the University of Cyprus specialising on hydrocarbons and low-carbon energy technologies. Website: www.energysequel.com



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