By Michael J. Economides
The news of the Cyprus Public Natural Gas Agency, DEFA’s recent decision to include only LNG strategies and exclude CNG technologies from further negotiations for the interim delivery of natural gas to that country is shocking, illogical to the extreme, almost insulting to the intelligence of the people. It becomes even more frustrating that all is secret and it is impossible to see the rationale. But no matter what, it is totally flawed.
LNG is the obvious means of large trans-national gas transport, but for Cyprus it was a bad idea ten years ago, it was worse three years ago and it is disastrous today, just four years before the country is expected to bring on line its own plentiful supply. The situation is really very simple. The needs of Cyprus (100 million standard cubic feet per day) are not even remotely enough to justify interim LNG, stationary or floating. The only possibility for Cyprus interim solution has always been CNG; and if, for whatever reason, that is seen as unworkable, then staying with diesel, with all the associated environmental problems and EU fines is preferable, by far.
If the DEFA solution involves a stationary LNG regasification facility built on Cyprus, something whose investment will be $1 billion at least, for a four year project life and a throughput of 100 million cubic feet per day, a simple calculation estimates that the profit would need to be $8.64 per million Btu. The expected price to Cypriot consumers in this scenario would have to be more than this minimum plus whatever is the cost of the LNG itself. Floating LNG, which exists today in just two places and is considered by many as yet untested, would require an investment of $4 billion, and even if the life of the floating liquefaction and regasification vessels were stretched over 20 years, the profit requirement would need to be $12.77 per million Btu. In this case the LNG cost would be this amount plus the wellhead price of the natural gas, and a small (by comparison) additional amount for the LNG transport.
CNG on the other hand with an investment of $300 million would require profit of $2.59 per million Btu to be added to the wellhead cost of the gas. Clearly to match this price, the LNG suppliers would have to operate at a loss.
It just happens that there were two CNG proposals to DEFA and both were rejected without explanation beyond that they were not “complete” whatever that means. Considering the enormous differential between the gas delivery price between CNG and LNG, DEFA should have approached the CNG proposers for whatever was found lacking. As well they should confirm natural gas availability from the obvious source, Israel, which apparently has hinted repeatedly that the gas is available. Clearly the whole affair stinks from the beginning, and should be challenged right away.