Switching to natural gas could save Cyprus €400 million annually, reducing electricity costs by 35-40%. European gas prices have dropped, but Cyprus’s delays in leveraging LNG imports have hindered potential savings, highlighting the need for resolving issues with the Vasilikos facility to secure a stable supply and transition to natural gas.
How can natural gas reduce electricity prices in Cyprus?
Switching to natural gas for power generation could potentially reduce Cyprus’s electricity costs by 35-40%, saving roughly €400 million annually. This is due to natural gas being less expensive and more efficient than diesel/HFO, and emitting less CO2 which lowers the cost of emissions allowances.
The European Context and Cyprus’s Challenges
European gas prices have seen a significant decline, with levels returning to those prior to the recent crisis. The going rate at the Dutch TTF gas trading hub has dropped to $8.2/mmBTU, roughly equivalent to the cost for about 1,000 cubic feet of gas. This price drop is attributed to an abundance of gas flowing into Europe, ample storage reserves, and a reduction in demand spurred by mild weather conditions and the economic downturn of Europe’s industrial sectors, especially in Germany.
Cyprus, however, has been unable to leverage these benefits due to setbacks with the LNG import facility at Vasilikos. A functioning import terminal could have allowed Cyprus to use natural gas for power generation, potentially reducing electricity costs by 35-40% and saving close to €400 million annually.
The Global LNG Outlook
The LNG market is set to expand significantly by 2028, with a projected increase of 25% to 500 million tons per year, or 680 billion cubic meters per year. Shell’s global LNG outlook suggests an annual introduction of roughly 150 billion cubic meters of new LNG by 2028, primarily from Qatar and the United States. Following a sizable gas find, Qatar plans to boost its LNG output by 22 billion cubic meters per year by 2030, raising its total production to around 193 billion cubic meters per year, roughly 25% of the anticipated global production.
Despite growing global demand for LNG, the expected surge in supply is predicted to keep prices stable. This scenario presents a missed opportunity for Cyprus, as the country’s inability to capitalize on LNG imports has resulted in missed savings for its electricity consumers.
The Impact of Natural Gas on Cyprus’s Electricity Costs
Now in 2024, the Electricity Authority of Cyprus (EAC) has yet to disclose financial accounts for the previous years. Nevertheless, using the known figures from 2021 and adjusting for the rise in fuel costs and inflation, we can estimate that switching from diesel and heavy fuel oil (HFO) to natural gas could save the EAC more than €400 million. Moreover, the adoption of combined cycle gas turbines could lead to additional cost reductions.
Notably, natural gas emits less CO2 than diesel/HFO, which could also decrease the cost of emissions allowances by roughly 30%. The shift towards natural gas is not only environmentally beneficial but also economically viable, particularly when considering the high and rising costs of diesel/HFO compared to the stable and lower prices of natural gas.
Future Steps for Cyprus
To reap the benefits of natural gas, Cyprus must secure a stable supply to replace diesel/HFO and accelerate the adoption of renewable energy sources. Although options like pipelines from Israel or tapping into its own gas fields have been considered, neither seems feasible. Israel is focusing on its own gas field developments for exports and domestic use, while technical challenges and low demand make Cyprus’s own fields an unattractive proposition for oil and gas companies.
Importing LNG remains the most realistic option for Cyprus, despite the argument that the chosen infrastructure might be an overkill for the country’s modest needs. The ongoing dispute with the contractor over the import facility at Vasilikos needs resolution. Political efforts and the appointment of independent technical experts are crucial to navigate contractual and technical issues and find the most expedient path forward, balancing the costs and benefits of transitioning to natural gas.
How can natural gas reduce electricity prices in Cyprus?
Switching to natural gas for power generation could potentially reduce Cyprus’s electricity costs by 35-40%, saving roughly €400 million annually. This is due to natural gas being less expensive and more efficient than diesel/HFO, and emitting less CO2 which lowers the cost of emissions allowances.
What is the current situation of European gas prices and how does it affect Cyprus?
European gas prices have dropped significantly due to an abundance of gas, ample storage reserves, and reduced demand. This drop could have benefited Cyprus, but delays in leveraging LNG imports have hindered potential savings. The Vasilikos facility issues need to be resolved to secure a stable supply and transition to natural gas.
What is the outlook for the global LNG market and how does it impact Cyprus?
The LNG market is projected to expand significantly by 2028, with a rise in supply that is expected to keep prices stable. Despite growing global demand for LNG, Cyprus’s inability to capitalize on LNG imports has led to missed savings for electricity consumers. It is crucial for Cyprus to secure a stable supply and transition to natural gas to benefit from the global LNG market.
What are the future steps for Cyprus to transition to natural gas and reduce electricity costs?
Cyprus must secure a stable supply of natural gas, potentially through LNG imports, and accelerate the adoption of renewable energy sources. Although pipelines from Israel or tapping into Cyprus’s own gas fields have been considered, importing LNG remains the most realistic option. Resolving issues with the Vasilikos facility and navigating contractual and technical challenges are crucial steps for Cyprus to transition to natural gas and reduce electricity costs.
