Cyprus, preparing for LNG, still depends heavily on oil imports

Cyprus’ oil import dependency is high. According to the 2021-2030 National Energy & Climate Plan (NECP), Cyprus total primary energy consumption in 2018 amounted to about 48,400 boe/day (barrel of oil equivalent is a unit of energy based on the approximate energy released by burning one barrel of crude oil). Imported oil products provided most of it, about 43,400 boe/day.

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About 40 per cent of this energy was consumed by the EAC in power generation, with the rest used in transport, industry, heating/cooling (H&C), agriculture and services.

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Based on current plans, and with the new liquefied natural gas (LNG) terminal at Vasiliko likely to become operational by 2022, LNG imports will be replacing oil products in power generation by the end of 2023.

EAC buys its heavy fuel oil (mazut) and gas oil (diesel) from international oil traders, by issuing tenders periodically. In 2017 its suppliers included international oil traders Glencore Energy (UK), BP International (UK), Vitol SA (Switzerland) and BB Energy (UAE). As a result, switching power generation to LNG will not affect any companies operating in Cyprus.

Interestingly, the holding companies of two of the world’s biggest oil and energy traders, Guvnor Group, with $75 billion in revenue in 2019 and Mercuria Energy Group with $121 billion, are based in Cyprus. But their operations on the island are very limited. The reason for their presence in Cyprus? They are both attracted by the low tax environment. Other international oil traders do the same.

Another international oil trader, Dutch VTTI, is planning to take advantage of excess crude oil supplies globally, by expanding its VTTV storage terminal at Vasiliko at an estimated cost of €120-130 million. Existing storage capacity, of 545,000 cubic meters, is almost fully utilised. According to George Papanastasiou, VTTV CEO, the expanded capacity will be used by a major regional refiner to supply refined products to European markets.

Construction activities could offer a boost to local suppliers and contractors at what are very difficult times for the industry.

Cyprus will still need oil products after LNG starts flowing. Even if all power generation transitions to a combination of natural gas and renewables, according to the NECP, by 2024 about 17,000 boe/day oil and oil products will still be needed for transport, H&C and industry, declining to about 15.000 boe/day by 2030. So far, renewables have not had any significant impact on these sectors, and the targets in the NECP are at best modest.

At present these targets are to achieve a 24 per cent reduction in greenhouse gas (GHG) emissions by 2030 and a 23 per cent energy-wide share of renewables. In addition, 14 per cent of energy used in transport must be provided by renewables. There is also a goal to achieve a 20% penetration of electric vehicles as a proportion of the total vehicle fleet by 2030.

However, based on planned measures, Cyprus may not be able to achieve these targets. As a result, according to the NECP, it plans to introduce a carbon tax possibly as early as 2021 that will particularly hit oil products, making petrol and diesel even more expensive. Starting at 5-6 cents per litre, by 2025 this could add an estimated 27-32 cents per litre to the price.

But with the EU having adopted the Green Deal and committing to net-zero emissions by 2030, with an interim target to cut emissions by 55 per cent by 2030 – in comparison to 1990 – in all likelihood Cyprus will be asked to increase its own targets accordingly. If that happens, there could be an impact on the consumption of oil products in all energy consuming sectors.

In transport this would mean more electric cars and increased use of biofuels blended with petrol – about 3 per cent in 2019 – and possibly use of gases such as compressed natural gas (CNG), LNG and hydrogen in buses and heavy transport. However, reliance on imported LNG could prove to be a challenge due to likely high costs in comparison with petrol.

If we ever manage to exploit our own reserves and bring low cost natural gas to the island, not only this could support cheaper electricity generation, but could also support the promotion of CNG/LNG vehicles. However, this can succeed only if the CNG/LNG fuel cost is competitive in comparison with petrol.

In Egypt President Al-Sisi has just this week directed intensification of efforts aimed at converting vehicles for natural gas operation. The intention is to rationalize petrol and diesel consumption and reduce air pollution and GHG emissions.

In the meanwhile, the world is awash with crude oil caused by a collapse in demand due to the impact Covid-19 on the global economies. The Brent oil price dropped to $36.60/bl on November 2, the lowest it has been since May, due to increasing concerns that new lockdowns will impact demand for fuels again. It recovered to just over $40/bl by November 5, but if lockdowns continue and expand it is likely to drop further. Unfortunately, due to Covid-19 restrictions impacting travel, Cypriot drivers may not benefit as much from such low prices.
Source: Cyprus Mail