Cyprus revenues from Kronos gas project expected to stay modest

Gas field decision unlocks domestic energy opportunities, expert says The final investment decision to develop the Kronos natural gas field in block 6 of Cyprus’ exclusive economic zone offers an opportunity to exploit the area’s remaining gas reserves for the island’s domestic needs, according to energy expert Charles Ellinas. Speaking to the Cyprus News Agency (CNA), Ellinas described the final investment decision by the Eni and TotalEnergies consortium as an important milestone that could pave the way for wider development of Cyprus’ offshore gas resources. “This is certainly a historic development because, after 15 years, we are finally moving towards the process of exporting natural gas,” Ellinas said. He explained that annual production from the Kronos field is expected to reach around five billion cubic metres of natural gas, of which approximately four billion cubic metres will be destined primarily for European markets. “Europe imports around 300 billion cubic metres every year, while we will be sending four billion, so it is a small contribution rather than a solution for Europe,” he said. Ellinas also stressed that these exports will not transform Cyprus into an energy hub, arguing instead that Egypt will assume that role. “Natural gas from both Cyprus and Israel is transported to Egypt,” he said. “Israel has signed an agreement to export 20 billion cubic metres of natural gas to Egypt, around four to five times more than Cyprus. Egypt then uses the gas for its own needs alongside its domestic production or exports it,” he added. Turning to the financial impact of the project, Ellinas argued that Cyprus will receive relatively limited economic benefits because of concessions made during negotiations. “Unfortunately, Cyprus’ revenues from this project will be very low because, in order for it to proceed, Cyprus made significant financial concessions and accepted additional risks, substantially reducing the country’s benefit,” he said. “I do not expect Cyprus’ benefit to exceed 0.5 per cent of GDP once production reaches its peak in around four to five years, because during the first three years almost all revenues will go towards recovering the companies’ costs, while Cyprus’ share until 2031 or 2032 will remain very low,” he added. Ellinas also said that the development of the Kronos field by Eni increases the likelihood that the remaining natural gas discoveries in block 6, namely Zeus and Kalypso, could also be commercialised. “This gives the Cypriot government an opportunity,” he said. “Having already made these concessions, and with further concessions likely to Eni to advance the Zeus field, the government should insist that Kalypso is developed solely to meet Cyprus’ domestic needs,” he continued. He argued that the planned import of natural gas through Vasiliko is facing repeated delays and has become extremely expensive, making domestic production the more affordable option. “If we want cheap natural gas, we need to bring in our own,” Ellinas said. “Kalypso is a relatively small field, but it creates an opportunity for negotiations to secure natural gas for Cyprus, certainly after 2030,” he added. On electricity prices, Ellinas said there was little indication that costs would fall in the near future, despite growing investment in renewable energy and storage technologies. “Energy storage will help prevent energy from being wasted, but it will not solve the energy problem because it does not generate new energy,” he said. “Nor will it help unless the way electricity prices are determined by the market changes,” he continued. “At the moment, the profits generated by renewable energy go into the pockets of those who own the renewable energy projects, while consumers see no benefit at all,” Ellinas said. “The law needs to change so that the benefits of renewable energy are shared more fairly,” he added. Commenting on the planned electricity interconnection linking Cyprus with Greece and Israel, Ellinas said it would require at least another six years before becoming operational. “That means we are looking at 2031 at the earliest before it begins operating, assuming the European Investment Bank ultimately decides to proceed, which I believe it will,” he said. Looking ahead, Ellinas maintained that any measures capable of significantly reducing electricity prices are unlikely to materialise before the end of the decade. “The solutions that will reduce electricity prices lie beyond 2030,” he said. “Until then, we need to focus on changing the way electricity is generated, traded and used in Cyprus so that we stop reaching these deadlocks, such as the current power cuts caused by demand exceeding production or the repeated faults in the system, while the electricity grid also requires upgrading,” Ellinas said. “We need to prepare properly and put everything in order so that we are ready by the end of the decade,” he concluded.