Is there a better way to bring natural gas to Cyprus?

The first two articles in this series concluded that the key question facing Cyprus is no longer whether natural gas is needed, but whether the current Vasiliko LNG import project remains the most economic way of supplying it. Natural gas still offers important advantages. It would reduce carbon emissions, improve the efficiency of electricity generation, diversify fuel supplies and strengthen energy security. Those strategic objectives remain valid today. What has changed is the range of options available to achieve them. Since then, Cyprus’ offshore gas discoveries have moved closer to development, new regional pipeline proposals have emerged, and the economics of the Vasiliko LNG import project have changed dramatically. Rather than assuming that completing the current project is the only solution, Cyprus should now compare all realistic alternatives using the same economic criteria: cost, security of supply, flexibility and implementation risk. Option 1: Complete the current Vasiliko project The first option is simply to complete the existing project. Technically, there is little doubt this can be achieved. The remaining engineering work is challenging but manageable. The real difficulties lie in procurement, arbitration, financing and project management. The concern is economic. Using the risk-based estimates developed in the previous articles, total project costs could approach €1-1.2 billion. Assuming LNG costs around $8/MMBtu and annual gas demand is approximately 0.7 bcm, the total cost of gas delivered to EAC could reach $15.5-17/MMBtu once capital recovery, operating costs, financing and terminal utilisation are included. At today’s oil prices, this would probably result in electricity prices little different than it does today. The project would still improve security of supply and reduce emissions, but its original objective of delivering substantially cheaper electricity has become much more difficult to achieve. Option 2: Sell Prometheas and lease an FSRU A second option would be to sell the Prometheas and complete only the permanent infrastructure at Vasiliko, using a leased FSRU instead. Ironically, this was the approach originally proposed by several international FSRU operators. Under this model, Cyprus would recover some of the sunk costs by selling Prometheas, around $200 million, own the jetty, pipelines and onshore facilities, while a specialist operator would provide and maintain the FSRU under a long-term service contract. This would transfer much of the operational, maintenance and residual value risk to the private sector while significantly reducing the amount of capital tied-up in the project. Although Cyprus would still need to recover the financial loss associated with the project so far, earlier analysis suggests that even after allowing for this, the delivered cost of gas could be several dollars per MMBtu lower than under the present ownership model. Just as importantly, the country would gain greater flexibility to replace or upgrade the leased FSRU as technology and market conditions evolve. Option 3: Pipeline gas from Israel A third possibility is to import gas directly from Israel. Energean has previously proposed supplying Cyprus through a subsea pipeline from its Israeli production facilities. If implemented, such a project would eliminate the need for liquefaction, LNG shipping, storage and regasification. Gas could be delivered to EAC/PEC at about $7-8/MMBtu. From a purely economic perspective, this is an attractive option. The principal disadvantages are strategic rather than technical. Cyprus would become dependent on a single supplier and a single pipeline route. Although long-term supply agreements can mitigate these risks, pipeline gas inevitably provides less supply flexibility than LNG, which can be sourced from multiple exporting countries. Nevertheless, pipeline imports deserve serious consideration because they could provide much lower-cost gas than LNG imported through an underutilised terminal. Option 4: Develop a dedicated domestic gasfield An even more strategic possibility is to dedicate one of Cyprus’ smaller offshore discoveries, such as Calypso, entirely to the domestic market. If Calypso ultimately proves to contain sufficient recoverable reserves – about about 0.8-1.0 trillion cubic feet – it could potentially support a direct pipeline to Cyprus and a modest onshore gas treatment plant. Apart from the fact that it makes commercial sense, given the concessions Cyprus made to Eni for the development of Cronos, perhaps Eni can reciprocate and facilitate the development of Calypso – or divert gas from one of the other gas fields in block 6- to supply gas to Cyprus domestic market. Such a development would eliminate almost the entire LNG value chain. Instead of transporting gas to Egypt, liquefying it, shipping it back to Cyprus and regasifying it, gas would flow directly from the offshore field to Vasilikos. Preliminary economic analysis suggests that, under favourable reserve and development assumptions, gas could potentially be delivered for less than $6/MMBtu – substantially below the cost of imported LNG. There is, however, one important uncertainty. Calypso has not yet been fully appraised and its recoverable reserves remain uncertain. The opportunity therefore depends primarily on geology rather than engineering. A phased strategy may offer the best solution These options are often presented as independent alternatives. They need not be. The most robust long-term strategy may involve a combination of them. Cyprus could initially secure gas through the least capital-intensive import solution available – probably a leased FSRU – while continuing to develop its own offshore resources. As domestic production from its own gas fields becomes available, imported gas could gradually be replaced by indigenous production. The LNG terminal would then evolve from being Cyprus’ primary gas supply system into strategic backup infrastructure, capable of providing additional supplies during market disruptions or periods of exceptionally high demand. Such a phased approach would provide flexibility, strengthen energy security and avoid locking Cyprus into a single long-term solution before the country’s own gas resources are fully developed. The real decision The debate should no longer focus on whether Cyprus should complete the Vasiliko project simply because so much has already been invested. The real question is broader: what combination of infrastructure and gas supply offers Cyprus the lowest long-term cost, the greatest flexibility and the highest security of supply? The answer may not lie in choosing one option over another, but a combination. Large energy projects, such as this one, should evolve as circumstances change. Since 2019, almost every assumption underpinning Cyprus’ gas strategy has changed. Costs have increased, new discoveries have matured, regional cooperation has deepened and alternative supply options have emerged. That makes this the right moment not simply to complete an unfinished project, but to reassess the country’s entire gas strategy for the next twenty years. The objective remains unchanged: to provide Cyprus with cleaner, more secure and more affordable energy. The challenge is ensuring that the solution chosen today is still the one that best achieves that objective tomorrow. This is the fourth and final article in a series on LNG in Cyprus. The previous three articles: Can Vasiliko LNG import project still achieve its original objective? The true cost of imported LNG – and what it means for electricity prices Cost of infrastructure the dominant LNG factor