21 Nov Interview with Antonis Patsalis, Chairman of DEFA/CyGAS
BF: Cyprus’s strategic location in the Mediterranean and proximity to the Suez Canal positions it as a crucial energy hub and a connecting point for electricity grids bridging North Africa and Europe. What specific opportunities and challenges that come with this favorable positioning do you foresee for Cyprus’s natural gas sector in the coming years?
Antonis Patsalis: The geographical location of Cyprus has always been an area that has attracted a lot of interest from many countries and parties. Cyprus’ well developed economic zone allows it to seek synergies and collaborations with many neighboring countries and offers big opportunities, especially in the energy sector. One of the exciting projects within the government’s pipeline is the construction of the liquefaction plant, which aims to supply the LNG-hungry countries, like India, China, South Korea and Japan. Being near the Suez Canal means this is a very big opportunity.
DEFA has a certain role and mandate regarding natural gas. DEFA – also known as CyGas – is now a semi-governmental organization which supports the Ministry of Energy, Industry and Commerce to reach our national energy goals. The company is tasked with importing, storing, distributing, transmitting, supplying and performing all the necessary trading of natural gas in Cyprus, through initially the management of the LNG Import Terminal – via a Floating Storage Regasification Unit (FSRU) – and the development of the national gas transmission system.
Cyprus is not directly connected to the interconnected natural gas system of any other EU member state. in line with the EU framework and following a legislative and regulated regime set out by the Cyprus Energy Regulatory Authority (CERA), the natural gas market of Cyprus can be considered as an emergent and isolated market for a certain period of time. This allows DEFA the exclusive right to import and supply natural gas to consumers and to develop the natural gas market for the duration of the emergent market (set to 10 years). One of our main objectives is to secure sufficient natural gas supply at the lowest possible prices to cover the needs for electricity production.
The LNG Import Terminal project consists of three main parts: the biggest is the acquisition and conversion of an LNG carrier into an FSRU through its subsidiary company ETYFA. This is almost completed. We are in the final stages of gas trials in Shanghai, China. The second part is to construct a jetty with the necessary mooring infrastructure, to berth the FSRU. The jetty that is under construction has been designed to be a cryogenic jetty, to accommodate and host cryogenic piping. The third part is the development of the gas transmission system, initially within a five-kilometer radius from the FSRU infrastructure, necessary to supply all the licensed power producers located within this radius. At a later stage, CyGas will develop the networks to supply the needs of industry, households, hotels and the touristic sector.
This is a very capital-intensive project and the biggest energy project ever undertaken in Cyprus. The capital costs of the project are estimated at €340 million and are financed through a combination of a grant from the EU of €101 million, debt financing from major institutions – €150 million from the European Investment Bank (EIB) and €80 million from the European Bank for Reconstruction and Development (EBRD) – and the additional shareholder contribution of €43 million by Electricity Authority of Cyprus. Due to the nature of the financing structure, the project requires coordination and cooperation with local, regional and European shareholders in the sector.
This is a brief overview of DEFA’s role within the energy sector in Cyprus. DEFA is currently a very small organization, employing 17 persons, all scientists, who are trying their best to deliver on time. Our board of directors has nine members appointed by the Council of Ministers. On a personal level, I retired from the electricity sector and was enjoying my retirement when the government asked if I wanted to take up this project and become the Chairman of DEFA. Hopefully, we’ll be able to bring the project to fruition, assist the government and the Cypriot economy to be more competitive, and participate in a way in the efforts of the EU for the green transition.
BF: The Ukraine conflict triggered a sharp rise in liquid natural gas prices. In response, Energy Minister Papanastasiou has reiterated the government’s commitment to reducing energy costs, diversifying the Cypriot energy mix, and constructing a new natural gas pipeline to bolster the energy sector and economy. Please tell us about the key challenges or obstacles that you anticipate in the pursuit of the country’s new energy goals.
Antonis Patsalis: The Russia-Ukraine war affected Cyprus very heavily, in many ways. On the energy front, it pushes Cyprus to invest even more in infrastructure to cover its own energy needs, shifting from liquid fuels, which are very expensive for the time being. In our aim to secure a good price of LNG, or gas, we issued an Expression of Interest. The Expression of Interest is attracting interest from international companies within the market. The process will involve an extensive negotiation, before we sign supply agreements, with the target being to obtain competitive prices compared to liquid fuels, having in mind that burning gas will reduce our emissions of greenhouse gas by 30%.
If we put together the fuel cost and greenhouse gas emission cost, I’m hopeful we will manage to acquire a cheaper source of energy to supply electricity and bring down electricity prices. We will be able to support the ministry in its effort to control electricity prices; basically manage to bring them down or maintain them instead of seeing prices increased.
BF: Tell me about DEFA’s recent infrastructure development projects. What are some of the big initiatives that you have in your pipeline when it comes to network developments?
Antonis Patsalis: The minister’s prime objective is not only to bring LNG to Cyprus through the FSRU, but also to bring gas to Cyprus, either from the economic zones of Cyprus, in the various fields that have been developed partly, or from Israel. Supplying gas to Cyprus and building a liquefaction plant to convert it into LNG is a way of participating in the regional energy needs. We recently announced that this would be done through Greece to supply Europe. DEFA will build the jetty to accommodate and host all pipelines, either gas or cryogenic LNG gas, to participate in the infrastructure needs of such a possible development.
BF: The discovery of natural gas in Cyprus and its nearby regions in the past decade has catalyzed a fresh industry, presenting new avenues for business and attracting foreign investment opportunities. For those looking to invest in Cyprus’s burgeoning natural gas sector, what are some of the most interesting opportunities available, particularly for US investors?
Antonis Patsalis: Indeed, the discovery of natural gas in the Exclusive Economic Zone (EEZ) of the Cyprus has opened up new and exciting opportunities for investors, particularly in the energy sector. It is worth noting that US Investors were the first to invest in the exploration of natural resources in the offshore fields some years back. Noble Energy International Ltd a US company, was the first to be awarded an exploitation license in 2008 in the Area of Block 12 which led to the discovery of the Aphrodite Natural gas field. Following this, companies like ExxonMobil, Chevron, Total, ENI and others participated in subsequent licensing rounds. As such, this is a field that will continue to attract the interest of foreign companies.
In addition, the realization of a natural gas market in Cyprus will lead to the creation of a natural gas sector that will require the development of significant infrastructure, including pipelines, storage facilities and liquefaction plants. Companies that specialize in these fields will be interested in investing here. Following this, technology and service providers, as well as financial and advisory services specialized in the energy sector, will find various opportunities for investing in Cyprus.
Long term benefits can always be achieved through investing in research and development, especially in the energy field. Our emerging gas market is an ideal sector to expand collaboration between local and foreign academic and research institutions. What is of paramount importance for any foreign company, but especially for US companies before deciding to invest in Cyprus is to conduct thorough due diligence, understand the local and regulatory environment and seek professional advice from local experts.
Another opportunity is the possible participation in the support industry, such as in the enterprises that will build the various platforms and side projects. There are some small companies in Cyprus that are operating from Limassol Port and other areas, to support these needs and accompany the development of the fields in the Eastern Mediterranean. Developing a liquefaction plant is a very big project. US companies have a lot of knowledge and experience in participating in this kind of development and developing such a big infrastructure investment.
BF: As we approach 2030, a pivotal year for global climate goals, the pressure to reduce greenhouse gas emissions by over 40% intensifies to align with the Paris Agreement’s most ambitious targets. How do you envision the role of natural gas as a transitional bridge towards renewable energy sources in Cyprus and what strategies is DEFA employing to facilitate this crucial transition?
Antonis Patsalis: Cyprus is actively working through an energy strategy focused on reducing its greenhouse emissions and transitioning to more sustainable energy resources. Natural gas is considered a transitional fuel towards renewable energy due to its lower carbon footprint when compared with heavy gas oil (HGO) that is currently mainly used for electricity production on the island. The LNG import terminal that DEFA and ETYFA (a subsidiary of DEFA) is implementing is also a step towards reducing the energy isolation.
In addition, the gas transmission system currently being designed by DEFA is envisaged to consider all decarbonization goals set out by EU. Namely, the pipelines will be designed so as to be hydrogen ready.
BF: What is your final and direct message to our readers?
Antonis Patsalis: Cyprus is the only European country that is energy isolated, but it is putting a lot of effort into ending this isolation. For that, DEFA is carrying out the LNG project and contributing toward achieving the national objectives. Cyprus’ future, especially in the Eastern Mediterranean, is very optimistic. It will play a very important role in developing all these proven and possible reserves, either by hosting the necessary infrastructure or companies that will support, operate, and maintain all the networks that are being built.
There is a big opportunity for investment in this kind of activity in Cyprus, around the development and exploitation of the natural reserves in the Eastern Mediterranean basin. Cyprus can do that. As a European country, it can host and support this private sector investment.