LNG import back in the limelight

2025 was a tumultuous year for energy in Cyprus. Its two biggest projects, the import of LNG at Vasilikos and the GSI electrical interconnector, were in the limelight mostly for the wrong reasons.

Both are not progressing and are under investigation by the European Public Prosecutor’s Office EPPO for suspected fraud and corruption.

Developments

The viability of the electrical interconnector GSI project is still being questioned by the finance minister, even though all other involved parties strongly support it. The Cypriot and Greek governments agreed to initiate a new study early-2026 to update project viability. Given the strong support by the European Commission and Greece, the project is likely to overcome these difficulties and move to the next stage. There is also strong support from Israel that may formally join the project in 2026.

The LNG import project is back in the limelight and I cover this in more detail below.

There is also positive news. Commercial exploitation of the Kronos gas-field is on target to start end-2027 or early-2028. The Egyptian petroleum minister offered this week to forego the 20 per cent gas allocation to the domestic Egyptian market, allowing all the gas, around 5bcm/yr, to be exported as LNG to Europe, following liquefaction by Eni at its Damietta LNG plant. This would cover just about 1.2 per cent of Europe’s expected annual gas consumption in 2028. Nevertheless, it will be the first time Cypriot gas reaches international markets, quite an important milestone.

But, by the time gas exports start, according to OIES the price of LNG in Europe is likely to be in the range $6-7/mmBTU due to the large amounts of new LNG entering the market and China’s turn to Russian gas and LNG. With a tolling fee up to $1.50/mmBTU charged on Cronos gas for use of Zohr facilities, profitability will be low. Leaving pollical exuberance aside, Cyprus will see first profits only after 2030, and these are unlikely to exceed 0,7 per cent of current annual government revenues.

The other positive news is that Chevron plans to sanction start of the Aphrodite FEED design as early as this month, even though the Ishai gas unitisation dispute still remains unresolved. However, arriving to a final investment decision (FID) by next year is still fraught with challenges. Commerciality of the project requires the Egyptian government to increase the price it currently pays to its gas suppliers substantially.

Commercial operation of the Competitive Electricity Market started on October 1. But indications are that it will be anything but competitive. With conventional power generation, using diesel/HFO, continuing to set the electricity price, the RES cartel is expected to carry-on using current practices, ie selling renewable electricity at just below EAC prices, making super-profits. Except that now they can claim they are operating in accordance to the rules of the competitive electricity market. And continue making super-profits with little challenge.

The LNG import project

Reacting to the massive publicity the project was receiving, and the mostly negative coverage of the company, the Chinese-led construction firm CPP-Metron Consortium Ltd (CMC), abandoned its silence and came-out presenting its side of the story, in an article in Cyprus Times in early-September. If proved to be right, it is quite revealing.

According to CMC, even though the project contract was signed in December 2019, the project did not really start until September 2020. This was due to the fact that project funding did not become available until May 2020 and appointment of the then project manager, Hills International, was not effected until close to the end of 2020. These problems delayed the two-year project by 10 months right from the start.

At the time, natural gas infrastructure company (Etyfa) was lacking experienced personnel and relied heavily of its project manager. The contract specified that documents, drawings and procurement should be reviewed and responded to within two weeks, but the actual average period was two months. These problems led to substantial delays in the execution of the contract and to the payment schedule to CMC. Etyfa also requested significant changes to the scope of work of the project but did not recognise these contractually.

CMC also said that all project documents, drawings, procurement, materials, equipment and deliverables were reviewed, approved and signed-off by Etyfa and Hills at each step before proceeding on to the next.

With regards to the floating, storage and regasification unit Prometheas (FSRU), upon delivery of the ship on December 9, 2024, Lloyd’s Register issued an LNGC certificate, identifying 12 outstanding works, that can be completed only when the pier at Vasilikos is completed and LNG becomes available. Following the transfer of the vessel, Etyfa provided CMC with a quality guarantee, assuming quality assurance responsibility for the FSRU.

All the above are backed up with detailed documentation and form the basis of CMC’s claim at the arbitration court in London. The Cyprus Times article has all the details.

Despite these problems, CMC states that it is open to dialogue on all issues so that the project can be completed as soon as possible, stressing that it “remains committed to transparency and responsible cooperation.”

Project status

If what CMC claims is corroborated, it paints a sorry picture of the ability of the Etyfa team at that time to manage such an important and complex project.

The project is, of course, at a standstill. The new and experienced project manager, Technip, is in the process of investigating all aspects of the project and the status of the incomplete construction at Vasilikos. It has issued several reports to Etyfa and the energy minister, the last one in early December, but it is still unclear what the recommendations and the timetable to complete the project are.

It is understood that no serious deficiencies have been found. What remains to be completed are the land facilities at Vasilikos, especially the pier, that, from an engineering point-of-view, is relatively simple – and I say this based on first-hand experience.

I believe that given the revelations by CMC, Technip should take-up CMC’s offer for dialogue, to hear its side of the story in the context of the current investigations, and what went wrong, and possibly the way forward. 

Energean has also reiterated its offer to bring natural gas by submarine pipeline from its gas-fields in Israel. This requires the opening of the natural gas market in Cyprus. I understand that UAE’s ADNOC has also expressed interest in the project.

We all agree that priority is to import LNG or gas to bring electricity prices down. The question is when. As of now, we still do not have convincing answers. That’s why all possible options to complete the project should be investigated, with a decision made ASAP to ensure gas becomes available before the end of 2027.