Powering up the Mediterranean LNG Market
The introduction of strict new European Union emission legislation is encouraging small Mediterranean island communities to invest in new power plants to accommodate liquefied natural gas (LNG) and other alternative fuels. This feature examines plans by five islands with markedly small populations to switch to LNG for gas-to-power projects, ship bunkering and other uses.
Drivers Favouring the Use of LNG
Apart from European emissions legislation, there are a number of other factors favouring the adoption of LNG. These include technological advances, the prospect of new gas fields or pipelines, plus the need to cut energy costs and improve energy security.
Policy
The policies of the European Union (EU) and the International Maritime Organisation (IMO) encourage decarbonisation, from which LNG, as a fuel for power generation on islands and for propulsion of maritime vessels, is a major beneficiary. EU energy policy seeks to cut power prices, increase security of supply and reduce environmental damage from energy production. As for the International Maritime Organisation (IMO), it introduced a global limit on sulphur fuel of 0.5 % mass/mass from 2020 and has agreed an initial greenhouse gas (GHG) emissions reduction strategy, requiring international shipping to reduce total annual GHG emissions by at least 50% by 2050 as a matter of urgency.
Technology
Technological advances have made viable the delivery and storage of smaller quantities of LNG than was customary until recently, thus opening up new markets. For example, the introduction of floating regasification facilities and smaller LNG bunker ships or barges, have opened up markets previously viewed as uneconomic. As Shell’s Chief Financial Officer, Simon Henry, points out, “floating regasification is quick and you can develop (a market) in stages.” Also, smaller LNG delivery vessels are ideal to meet the needs of island communities and of shipping traffic. Portugal’s Galp Energy, France’s Total and Anglo Dutch Shell are investing in such vessels to fuel the growing number of LNG- fuelled vessels in the world fleet. As of March 2017, the number of in-service and on-order fleet of LNG-powered sea-going ships had reached the 200 mark with 97 LNG-fuelled ships on order, reports LNG World Shipping, March 2017.
In addition, like all power generation modes, the cost of construction of gas power plants has declined, concludes the EIA’s Electric Generator Construction Costs report, July 2017. This report found that the average cost of natural gas generators installed in the US in 2015 was 28 percent lower at just $696/kW than in 2013.
New Gas Fields and Pipelines
The prospect of accessing new offshore gas fields, as in the case of Cyprus, and new subsea pipelines, as in the case of Malta, Crete and Cyprus, have encouraged adoption of LNG to kick-start the use of gas.
Mediterranean LNG
The next section takes a look at five EU Islands' LNG projects.
The Canary Islands
Enagás, Spain's natural gas transmission system operator (TSO), is a member of the consortium constructing two LNG regasification terminals on the Canary Islands: one at Granadilla on the island of Tenerife, which came on-stream in 2017, and one at Arinaga on the southern coast of Gran Canaria, which came on stream in 2018. Each terminal has a regasification capacity of 150,000m³/hour, a 150,000m³ storage tank and a jetty capable of accommodating vessels of up to 145,000m³, according to Enagás. The owner/operator Gascan has major shareholders including Enagás and utility Endesa, each with about 44 percent and Sodecan, a public company owned by the government of the Canary Islands, with nearly 11 percent.
The Canaries with a domestic population of 2.1 million receives nearly 6 million tourists a year which places a heavy demand on power supplies. LNG will allow the Canary Islands to shift from dirty oil to gas power and cut carbon emissions, provide back-up for renewables and cut power prices. The LNG terminal’s bunkering facilities have already attracted Carnival Lines’ AIDAnova, the world’s first LNG powered cruise ship, to make 7 day tours around the region, with the promise of more to follow.
Madeira in Portugal
Madeira with a domestic population of just over quarter of a million is swollen by 1.5 million tourists a year. Since 2014, Madeira has received LNG from a virtual pipeline delivery system run by Grupo Sousa. Grupo Sousa regularly supplies some 500m³ of LNG by Gáslink Gás Natural S.A to the 54 MW gas power plants on Madeira. Between 2014 and 2017, “there have been over 4,300 operations without incidents or accidents” states, Pedro Amaral Frazão, Director, Grupo Sousa. The virtual pipeline is composed of specially constructed 55 Chart Ferox ISO containers, each 40 feet long, which are filled at Sines LNG Terminal on Portugal’s mainland and transported through the Port of Lisbon across 950 km of sea, unloaded and transported by road to Portugal’s newest satellite LNG plant on Madeira. There are now plans to expand use of LNG to a redeveloped hotel, the local hospital as well as ship refuelling. In December 2017, Portugal’s main gas supplier, Galp, achieved a first for an Atlantic island by supplying LNG to the cruise ship AidaPrima in the port of Funchal. Galp plans to scale this up to meet rising demand in coming years, which would require a commensurate increase in scale of the virtual pipeline
Delimara in Malta
Malta, with less than half a million inhabitants, receives around 2 million tourists a year and is a favoured location for winter sun. Malta made the decision to replace its oil-fired power generation with LNG delivered by tankers back in 2014. The ElectroGas Malta LNG-to-Power development was completed in October 2016 and includes a floating liquid natural gas storage unit lying in Marsaxlokk Bay and a new combined cycle gas fired power plant. The storage unit supplies gas to the new 215MW Delimara 4 power plant as well as to an existing power plant, the 149 MW Delimara 3, which produce power for Maltese utility Enemalta. Franz Dörfler, CEO of ElectroGas Malta Ltd (EGM), commented on the project that “the old system was unclean and unsustainable because heavy fuel oil is one of the most polluting energy fuels around.” Moreover, this investment seeks to satisfy both EU and domestic objectives to reduce electricity prices, to reduce environmental damage from energy production, and to increase security of supply by diversifying the energy mix. In this it has been successful, reducing particulate matter in the air by a staggering 90 percent as of December 2017, according to the Siemens website. It has also reduced customer’s electricity costs by 20 percent, and brought overall emissions down to 50 percent of the EU’s emission standards.
In the longer term, the floating gas tanker in Marsaxlokk Bay - which currently provides LNG to the Delimara power plant - could be succeeded by a €322 million 150km subsea gas pipeline connecting Malta with Sicily. Malta Today reported this month that public consultations about the pipeline have just begun.
Heraklion Port in Crete
Work is underway to assess the feasibility of making Crete ‘s Heraklion port into an energy hub for the Southern Aegean Sea Region. The study is co-funded by the European Union Poseidon Med II project, the Heraklion Port Authority S.A., the Hellenic Gas Transmission System Operator S.A. and Ocean Finance Ltd. It involves three countries (Greece, Italy and Cyprus) and six EU ports (Piraeus, Patra’s, Limassol, Venice, Heraklion, Igoumenitsa), as well as the Revithoussa LNG terminal near Athens. If it goes ahead, LNG bunkering facility could supply fuel for international shipping routes between south east Europe and the Suez Canal as well as a regional bunkering supply base for the various small power plants on nearby island communities.
Cyprus
Cyprus, with a population of just 1.1 million, is another favoured tourist destination with the number of visitors exceeding half a million in July alone last year and thus putting pressure on power supplies. To help Cyprus meet environmental and energy policy targets for 2020, the EU has agreed to partially fund the cost of building the infrastructure necessary for a switch from burning heavy fuel oil (HFO) to natural gas supplied by LNG imports as a prelude to the time when Cyprus develops its own offshore gas fields, including the 4.5 trillion cubic feet Aphrodite.
The estimated cost of infrastructure development is €250m. This excludes the FSRU, but includes the building of a jetty, metering facilities and onshore pipelines to transport regasified gas to the Cyprus Electricity Authority’s (EAC) power generation plants. Port facilities and an emergency shelter for the FSRU, in case of adverse weather conditions, are estimated to add another €100m to the cost of the project.
The two tenders for the whole project covering the construction of the infrastructure and supply of LNG were announced this Spring. Last year’s EU Connecting Europe Facility (CEF) programme allocated €101.5m for the energy-related components of this infrastructure project, but excludes the cost of building port facilities or leasing the FSRU. Under current proposals the FSRU would start operations in January 2020 and could continue until the end of 2039. The winning bidder will receive a fixed income for the first 10 years regardless of the quantities of imported and regassified LNG, at the end of which the contract could be extended for another decade. The project will not only meet local power needs but will also provide LNG bunkering for shipping.
Cyprus’s gas needs for power generation are modest and could start at 1 bcm (billion cubic metres) a year in 2020, growing to around 1.8 bcm annually by 2025. This increase presupposes the establishment of a natural gas supply system to increase gas usage among to industrial, transport, residential customers.
What these mini case studies of Mediterranean islands demonstrate is how small-scale markets for LNG are now economically viable, thanks to technological advances like FSRUs and the adoption of decarbonisation targets by the world fleet for future ship bunkering.
