In February 2022, the Cyprus Organisation for Storage and Management of Oil Stock – COSMOS (KODAP) released its 2022 budget. Out of €119 million, over €34 million is allocated to the construction of a strategic oil reserve storage at Vasiliko, with another €23 million budgeted to be spent in 2023. In addition, over €28 million was earmarked for spending in 2021, but presumably, with the project still to start, this has not actually been spent. According to sources, at a time when Cyprus is committed to the replacement of oil with natural gas for power generation, as well as to significantly increase the use of renewables in transport, this project raises a whole lot of questions.

According to the latest Ministry of Energy announcements, the import of LNG will commence in July 2023. It is reasonable to assume that by 2024 the Electricity Authority of Cyprus (EAC) will no longer be importing oil, other than keeping some reserves to ensure the security of supplies should there be any problems with the import of LNG.

By law, the amount of stock that KODAP must maintain must correspond to 90 days of average daily oil product imports. According to its own estimates, with the import of LNG, this should drop to about 415,000 tonnes by 2024. However, no allowance appears to have been made for the increasing use of electric cars and renewables in transport.

According to the details provided in the 2022 budget, KODAP’s project will involve the construction of 11 storage tanks with 430,000 cubic metres total capacity, mainly to store petrol, diesel and jet fuel, and appropriate support facilities. It will be constructed in 2 phases, with the first proposed to start in 2022. It will include 6 storage tanks with 210,000 cubic metres capacity to be constructed at Vasiliko, and budgeted to cost €58 million. Out of this, €35 million will be provided through a loan from the European Investment Bank (EIB), and the remainder from other loans.

KODAP estimates that the savings from building and using its own storage facilities will lead to €70 million in savings over time, presumably by not having to pay others to store its strategic oil reserves on its behalf. But it has not given any details or indicated over what time period this will be achieved.

Currently, 180,000 tonnes of oil products are stored on behalf of KODAP at Vasiliko and 61,000 tonnes in Greece. EAC has 125,000 tonnes in reserves, with another 70,000 tonnes in reserves of various oil products kept by oil marketing companies. KODAP is also hiring an additional 80,000 tonnes in reserves.

A switch to natural gas, renewables in transport and KODAP’s strategy

EAC has 6 storage tanks at Vasiliko, each with 32,000 cubic metres capacity. With the switch to natural gas, scheduled in 2023, EAC will retain 2 of these tanks to store mazut and diesel as a backup; this will leave 4 tanks, with 128,000 cubic metres capacity, unused and idle. In addition, EAC has 8 storage tanks, each with 12,500 cubic metres capacity, at Dhekelia. With the Natural Gas Public Company (DEFA) planning to extend the supply of natural gas to Dhekelia in future, this could release 6 tanks with 75,000 cubic metres capacity for future strategic oil storage use.

In regards to renewables in transport, as part of the EU’s drive for clean energy, Cyprus was committed to achieving a 10% share of renewable fuels in transport by 2020; however, it only achieved 7.4%. The EU target for 2030 is 14%, but with the ‘Fit-for-55’ package reinforcing the role of electrification in transport, expectations are that it will be increased substantially, likely to 26%.

Nevertheless, the aforementioned can only be achieved through a combination of increased use of renewable fuels and electric cars. With regards to the latter, Cyprus currently occupies the bottom position in Europe, with only 0.5% of newly registered cars being electric by 2020. In addition, in response to the Ukraine crisis, Europe is considering adopting a new energy target of reducing consumption of fossil fuels within the European Union by 40% by 2030; this is bound to have a direct impact on Cyprus over and above existing commitments.

As a result, it is not unreasonable to assume that this will impact KODAP’s strategic fuel storage requirements, likely to be reduced to less than 350,000 cubic metres by 2030. This reduction will of course have to be effected gradually between 2022 and 2030.

Cyprus’ recent offshore gas discovery

Following up on the discovery made at Calypso-1 on Block 6 off the coast of Cyprus in 2018, on August 22 2022 TotalEnergies and operator Eni announced they had made a significant gas discovery at the Cronos-1 well in the same block.

Located at approximately 160 kilometres southwest of the Cypriot coast, Cronos-1 encountered several good quality carbonate reservoir intervals and confirmed overall net gas pay of more than 260 metres. As stated by the TotalEnergies’ Senior Vice President of Exploration, Mr. Kevin McLachlan, “this successful exploration well at Cronos-1 is another illustration of the impact of our exploration strategy, which is focused on discovering resources with low technical cost and low carbon emissions to contribute to energy security including to provide additional sources of gas supply to Europe”. The drilling of another exploration well on Block 6 is planned in order to investigate significant additional resource upside and to evaluate the best development options.

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Currently, TotalEnergies holds a 50% stake in Block 6, where Eni holds the remaining 50% stake. In Cyprus, TotalEnergies is also present in offshore Block 11 (50% stake and operator), Block 7 (50% stake and operator), Block 2 (20% stake), Block 3 (30% stake), Block 8 (40% stake), and Block 9 (20% stake).

There is so much more to see in this very special corner of Europe, that despite all political risks involved, continues to offer some very promising commercial discoveries to the energy industry. Also, IN-VR’s team, more specifically the company’s Co-Founder and Co-CEO, Chryssa Tsouraki, has been working in the region for the past 11 years, fortifying IN-VR’s expertise and networking capabilities in Cyprus and the rest of the region.

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