Cyprus LNG terminal under investigation; construction terminated

The first liquefied natural gas (LNG) import terminal in Cyprus, located at Vasilikos, has come under scrutiny with the European Public Prosecutor’s Office (EPPO) launching an investigation into the project’s handling and funding.

This development coincides with the Chinese-led consortium, CPP-Metron Consortium Ltd (CMC), terminating its involvement in the construction.

The investigation by the EPPO, which aims to safeguard the financial interests of the European Union, has raised concerns about the project’s future. A spokesperson for the EPPO stated, "Our investigation is focused on ensuring European funds are used appropriately and transparently, particularly in projects of such strategic importance."

The project, centred around a floating storage regasification unit (FSRU), is a cornerstone of Cyprus’s strategy to transition from oil to natural gas, thereby enhancing energy security and reducing costs.

The FSRU, Etyfa Prometheas, underwent conversion at Shanghai COSCO Shipping Heavy Industry, marking China’s first MOSS spherical tank LNG carrier conversion and is seen as part of the greater "One Belt, One Road" initiative.

The vessel, now capable of transferring LNG at a rate of 10,000 m³ per hour and delivering natural gas at pressures up to 70 Bar, represents a significant technological achievement.

Despite these advancements, the project has encountered numerous delays and complications.

Initially projected to be operational by 2021, the completion date has been repeatedly postponed, with the latest estimate extending to late 2024 or early 2025.

Cyprus energy minister George Papanastasiou revealed only 40% of the construction was completed by early 2023, a stark contrast to the anticipated 90%.

These delays have been attributed to technical challenges, supply chain disruptions from the Covid-19 pandemic, and financial disputes between Cyprus and China Petroleum Pipeline Engineering Co Ltd (CPP), a key player in the consortium.

In addition to construction delays, CMC has filed for arbitration, seeking additional compensation due to increased costs and disagreements over contract specifications, particularly concerning cryogenic pipelines.

The Cypriot government has responded by intensifying efforts to resolve these issues and expedite the project’s completion.

President Nicos Anastasiades and energy minister Papanastasiou have convened several high-level meetings to address these challenges and ensure the project’s timely completion.

Financially, the project is bolstered by significant European support, with loans from the European Investment Bank and the European Bank for Reconstruction and Development, along with a €101M (US$110M) grant from the EU’s Connecting Europe Facility.

This funding underscores the strategic importance of the Vasilikos LNG terminal for regional energy security and integration into the European energy network.

As the project moves toward its new completion target, it is poised to supply natural gas to the Vasilikos Power Station and potentially other power plants across Cyprus, playing a crucial role in the island’s energy transition.

However, the ongoing investigation and potential for further delays continue to cast a shadow over the project’s prospects.