STRATEGIC STUDY OF NATURAL GAS SUPPLY TO THE ISLAND OF CRETE FOR POWER GENERATION Executive Summary to the Engineering and Economic Assessment

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1 R7487 November 2004 STRATEGIC STUDY OF NATURAL GAS SUPPLY TO THE ISLAND OF CRETE FOR POWER GENERATION Executive Summary to the Engineering and Economic Assessment PREPARED FOR: Regulatory Authority for Energy 69 Panepistimiou & Aiolou Street GR Athens Greece PREPARED BY: David Haynes, Carol Humphreys, Paul Martin and Nick Stranks. Advantica Ashby Road Loughborough, Leicestershire LE11 3GR United Kingdom Tel: +44 (0) Fax: +44 (0) Website: Advantica Ltd.: Registered in England and Wales No Registered Office: 1-3 Strand, London, WC2N 5EH.

2 Executive Summary Introduction Advantica was contracted by the Regulatory Authority for Energy (RAE) of the Hellenic Republic to undertake a study titled Strategic Study of Natural Gas Supply to the Island of Crete for Power Generation, following the call for tender reference 2003/S Objectives The objectives of the study were to: Provide an engineering and economic assessment of subsea pipelines, liquefied natural gas (LNG) and compressed natural gas (CNG) to Crete. Provide an engineering and economic assessment of available technologies for land-based storage terminals, including regasification terminals. Outline, in detail, the technical specifications for each one of the most suited technical solutions for the shipment and storage of natural gas. This report covers Tasks 1 and 2 of the Advantica technical proposal and has been undertaken in conjunction with the Energy Contract Company (ECC) as a subcontractor; specifications for the most suited technical solutions are contained in a separate report. RAE provided Advantica with details of the proposed site for a gas importation terminal and adjacent power plant at Korakies on the north coast of Crete, and has provided forecasts of electricity production for the period SUMMARY Natural gas demand for power generation The generation of demand scenarios by ECC, in conjunction with RAE, has produced estimates that annual natural gas requirements for power generation are of the order of 500 million normal cubic meters (MNm 3 ) in 2010, rising to around 1,000 MNm 3 in Site location at Korakies The site is not ideal for a gas importation terminal and significant site preparation will be required prior to construction. An initial review has identified that the existing ground level needs to be raised to +7m and shoreline protection added. Site area is limited and careful consideration is required for the power station layout (not included in the scope of the current study). The site is exposed to the predominant wind and waves from the north west. Page ii

3 Subsea pipeline A subsea pipeline, for the natural gas demand scenarios, is not economically feasible. Liquefied natural gas LNG is a mature technology and, in 2003, accounted for 6½% of global gas consumption. LNG import terminals exist in Puerto Rico and the Dominican Republic, at a relatively small scale, for power generation in combined cycle gas turbines. Sufficient supplies of LNG are forecasted to be available to meet the natural gas demand requirements of Crete for power generation. The most likely sources of LNG for Crete are Algeria, Egypt and Qatar. Most LNG suppliers are understood to want to seek to supply Crete on an ex-ship basis; dedicated shipping will not be required in this case. Major suppliers of LNG could supply Crete as part of their existing portfolios. The ability of the import terminal to receive worldscale (138,000m 3 ) LNG ships significantly improves the potential of the buyer or LNG portfolio supplier to contract and deliver spot cargoes to Crete. A breakwater is unlikely to be required for worldscale LNG carriers. A minimum on site storage volume of 160,000m 3 is required for an LNG import terminal serviced by worldscale LNG carriers. A one storage tank (full containment) LNG import terminal is the preferred technical and economic solution for Crete, and minimises the land requirements for the LNG terminal. A two storage tank LNG import terminal is required if full containment storage tanks are constrained, for seismic reasons, to less than 160,000m 3 for the Korakies location. Indicative plot plans have been generated for one tank and two tank LNG terminals. High level capital cost estimates for a one and two tank LNG terminal at Korakies are, respectively, $207 million and $258 million (2004 basis, excluding contingencies). High level operating cost estimates for an LNG terminal at Korakies are $12 million per annum (2004 basis) for high case gas demand scenarios in An economic sensitivity study has shown that LNG remains a lower cost supply option for Crete than gas oil at a terminal capital cost of $350 million (two tank terminal with additional breakwater and project contingencies). Page iii

4 Compressed natural gas The transocean shipment of CNG in not yet commercialised, though a number of developers are nearing commercialisation; CNG technologies have technical, economic, social and political/regulatory hurdles to overcome. No CNG carrier has been built and no orders for a new build are known to have been placed; Crete would require new builds to service a CNG trade. CNG supply from Egypt is considered the most logical source for Crete. It is unlikely that, in the medium term (2010), a prospective gas buyer will be able to obtain from EGAS the level of beach price discount that would make a relatively small supply of gas using CNG attractive as compared to alternative supplies of LNG. CNG importation schemes require gas oil back up systems to ensure security of fuel supply to the power station. CNG developers have been contacted and have outlined their proposed technical solutions for Crete, including providing estimated economics. Factoring in gas oil storage back up systems, CNG project capital costs are higher than establishing an LNG import terminal. Once commercialised and proven, CNG technologies will benefit from traditional learning curves, and could become an interesting proposition for Crete. Hazard and safety Adequate safety measures need to be in place to ensure that the facility does not pose an unacceptable risk to either the onsite workforce or the offsite local population. The design of the gas importation terminal would be covered by the Seveso II Directive; the terminal would be an upper tier Seveso site and would have additional responsibilities including the need for regular safety reports and emergency plans. None of the LNG or CNG options considered is likely to be unacceptable in terms of risk posed to the nearest centre of population 2km from the site. CONCLUSIONS Technically, LNG is proven over four decades and there are no major barriers to establishing a small scale LNG terminal for gas importation on Crete. LNG provides the most competitive cost of gas supply for Crete when compared to natural gas delivered using a CNG delivery system, with fuel oil back up, or the use of gas oil as an alternative fuel. Page iv

5 RECOMMENDATIONS A number of limitations are identified with the power production scenarios run by RAE, and it is strongly recommended that an analysis of the economics of the power production scenarios are carried out in the next phase of the project assessment. A dedicated seismic survey is required and is recommended for the Korakies site as this may impose design limits on aspects of the gas importation terminal, e.g. upper limit of LNG storage tank size. Detailed bathymetric and metocean data for the location of the Korakies site should be collected. The buyer/power station developers fuel purchase strategy must be clearly defined prior to approaching the market. RAE needs to carefully consider storage requirements as these have a significant impact on the design, layout, hazards and safety of the onsite facilities required on Crete. LNG is recommended as the basis for the work in Task 3 with two options being considered: o Supply of LNG using worldscale LNG ships with 1 x 160,000m 3 LNG storage tank. o Supply of LNG using worldscale LNG ships with 2 x 140,000m 3 LNG storage tanks. Page v