Egypt’s years-long aspiration to end up being a local gas center and a significant exporter of melted gas (LNG) seems in jeopardy as deliveries to Europe ground to a stop in June.
To make matters worse, the nation saw regular power cuts throughout the summertime due to a scarcity of gas to provide its own power plants.
Everything comes as Egypt deals with a serious financial obligation crisis, indicating that the foreign currency LNG exports would have generated is now required more than ever.
The circumstance pleads the concern: Is the stop in exports simply a misstep for Egypt’s aspirations, or are the issues more structural?
Increased domestic need
Egypt has the just 2 liquefaction plants in the Eastern Mediterranean, which suggests that nations like Cyprus and Israel– who have significant fields however do not require much for the domestic market– would require it to turn their gas into LNG so it can be delivered to Europe.
Its most significant gas field, Zohr which was found in 2015 in the Mediterranean and came online in 2017, has actually improved its gas aspirations, as it produced enough for domestic need along with export.
Zohr represent near 40 percent of Egypt’s overall gas output, with an approximated 850 billion cubic metres of gas, the equivalent of some 14 years of Egypt’s domestic intake according to 2022 numbers.
The energy crisis in Europe as an outcome of the Ukraine war increased gas costs considerably, offering a chance for Egypt. LNG exports peaked at 8.9 billion cubic metres in 2022, creating $8.4 bn in earnings, compared to $3.5 bn the year prior to.
In February, Energy Minister Tarek el-Molla stated Egypt anticipated 50 percent less profits from gas exports as an outcome of a worldwide drop in natural gas costs.
In April, Egypt’s trade deficit increased by practically 24 percent year-on-year, driven by a decrease in the worth of gas exports.
In June, no LNG was exported at all as gas accessibility stopped working to satisfy the greater summertime domestic need for electrical power, resulting in set up power blackouts in Egypt through the summertime.
El-Molla stated LNG deliveries would resume in October when electrical power need drops with the start of fall.
On increased domestic need, Karim Elgendy, a non-resident scholar at the Middle East Institute, indicated an “boost in need by energy-intensive markets due to [an earlier] federal government choice to support those markets”.
A market expert, who asked for to be mentioned anonymously, stated Egypt had actually stopped importing diesel and fuel oil and for this reason required more gas to provide its own power plants.
The choice was referred to as “a mistake” by the expert, as the federal government reversed the choice in July and began to import more fuel oil and diesel once again.
The federal government itself indicated a greater than expected summer season need for electrical energy, due to the abnormally heat, as the factor for the greater gas need.
Aside from that, Egypt’s electrical energy need naturally grows each year due to population development and the connection of more families to the grid.
Dependence on imports
On the supply side, the photo is rather uncomplicated: Domestic gas production reduced in Egypt, especially due to a drop in the Zohr field’s output.
Overall gas output was up to a three-year low in the 2nd quarter of 2023, oil and gas analysis platform MEES reported.
There have actually been reports that technical concerns such as water penetrating the undersea gas tank triggered the decrease, however the federal government rejected any such issues.
Market sources indicate the natural exhaustion of wells in the Zohr field, an absence of financial investments to keep production up and less brand-new discoveries, as factors for the decreasing gas production.
“Gas production […] does struggle with high decrease rates that require the oil business … to continually work their fields and likewise include brand-new discoveries,” Peter Stevenson, editor at MEES, informed Al Jazeera.
In August, President Abdel-Fattah el-Sisi fulfilled the CEOs of global oil and gas business BP and Eni, who revealed billion-dollar financial investment strategies in Egypt, according to declarations by the Egyptian presidency.
These financial investments would be topped numerous years and might increase or a minimum of stabilise regional production.
‘Razor-thin’ margins
The production drop of Zohr is not brand-new, output has actually been reducing for 2 years.
Egypt has actually had the ability to continue exporting LNG since of Israeli gas imports, however in the summer season of 2022 the surplus was currently “razor-thin”, Stevenson stated.
“The composing basically was on the wall from in 2015 however the authorities didn’t predict that there would be a more fall in Zohr output this year.”
Israel’s gas network is linked by a pipeline to Egypt, that makes it appropriate for transportation.
In 2022, Israel exported 5.81 billion cubic meters of gas to Egypt, a record high. Egypt, Israel and the European Union likewise signed a “historical arrangement” in June in 2015 to enhance gas exports to the EU, and in August, Israel authorized an additional boost in gas exports to Egypt.
Coping with such a boost in Israeli gas circulation needs a facilities upgrade, which is just anticipated to be finished by 2025 or 2026.
The other gas-rich neighbour is Cyprus.
For Egypt to re-export Cypriot gas would need developing a pipeline from the gas fields in Cyprus to Egypt.
A consortium of worldwide oil business prepares to purchase such a pipeline, however Cyprus chooses to have its own drifting LNG terminal, which would bypass Egypt.
The United States federal government favours a pipeline to Egypt over the drifting LNG terminal, with a United States source informing the Reuters news firm in early September that including Egypt in the gas plan would assist “with peak domestic usage in the summer season, include stability and minimize stress in the area, and enable exports for Europe”.
In any case, that pipeline would take years to finish.
None of this indicates that Egypt must rack its gas center aspirations, according to Elgendy.
“The center status had to do with the East Med and not Egypt’s own gas, so as long as increased Israeli and Cypriot gas circulation into the LNG centers [in Egypt] the Egyptian aspirations will stay high,” he stated.
Stevenson kept in mind, “any boost in Israeli or even Cypriot gas will not be for a number of years”.
He anticipated Egypt to be able to export “some volumes of LNG” in winter season, however deal with scarcities in summertime that might once again result in power interruptions, “up until it can either make more discoveries or import more local gas”.