Out of gas? Egypt’s ambitions to become a regional gas hub are dwindling | Oil and Gas News

Egypt’s years-long ambition to turn into a regional gasoline hub and a significant exporter of liquefied pure gasoline (LNG) seems to be in jeopardy as shipments to Europe floor to a halt in June.

To make issues worse, the nation witnessed frequent energy cuts all through the summer time months because of a scarcity of gasoline to provide its personal energy crops.

All of it comes as Egypt faces a extreme debt disaster, that means that the international forex LNG exports would have introduced in is now wanted greater than ever.

The scenario begs the query: Is the halt in exports merely a hiccup for Egypt’s ambitions, or are the issues extra structural?

Elevated home demand

Egypt has the one two liquefaction crops within the Japanese Mediterranean, which implies that international locations like Cyprus and Israel – who’ve main fields however don’t want a lot for the home market – would want it to show their gasoline into LNG so it may be shipped to Europe.

Its largest gasoline subject, Zohr which was found in 2015 within the Mediterranean and got here on-line in 2017, has boosted its gasoline ambitions, because it produced sufficient for home demand in addition to export.

Zohr accounts for near 40 % of Egypt’s whole gasoline output, with an estimated 850 billion cubic metres of gasoline, the equal of some 14 years of Egypt’s home consumption as per 2022 numbers.

The power disaster in Europe because of the Ukraine war elevated gasoline costs dramatically, offering a possibility for Egypt. LNG exports peaked at 8.9 billion cubic metres in 2022, producing $8.4bn in revenues, in comparison with $3.5bn the yr earlier than.

Nevertheless, in February, Vitality Minister Tarek el-Molla mentioned Egypt anticipated 50 % much less income from gasoline exports because of a world drop in pure gasoline costs.

In April, Egypt’s commerce deficit elevated by virtually 24 % year-on-year, pushed by a decline within the worth of gasoline exports.

In June, no LNG was exported in any respect as gasoline availability failed to satisfy the upper summer time home demand for electrical energy, resulting in scheduled energy blackouts in Egypt via the summer time months.

El-Molla mentioned LNG shipments would resume in October when electrical energy demand drops with the beginning of autumn.

On elevated home demand, Karim Elgendy, a non-resident scholar on the Center East Institute, pointed to an “improve in demand by energy-intensive industries because of [an earlier] authorities choice to assist these industries”.

A market analyst, who requested to be cited anonymously, mentioned Egypt had stopped importing diesel and gasoline oil and therefore wanted extra gasoline to provide its personal energy crops.

The choice was described as “a miscalculation” by the analyst, as the federal government reversed the choice in July and began to import extra gasoline oil and diesel once more.

The federal government itself pointed to the next than anticipated summer time demand for electrical energy, because of the unusually sizzling climate, as the explanation for the upper gasoline demand.

Apart from that, Egypt’s electrical energy demand naturally grows every year because of inhabitants development and the connection of extra households to the grid.

Reliance on imports

On the availability aspect, the image is reasonably easy: Home gasoline manufacturing decreased in Egypt, significantly because of a drop within the Zohr subject’s output.

Whole gasoline output fell to a three-year low within the second quarter of 2023, oil and gasoline evaluation platform MEES reported.

There have been experiences that technical points corresponding to water infiltrating the undersea gasoline reservoir triggered the decline, however the authorities denied any such issues.

Business sources level to the pure depletion of wells within the Zohr subject, an absence of investments to maintain manufacturing up and fewer new discoveries, as causes for the declining gasoline manufacturing.

“Fuel manufacturing […] does undergo from excessive decline charges that want the oil firms … to constantly work their fields and likewise add new discoveries,” Peter Stevenson, editor at MEES, informed Al Jazeera.

In August, President Abdel-Fattah el-Sisi met the CEOs of worldwide oil and gasoline firms BP and Eni, who introduced billion-dollar funding plans in Egypt, based on statements by the Egyptian presidency.

These investments could be unfold over a number of years and will enhance or at the least stabilise native manufacturing.

‘Razor-thin’ margins

The manufacturing drop of Zohr is just not new, output has been reducing for 2 years.

Egypt has been in a position to proceed exporting LNG due to Israeli gasoline imports, however in the summertime of 2022 the excess was already “razor-thin”, Stevenson mentioned.

“The writing primarily was on the wall from final yr however the authorities didn’t foresee that there could be an extra fall in Zohr output this yr.”

Israel’s gasoline community is related by a pipeline to Egypt, which makes it appropriate for transport.

In 2022, Israel exported 5.81 billion cubic meters of gasoline to Egypt, a report excessive. Egypt, Israel and the European Union additionally signed a “historic settlement” in June final yr to spice up gasoline exports to the EU, and in August, Israel approved a further increase in gasoline exports to Egypt.

Nevertheless, dealing with such a rise in Israeli gasoline circulation requires an infrastructure improve, which is simply anticipated to be accomplished by 2025 or 2026.

The opposite gas-rich neighbour is Cyprus.

For Egypt to re-export Cypriot gasoline would require constructing a pipeline from the gasoline fields in Cyprus to Egypt.

A consortium of worldwide oil firms plans to spend money on such a pipeline, however Cyprus prefers to have its personal floating LNG terminal, which might bypass Egypt.

The US authorities favours a pipeline to Egypt over the floating LNG terminal, with a US supply telling the Reuters information company in early September that involving Egypt within the gasoline scheme would assist “with peak home consumption in the summertime, add stability and scale back tensions within the area, and permit exports for Europe”.

In any case, that pipeline would take years to finish.

None of which means that Egypt ought to shelf its gasoline hub ambitions, based on Elgendy.

“The hub standing was concerning the East Med and never Egypt’s personal gasoline, so so long as elevated Israeli and Cypriot gasoline circulation into the LNG amenities [in Egypt] the Egyptian ambitions will stay excessive,” he mentioned.

However, Stevenson famous, “any improve in Israeli and even Cypriot gasoline received’t be for a number of years”.

He anticipated Egypt to have the ability to export “some volumes of LNG” in winter months, however face shortages in summer time months that might once more result in energy outages, “till it could actually both make extra discoveries or import extra regional gasoline”.