CAIRO - 17 November 2023: Egypt plans to resume liquefied natural gas (LNG) exports by the end of this month or early next month at the latest after the resumption of the natural gas flow from the Tamar field, which was totally suspended since the beginning of the Israeli bombing of Gaza. The government anticipates stabilized natural gas injection rates, coupled with reduced local market consumption following a decline in electricity station usage due to lower temperatures during this period.
Egypt relies on imports of Israeli gas to meet a portion of its domestic demand, as well as for re-export purposes. This comes at a time when the demand for gas in Egypt is increasing, while its production has fallen to its lowest levels in three years this year. The country faces an energy shortage in the summer, where heatwaves lead to increased demand for cooling.
According to the consulting firm Rystad Energy, Egypt imports around 7 billion cubic feet of natural gas annually from the Israeli gas fields Tamar and Leviathan.
Resumption of natural gas flow
Chevron announced on Tuesday, Nov. 14, the resumption of natural gas flow through the East Mediterranean Gas Pipeline from Israel to Egypt after a one-month hiatus ‘due to the ongoing conflict between Israel and Hamas in Gaza’ as the energy company described.
The company confirmed in a press release the resumption of natural gas flow through the East Mediterranean Gas Pipeline on November 14, 2023.
The export flow through the East Mediterranean Gas Pipeline stopped on October 10th, three days after the commencement of the Israeli shelling of Gaza.
The pipeline extends from the city of Ashkelon in southern Israel, about ten kilometers north of Gaza, to Arish in Egypt, where it connects to a land pipeline. The 90-kilometer pipeline is the main link between Chevron-operated Leviathan offshore gas field and Egypt.
The Leviathan consortium includes Chevron as the operator, Israeli company New Med Energy, and Reshef Energies.
The resumption of Egyptian gas exports is crucial for Egypt’s economy, with the country earning $8.4 billion from LNG exports in 2022 and amid the recent developments, the prospect of exporting one million tons of LNG before the end of 2023 has provided a positive outlook.
This came after Egyptian officials confirmed during the beginning of November that gas imports dropped to zero after Israel closed its taps, which will limit efforts to resume liquefied natural gas exports. With gas being cut off to energy-intensive industries to maintain grid supplies, activity outside the energy sector looks set to suffer as well.
An executive from Italy's ENI stated on Tuesday that Egypt is expected to resume exports of LNG in December or January as domestic demand declines during winter and as it receives more gas from Israel.
"Consumption in Egypt is reducing and we would expect by December, possibly January, (LNG) exports could resume," Cristian Signoretto, director for ENI's global gas and LNG portfolio, told reporters on the sidelines of an industry conference in London.
In 2022, Egypt directed 80 percent of its LNG exports to Europe as the continent sought alternatives to Russian pipeline gas following the invasion of Ukraine. However, LNG exports for the current year have been limited due to heightened domestic demand during the summer, resulting in minimal or zero LNG exports from May to September.
Middle East and North Africa Economist at Capital Economics, James Swanston, commented that Natural gas production in Egypt has been in decline since the fourth quarter (Q4) of 2021, but consumption has grown fast in 2023. As a result, Egypt has become a net gas importer for the first time since 2020. A large share of this gap had been plugged by Israeli exports.
“Meanwhile, there had been hopes from Egyptian officials that as seasonal demand fell, Egypt could restart re-exports of gas via its LNG terminals in Damietta and Idku. All else equal this would have provided a much-needed fillip to Egypt’s hard currency receipts. This now seems unlikely and will mean that the FX crunch in the economy persists and could intensify the rationing by the central bank,” Swanston added.
The size of foreign direct investment (FDI) inflow in the sector in FY 2021/2022 amounted to $4.7 billion, which composed 21.2 percent of the country's total. Also, natural gas and LNG exports jumped by 154 percent in 2022 compared to the previous year hitting $9.9 billion up from $3.9 billion. That is mostly attributed to the reoperation of the Damietta gas liquefaction plant after an eight-year hiatus.
He added that the hit to gas imports has led to cuts in supply to industry – fertilizer manufacturers are reporting declines of at least 30 percent. This gas has been rerouted to the national grid to reduce the frequency of electricity blackouts. With industrial output 15 percent below pre-virus levels, further restrictions on gas could exacerbate this and weigh on GDP growth.
Days before the israeli aggression on Gaza, the Minister of Petroleum, Tarek El Molla, announced that Egypt's imports of Israeli gas for export purposes are expected to increase by about 30 percent in the near future, following the Egyptian-Israeli-European gas agreement that has already led to a 40 percent increase in the quantity of gas imported from Israel to Egypt since January 2021.
He added that Egypt's current gas production rate is approximately 6 billion cubic feet per day, and the stability of these rates by the end of the current fiscal year is subject to companies' commitment to implementing field development and growth operations to achieve production targets.
Israeli gas primarily serves the local market and is also exported to Jordan and Egypt, which liquefies the gas and exports it to Europe.
Israel began exporting natural gas to Egypt in January 2020, marking the most significant deal since the Camp David Peace Accords between the two countries in 1979.
Israel aims to increase gas supplies to Egypt, as the government approved a plan in May 2022 to build a pipeline in the south of the country, stretching 65 kilometers to the border with Egypt, to transport 6 billion cubic meters of gas annually.
Egypt has two natural gas liquefaction plants with a total daily production capacity of 2.1 billion cubic feet, and exports depend on its surplus production and gas imports from neighboring countries.
Both plants, which are on the Mediterranean coast, can export 12 million metric tons annually; a target the country aims to achieve by 2025.
The Egyptian government seeks to enhance its gas production capacities in response to rising domestic consumption, aspiring to become a regional gas hub, especially after the discovery of the "Zohr field" in 2015. This discovery stimulated investor interest in the Egyptian gas sector, enabling the country to export significant quantities of LNG.
Italian energy company Eni anticipates commencing production from the Orion-1X gas well in the Eastern Mediterranean in Egypt. The well holds reserves of 10 trillion cubic feet and is expected to start production within three years with an investment cost of $130 million.
Egypt's exports of liquefied natural gas amounted to about 3 million tons during the first half of 2023, according to El Molla, who added that his country would resume exports in October after the summer season, during which Egypt stops exports to meet domestic needs. He expected that export volumes in the first half of 2024 would not be lower than those achieved in 2023.
Egypt's natural gas exports increased by 14.3 percent in 2022 to 8 million tons, compared to 7 million tons in 2021, earning $8.4 billion from gas exports in 2022, up from $3.5 billion in 2021, a 140 percent increase.
Egypt continued its liquefied gas exports until last June, before the country, aspiring to become a regional natural gas hub, halted exports in July due to a power crisis - the first since 2014 - caused by rising temperatures and a shortage of the necessary fuel to operate power stations at their required capacity.
Egypt, having become a central hub for energy exchange in the Eastern Mediterranean and Europe, aims to continue exploiting its energy resources optimally. The recent exploration and production activities in Egypt by foreign companies, including Eni's plans for $7.7 billion worth of new investments in the next four years, underscore the country's growing significance in the global energy market.