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Egypt breaks LNG export records with eye on Europe

The country recorded 10-year high sales in 2021 following a jump in global prices and resumption of production in its second liquefied gas facility, a flow local authorities hope to maintain as they try to become a regional hub and major player in the market.
Qatari liquefied natural gas carrier Duhail passes through the Suez Canal near the port city of Ismailia, Egypt, April 1, 2008.

Cairo — At the end of January, the Gaslog Glasgow departed from the liquefied natural gas (LNG) plant in Damietta, Egypt, and set course for the Gate Terminal in Rotterdam, the only LNG import facility in the Netherlands. With a capacity of 174,000 cubic meters, this was the first such shipment ever from Egypt to the Netherlands, which operates as a hub for the supply of this type of natural gas in the strategic northwest Europe.

The shipment symbolically opened the door to a new market at a particularly good time for Egyptian LNG exports. Last year, fueled by an unusually favorable context, Egypt recorded a 10-year high in LNG sales, a flow that local authorities hope to maintain at least in the short term as the country moves to position itself as a regional hub for the trade and distribution of natural gas and to become a major player in the LNG market.

“[The shipment] was significant for two reasons: the first one, of course, because it’s the first ever; and the second one is that I found it strange that Egypt was not on their side if the Dutch needed to have LNG,” Cyril Widdershoven, a global energy market expert and founder of Verocy, a risk consultancy in the Netherlands, told Al-Monitor.

Egypt’s road to LNG exports has not been an easy one. For much of the last decade, and especially in the years following the tumultuous 2011, the country has depended heavily on gas imports, to the extent that in 2016 it had to spend some $3 billion to this end. The situation started to reverse rapidly in 2018 after the discovery of new major gas fields, the introduction of far-reaching reforms in the sector, the payment of most dues accumulated to foreign partners and the arrival of extensive foreign direct investments in the industry.

The work done over the past few years laid the groundwork for Egyptian LNG exports to register a large increase in 2021, marked by a particularly favorable context. Exports from the Idku plant, one of Egypt’s two liquefied gas facilities, picked up after the fall experienced disruptions amid the early coronavirus pandemic. And the second such facility — the Damietta plant — resumed its production at the end of February after an eight-year hiatus, benefiting from a jump in global LNG prices. The spokesman of the Ministry of Petroleum, Hamdi Abdel-Aziz, considered back then that the return of both plants to operation “will mark the revival and prosperity of Egypt’s LNG production.”

At least for now, figures prove him right. Egypt’s exports of natural and liquefied gas jumped during 2021 by 550% to reach $3.9 billion, compared to $600 million the year before, according to a statement attributed to the country’s Minister of Petroleum Tarek el-Mulla, issued Feb. 2 on the ministry’s Facebook page. In December, Mulla detailed that Egypt exports about 1.6 billion cubic feet per day of gas through its two LNG plants. And in a statement following the general assembly of the Egyptian Natural Gas Holding Company (EGAS) Feb. 11, the minister said that the total amount of natural gas and LNG exports reached 3.5 million tons during the first half of Egypt’s current fiscal year, which starts in July, and that he expects them to rise to 7.5 million tons by the end of it.

“The question is: Are we closing the valve or are we opening it?” Hussein Mesharafa, managing director at Transmed Energy, a consulting company involved in the oil and gas industry, told Al-Monitor. “[Now] it’s about the monetization of this gas, it’s about what is the market attitude toward our gas. The gas will keep flowing and Egypt will keep exporting, whether it is exponentially, gradually or at high [levels].”

This important increase in LNG exports has brought Egypt significant economic benefits. During the EGAS general assembly, Mulla stressed that the strong performance of the natural gas sector contributes to Egypt’s domestic product and export growth, maximizing dollar revenues and limiting the impact of the current rise in international oil prices on the value of the country’s import bill for crude oil and petroleum products.

The key now is to what extent domestic factors will allow Egypt to maintain this positive export path as it tries to become a major player in the market. And whether the country can step in and benefit from the current climate of tension between Russia and Europe, and the latter’s efforts to accelerate its plans to reduce its gas dependence on Moscow.

“The demand [is] there, the market is for sure there, the resources are also there. The main concern was that when [Egypt] offered LNG, the price they were asking was a little bit high. Of course, the price of LNG right now is definitely there. Egypt is able to ask almost whatever they want,” Widdershoven noted. “What Egypt should be looking for is to set up a more long-term cooperation with northwest Europe.”

While Egypt cannot be compared to major gas exporters such as Qatar, the country has several factors in its favor to play a growing role in meeting the European Union’s LNG needs. In addition to significant gas reserves, these include close ties with the EU, the small distance between the two, the fact of being surrounded by smaller exporters with a lack of liquefaction capacity and a still untapped gas liquefaction capacity.

In this context, securing a more stable access to the LNG market — instead of pipelined gas — and diversifying its sources of supply is at the heart of the energy security strategy of the EU, which is the world’s biggest importer of natural gas as its domestic production covers less than half of its needs, forcing it to export the remainder.

On Feb. 4, President of the European Commission Ursula von der Leyen stated that last summer and autumn European gas reserves were not fully replenished as usual, in particular by the Russian energy company Gazprom, which she blamed for “fulfilling its contracts but only at the bottom end of its commitments.” For this reason, von der Leyen said that the European Commission is “working very actively on finding new energy sources, and detailed that they are talking to many different suppliers across the world that are “very interested in developing good, long-term cooperation with Europe,” Egypt among them.

In 2021, Egypt exported a total of 6.80 million tons of LNG from both Idku and Damietta, with 63% going to Asia and 31% going to Europe, including Turkey, with the remaining 6% going to Kuwait, Peter Stevenson, the Eastern Mediterranean editor at MEES, a weekly newsletter for the energy industry, told Al-Monitor. Overall, he said, the top destination was China with 1.10 million tons, followed by Turkey that received 1.05 million tons in cargoes that were all sent in the last quarter. Comparatively, Idku sent more cargoes to Asia, which accounted for 71% of its exports, while 38% of Damietta’s went to Europe.

“That a larger share of Damietta cargoes headed to Europe than Idku could have to do with [Italian oil and gas company] ENI having more term customers in Europe than in Asia. Idku’s shareholders include Petronas and Shell, which have wider range of term customers, although the majority of cargoes are sold on the spot market,” Stevenson said.

Yet despite Egypt’s willingness to try to meet some of these needs, not everyone believes that the country has the full capacity to do so. Egypt has high decline rates at its gas fields and rising domestic gas demand, meaning that its surplus is shrinking, Stevenson said. He pointed to the country’s problematic fields as another cause of concern, as shown by the various outages experienced last year in some of their fields, such as Zohr and Raven. Stevenson noted as well that Egypt has a tendency to burn more gas in its power stations when oil prices are high, which could leave even less gas available for export later this year. And he added that there is no guarantee that partners at the Israeli gas fields of Tamar and Leviathan will be able to increase flows to Egypt for later exports.

“I'm sure Egypt would love to plug any potential hole left by Russian gas,” Stevenson said. “But there’s no guarantee it will be able to supply too much LNG.”

Mesharafa said that, even if in the short-term Egypt can benefit from Europe’s diversification plans, ultimately Brussels’ tension with Moscow is not in the gas industry’s interest. “The last thing that anyone wants to see in energy as an aggregated total is something that disturbs the pricing and makes life hell for everybody,” he said. “Yes, it’s good that Europe diversifies and we will be of course happy to sell to the Europeans, but we are not happy with a trade war or a production war.”