Egypt’s gas ambitions increasingly hinge on Israeli inflows

Al-Monitor Pro Members

Marc Español 

Journalist covering Egypt and Sudan

May 5, 2023

In February 2023, Egypt’s gas output fell to its lowest level in nearly three years, the latest data from the Joint Organizations Data Initiative (JODI) show. The decline was an indication of the country’s struggle to sustain high production levels at a time when it is trying to position itself as a regional hub for natural gas trade. The downward trajectory, coupled with high domestic consumption, is making Egypt’s gas dreams increasingly dependent on imported Israeli gas used for re-export. Together, they also raise doubts about its ability to sustain exports in the mid- and long-term.

Scenario 1: Egypt’s gas ambitions take a blow as Israel shifts priorities, reduces flows

The medium- and long-term outlook for Israel’s gas sector is promising. Its production capacity is set to increase in two years by around 65% from end-2022 levels thanks to expansion plans for the Tamar and Leviathan fields and the ramp-up at its third field, Karish, which came on stream last October, according to MEES. Israel also has plans to further expand Leviathan later this decade, and announced a new bid round for exploration in late 2022.

Yet momentum in Israel could prove detrimental to Egypt. This is because Leviathan’s partners are increasingly leaning toward building a floating LNG (FLNG) plant as part of the field’s second phase of development, for which they already approved an initial $100 million for preparations in February. Although the unit would take several years to build, Israel would no longer be totally dependent on Egypt’s LNG plants to export to Europe. A final investment decision could come as early as the second half of 2023. If approved, it would force Egypt to accelerate exploration campaigns and try to diversify its gas suppliers.

Scenario 2: Egypt strikes new major gas fields to reverse output decline, sustain exports

Egypt has placed high hopes that the exploration campaign currently underway in the country’s waters will yield a major new gas discovery. The authorities’ optimism has been bolstered because the race includes major energy firms such as BP, Shell, ExxonMobil and Eni, all of which have in recent months secured exploration blocks offshore Egypt.

The prospect of hitting a large gas field has also been strengthened by recent announcements by Chevron in December and Eni in January of significant gas finds in Egypt’s Nargis offshore area, which have injected new momentum. Reserves from the well found by the US giant are estimated for now at 3.5 trillion cubic feet (tcf), according to MEES, which would represent a substantial push for Egypt. Yet these volumes are far lower than the 21.5 tcf of the Zohr field, leaving the country in need of more such discoveries if it is to not only curb its falling output but increase it to the point where it can sustain exports.

Marc Español has been reporting on Egypt since 2017, with a focus on the economy and the human rights situation in the country. He has been a contributor to Al-Monitor since 2018 and his work has appeared in other publications such as El País and the think tanks Fundación Alternativas and the European Institute of the Mediterranean (IEMed).