Egypt’s LNG exports to Europe receive boost amid gas crisis

Momentum is building for the North African country to reach its ambitions of becoming a regional energy centre, analysts say

An LNG terminal under construction near Wilhelmshaven, Germany. European countries will need to import more LNG to reduce reliance on Russian gas. Getty

Egypt is beefing up its liquefied natural gas exports to Europe, paving the way to becoming a regional energy centre, as the continent's biggest gas supplier, Russia, disrupts supply.

In the first six months of this year, more than 72 per cent of Egypt’s LNG exports went to Europe, compared with 29 per cent in all of last year, Refinitiv LNG flows data shows.

Although the North African country has limited natural gas itself, paling in comparison to the US, the world's top producer, or Russia in second place, it has built a role through agreements with partners and its strategic geographic location.

The US produced 934.2 billion cubic metres (bcm) of natural gas last year, about 23 per cent of the world’s total, while Russia produced 701.7 bcm and Egypt produced 67.8 bcm, according to the latest BP Statistical Review of World Energy.

“Egypt is not going to make up for all the Russian volumes,” Olumide Ajayi, senior LNG analyst at Refinitiv, told The National.

However, “there is momentum for Egypt to become a regional energy exporter to Europe and connect Europe to the region”, he said.

Last month, Egypt, Israel and the EU signed a preliminary agreement to increase LNG sales to Europe.

As part of the deal, Israel will send more gas through Egypt, which has plants to liquefy it for export to EU countries.

Egyptian President Abdel Fattah El Sisi, speaking at a news conference with German Chancellor Olaf Scholz on Monday, said Egypt “has the capability through its gas liquefaction facilities to absorb all the gas of the East Mediterranean and export it to Europe” to help ease the continent’s energy crisis.

While that means helping to plug Europe’s need for fossil fuels in the short term, the partnership will also help in “Egypt’s ambitious vision to become a prominent centre for the production and export of clean energy, especially green hydrogen, solar and wind energy”, Mr El Sisi said.

Russian gas accounted for about 45 per cent of EU’s imports in 2021 and about 40 per cent of its total consumption, according to the International Energy Agency.

Supply disruptions and artificial tightening since Russia’s invasion of Ukraine in February have led European countries to seek other natural gas sources.

The Nord Stream 1, the biggest single gas pipeline between Russia and Europe, has been shut down for maintenance since July 11 and some worry it may not reopen on Thursday as planned.

IEA executive director Fatih Birol warned this week that immediate measures must be taken across Europe to prevent a “major gas crunch” and advised the EU to fill its gas storage plants to above 90 per cent of their capacity to survive the coming winter.

To hit that level, Europe has to increase domestic production, import more pipeline fuel from countries such as Azerbaijan and Norway, and import more LNG.

Global LNG supply rose 7.5 per cent last year from 2020 levels to 520 bcm, led by the US, which registered a 49 per cent increase in exports to 98 bcm, according to Refinitiv’s LNG Outlook 2022 report.

Egypt reported a fivefold year-on-year increase in LNG to 8.8 bcm, supported by the resumption of operations at the Damietta plant in February 2021 after nine years and the incentives provided by record high prices in the export market.

Between 2015 and 2019, Egypt was a net importer of gas through LNG as supply failed to keep pace with demand.

The country returned to net exporter status, largely due to the discovery of offshore natural gasfield Zohr in 2015, which was brought on stream in December 2017.

Considered the largest field in the Eastern Mediterranean region, Zohr was estimated in August 2015, by Italian energy company Eni, to hold 850 bcm of gas.

“If it wasn’t for the discovery of Zohr field, Egypt would have lost its status as net exporter as its domestic consumption outpaced its production,” said Carole Nakhle, chief executive at London-based Crystol Energy.

Daily production from the Zohr field represents 40 per cent of Egypt’s total gas production a day.

Fitch Solutions forecast 2022 to be a “peak year for gas production in Egypt” in its recent Egypt Oil & Gas Report. It expects the country’s natural gas output to increase at a year-on-year rate of 3 per cent to 72.7 bcm.

At the same time, Egypt is capitalising on natural gas sources beyond its borders. Its Idku and Damietta liquefaction plants on the Mediterranean coast were built decades ago but remained largely unused due to low export volumes.

Therefore, it became lucrative to partner with neighbours such as Israel that do not have plants of their own.

“In terms of gas reserves, production and exports, Egypt is not as big as Algeria or Qatar but it has many advantages, including a diversified export portfolio,” Ms Nakhle said.

“It can increase its potential notably if it gets more gas from its neighbours.”

To foster dialogue and co-operation, Egypt co-founded the East Mediterranean Gas Forum in 2020. Member countries include Cyprus, France, Greece, Israel, Italy, Jordan and Palestine while the US, the EU and the World Bank are observers.

Egypt also signed an agreement last month to supply Lebanon with natural gas through the Arab Gas Pipeline via Jordan and Syria.

The country’s LNG exports to Europe may be a drop in the bucket but the arrangement will be beneficial on both ends.

“If you compare the numbers, Egypt is a small player, particularly in the European market. However, along with other measures, it can help, even if little, to alleviate the pain of the crisis,” Ms Nakhle said.