Israel’s $35 billion gas deal with Egypt is expected to ease the North African country’s energy crisis and cut its import costs, analysts say.
The Arab world’s most populous country is increasingly relying on gas imports from Israel and the US to meet its energy demand amid lower production from its maturing gasfields.
Once a regional gas exporter, Egypt has turned to costly liquefied natural gas (LNG) imports as output declines and power demand rises.
Egypt’s gas production is forecast to slide to 43 billion cubic metres this year, down from 49 bcm last year and significantly lower than its peak of 70 bcm, Rystad analysis shows.
“The new deal is extremely important for Egypt, particularly when they have recently switched from exporters to seasonal importers and then finally net importers,” Fiza Jan, a senior analyst from Rystad Energy, told The National.
“They are already importing a lot of LNG along with the pipeline gas from Israel and the new deal will further increase its imports.”
On Wednesday, Israel approved a deal that will supply natural gas to Egypt. Prime Minister Benjamin Netanyahu described it as the country's “largest” gas deal that would contribute to stability in the region.
The announcement came after Israel signed an export agreement in August to supply up to $35 billion of gas to Egypt from the Leviathan field.
Under the deal, signed by Israel’s NewMed and partner Blue Ocean Energy – an existing off-taker of Leviathan gas for Egypt – 130 bcm of natural gas will be supplied to Egypt through to 2040, or until the contracted volumes are delivered.
“The deal allows Egypt to secure most of its imported needs through the gas pipelines with a challenge to increase its gas production, which dropped by a cumulative 40 per cent in the past few years, and reduce its dependence on imported gas,” EFG Hermes said on Thursday.
Pipeline gas from Israel would cost the country $7.29 per mmbtu (million British thermal units) while LNG imported through large carriers would be double that, according to Rystad energy. This would help the country to lower its energy import bills.
The new development is also expected to ease an energy crisis in Egypt, which has spent billions of dollars on importing LNG since its own supplies fell short of demand.
Egypt suffered a severe power crisis during summer 2024, with the government ordering shops to close early to reduce consumption.
The North African country has been importing gas heavily to meet its requirements after production began to decline in 2022. Ageing gasfields, structural changes and lack of new discoveries are the primary factors for declining output.
However, the deal faces cancellation risks amid ongoing geopolitical tensions in the region.
Israel’s gas exports to Egypt were cut off during the 12-day Iran-Israel war in which the two sides also attacked each other’s energy infrastructure.
“If the deal is cancelled it will be a loss for both Egypt and Israel. Israel would lose lucrative export revenue while Egypt will have to spend more on LNG imports,” Ms Jan said.
Importance of Leviathan
Leviathan, located off Israel’s Mediterranean coast and holding about 600 bcm of reserves, began exporting natural gas to Egypt shortly after starting production in January 2020. Currently, the reservoir supplies a total contract gas quantity of about 60 bcm, with an annual volume of 4.5 bcm to Egypt through Blue Ocean Energy. Egypt also receives spot cargoes, which are offset against the total contracted volumes.
Before supplies were halted, Egypt imported about one billion cubic feet of gas per day (bcf/d) from Israel, accounting for about 13 per cent of Egypt's total daily consumption of around 7.5 bcf/d. Of that total, about 3.8 bcf/d is produced locally.
Israeli gas supplies are critical to sustaining Egypt’s economic growth. The International Monetary Fund forecasts Egypt's economy will expand by 4.3 per cent this year, up from 2.4 per cent last year, and accelerate to 4.5 per cent next year as macroeconomic conditions improve, including easing inflation.
