Egypt’s gas industry caught in vicious circle as demand rises

February 24, 2025, 1:35 PM

The 'Seapeak Hispania' is seen in the background, loaded with 140,000 cubic meters of liquefied natural gas from Egypt, bound for Sassnitz in Germany — The 'Seapeak Hispania' is seen in the background, loaded with liquefied natural gas from Egypt, bound for Germany

Low exports equal low investment
Power demand is surging
Costly imports used to bridge gap

Egypt’s gas industry is caught in a vicious circle.

The country uses natural gas to generate almost 80 percent of its electricity, according to the International Energy Agency, and Globalpetrolprices.com says Egyptian households pay less than EGP1 ($0.02) per kilowatt hour.

Demand for power and therefore for gas is surging at a time when production at Egypt’s offshore gas fields is declining. Less gas for export means less foreign exchange. Less foreign exchange means less investment to turn around gas field production. And so the circle continues.

“Egypt’s revenue picture is pretty bleak,” Arezki Daoud, chief executive of incident tracker Middle East and Africa Risk, told AGBI. “The question is, where’s the money to pay for gas coming from?”

The Italian major ENI, for example, which operates Zohr – Egypt’s largest offshore field – delayed a $677 million well-drilling campaign last year “due to to arrears owed by the Egyptian government to ENI and various other international oil companies”, says Adam Rose, Fitch Group oil and gas analyst.

Both Zohr and BP’s West Nile Delta fields have suffered damage recently from over-production and water seepage, according to numerous people at last week’s Egypt Energy Show who spoke to AGBI.

As a result, Zohr’s output has fallen by about 40 percent since peaking at 3.2 billion cubic feet per day at the end of 2019, according to data from Egypt’s Ministry of Energy and Petroleum Resources.

This has left a growing gap between domestic gas supply and demand – a gap filled partly by importing around 1 billion cubic feet per day by pipeline from neighbouring Israel. Yet even these imports are challenged.

“Supplies from Israel this year are capped due to infrastructure bottlenecks,” says Peter Stevenson, East Mediterranean editor at analyst MEES.

Imports of liquefied natural gas may bridge the gap, at least in the short term, but they are relatively expensive. Egypt secured 60 shipments of LNG for 2025 from Shell and Total earlier this month, at a cost of $3 billion.

In the longer term, Egypt’s future natural gas deliveries from Cyprus may help but how it meets its more immediate gas import and investment needs, and the necessary foreign exchange, remains to be seen.

Last year Egypt agreed to an $8 billion extended fund agreement with the International Monetary Fund, tied to structural changes in the economy. The first $1.2 billion was unlocked in December.

A coalition of sovereign wealth funds and international finance, led by the UAE’s ADQ, also agreed last year to invest $35 billion in the Ras El Hekma coastal development.

“Egypt may sell off minority stakes in state assets,” says James Swanston, lead economist for the Mena region at Capital Economics. “Gulf states are interested in these, while the devaluation of the Egyptian pound last year has also made Egyptian real estate, for example, very attractive.”