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Egypt aims to overcome obstacles to supplying more gas to the EU

Egypt LNG gas Reuters
Egypt has become one of the most growing Arab exporters of liquefied natural gas (LNG)
  • EU vows to slash its imports of Russian gas by two thirds
  • Egypt’s supply challenges include rise in domestic gas consumption
  • Country’s plants enable re-export of Israeli gas as liquefied natural gas

Depleting gas fields and soaring domestic consumption will stymie Egypt’s immediate efforts to boost Europe-bound energy exports – however, new exploration and additional pipelines could help it become a sizeable supplier to the EU later this decade. 

The EU has vowed to slash its imports of Russian gas by two thirds this year following Vladimir Putin’s invasion of Ukraine. As Russia had provided 43 percent of EU gas imports, the move left it scrambling to find alternative sources. 

Egypt – Africa’s number one gas producer – is one candidate. In June the country signed a memorandum of understanding with the EU and Israel that pledges to work towards “enabling a stable delivery of natural gas to the EU”.

Italian oil major Eni’s discovery in 2015 of Egypt’s 850 billion cubic metre Zohr natural gas field, the Mediterranean’s largest, bolstered the country’s energy sector.

Egypt more than doubled its electricity capacity to 55 gigawatts (gw) from 2015-2018 by building new gas power stations and renovating existing plants. 

Egypt’s natural gas production rose 16.3 percent to a record 67.8 billion cubic metres (bcm) in 2021, but domestic consumption also reached an all-time high of 61.9 bcm, according to the BP Statistical Review of World Energy, and output seems likely to fall this year. 

Eni’s Egyptian gas production declined slightly in the first nine months of 2022 to 1.44 billion cubic feet per day (40.78 million cubic metres). The company produces about 60 percent of the country’s gas.

Egypt will struggle to increase exports to Europe substantially, said Edinburgh-based Martijn Murphy, principal analyst for upstream North Africa at consultants Wood Mackenzie.

“The biggest challenges are flat-to-declining production for Egypt itself in the short and medium term, along with growing domestic demand, which takes precedence over exports,” he said.

“The outlook for production, notwithstanding new finds, is one of decline. There are no big new material projects in Egypt’s maturation funnel – nothing comparable to some of the mega projects of the past few years like Zohr or West Nile Delta.

“The projects under development now are small scale in comparison and there aren’t a huge number of them either – it’s not enough to offset declining production,” said Murphy.

“There is a lot of exploration under way, with some offshore blocks in particular possessing fairly good potential, but any discovery from these would typically take three to four years to develop, whereas Europe really needs additional gas supplies now to meet winter demand.”

Instead, Egypt’s best hope of increasing exports in the short term is to source gas from Israel via the Eastern Mediterranean gas pipeline for re-export in the form of liquefied natural gas (LNG), he said. 

Boat, Vehicle, Transportation
Egypt’s Zohr gas field has been a boon for the country

Egypt has two LNG plants that have a combined annual capacity of 12.4 million tonnes (about 17.1 bam): a state-run facility near Alexandria and the Damietta plant, which resumed production last year. Damietta, co-owned by Eni, had been idle since November 2012 due to a shortage of feed gas.

“Until the Zohr field came onstream, there wasn’t enough excess gas for Damietta to be operational,” said Murphy.

Egypt exported 9.0 bcm of liquefied natural gas in 2021, equalling a 2011 peak and more than quadruple the output of 2020. Of these LNG exports, 2.5 bcm went to Europe, while from 2015-2018 Egypt had been a net importer of LNG. 

In April, Eni and state-owned EGAS agreed to increase production from their jointly operated concessions and to explore near-field areas. These initiatives are aimed at increasing gas exports to Italy via the Damietta plant to 3 bcm in 2022.

“During this final part of the year and in the first half of next year we’re going to drill potentially high-impact wells in Egypt, as well as in Cyprus and other African countries. All these wells can bring significant results,” said an Eni spokesperson.

UAE-based Dr Patrick Allman-Ward, CEO of Dana Gas, the largest privately owned natural gas producer in the Middle East, estimates that Egypt could supply an extra 10 bcm of gas annually to Europe.

“That would be a helpful contribution, but it’s not the silver bullet to solve Europe’s gas shortage,” he said.

Dana operates 15 fields in the onshore Nile delta. The firm produced 26,000 barrels of oil equivalent in Egypt in the first half of 2022, down from 29,150 a year earlier. 

“It makes sense to use existing infrastructure and expand it if necessary – enlarging brownfield LNG facilities is much cheaper than greenfield LNG,” said Allman-Ward. “There are potential additional sources of LNG supply from Egypt to Europe, and that could happen relatively quickly.”

Eni is also bullish on Egypt’s prospects; its spokesperson claiming the country is “well positioned to become a regional gas hub, leveraging existing LNG plants”. 

Eni
Italian energy company Eni produces about 60% of Egypt’s gas. Picture: Reuters

Yet Egypt’s LNG exports are extremely seasonal. Its two LNG plants running at near-capacity in winter, but they export few cargoes in summer because of surging domestic electricity demand to power air conditioning.

Gas provided three quarters of the 209.7 terawatt hours of the electricity Egypt generated in 2021.

“The good thing is that this is countercyclical to demand in Europe,” said Wood Mackenzie’s Murphy. “On an annualised basis, Egypt’s LNG plants don’t run at capacity.

“Its potential to increase LNG production is also stymied by capacity constraints at Israel’s gas fields and bottlenecks in some of the pipeline infrastructure connecting the two countries.

“There are plans to potentially build a new offshore pipeline, but this would take years to come to fruition – 2026 or 2027 at the earliest.”

Egypt awarded five new exploration licences to Eni in January, with the Italian firm the operator in four of them. In April Eni announced it had made new oil and gas discoveries in its Meleiha concessions in Egypt’s Western Desert that could produce about 8,500 barrels of oil equivalent.

“Discoveries made in the Meleiha concessions have already been linked to existing extraction plants,” added the spokesperson. “One more field will probably go into production in the first half of next year.”

Egypt’s oil production was 608,000 barrels of oil per day in 2021, its lowest output since at least 2011.

“Egypt has a lot of mature fields offshore that have been onstream for a number of years and where the depletion rate is pretty high,” added Murphy.