Egypt’s Balance of Gas Trade under Stress amid Low Spot Gas Prices, Rising Local Demand

With direct impact on European gas markets (with three charts)

The potential for an energy crisis in Europe this year and next remains high. The decrease in Egypt’s LNG exports is one reason among many.  

Russia’s invasion of Ukraine in February 2022, prompted the European Commission to search for alternatives to Russian gas supplies. In this regard, Egypt has emerged as one of the key producers and exporters in the East Mediterranean region that could supply the bloc with additional LNG shipments. In mid-2022, the EU, Egypt, and Israel signed a memorandum of understanding (MoU)  by which Israel will send more gas to Europe via Egypt’s LNG plants. Although the trilateral agreement which will last for nine years didn’t specify the gas quantities, Egypt and Israel have taken it as a signal to act quickly on their natural gas resources and infrastructure.  Energy majors have also expressed interest in inking deals with Egypt to obtain more gas supplies.

Italy’s energy major ENI signed a framework agreement with Egypt’s state-owned company EGAS to promote Egyptian gas exports to Europe, and specifically to Italy, in the context of the transition to a low-carbon economy. ENI said in a statement that “this agreement, together with the one signed for the restart of Damietta liquefaction plant [in 2021], will provide LNG cargoes for overall volumes of up to 3 bcm in 2022 for Eni LNG portfolio bound to Europe and Italy.”

To that end, Cairo has reduced gas supplies to local power plants and replaced gas with fuel oil, which is a more polluting but less expensive fuel for electricity generation. Cairo has also agreed with Tel Aviv to allow the latter to increase its gas supplies by 50% via a new route passing through Jordan.

The outcome of such actions yielded positive results for the Egyptian gas sector and state economy, with Egypt’s LNG exports jumping to the highest figure in a decade, reaching 7.4 million tons in 2022, an uptick of 12.1% year-on-year (see Figure 1).

The state’s revenues from natural gas exports also surged by 171% year-on-year to around $8.4 billion in 2022 from $3.5 billion in 2021, according to an official statement by the Egyptian Ministry of Petroleum. Egypt benefited from unprecedented levels of gas prices in Europe last summer as a result of the continent’s increased appetite for spot LNG to expedite the refilling of gas stockpiles before the 2022/2023 winter season and to avoid any gas shortfall during peak demand.

Egypt’s LNG Exports in H1 2023