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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next…

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Is Egypt’s Energy Hub Dream Falling Apart?

LNG tanker

Since the end of the 1990s Egypt has dreamt of becoming an East Mediterranean gas and energy hub.

The discoveries offshore in the Nile Delta at the end of the 20st Century, that kickstarted the LNG boom sparked hope, but regional and internal conflicts which led to the removal of president Husni Mubarak and the rule of the Muslim Brotherhood have significantly slowed down the country’s energy industry.

However, new discoveries made in the last couple of years, combined with strong results offshore Cyprus, Israel and possibly even the coming years in Lebanon have brought new hope. The so-called East Med Gas Forum, in which most littoral states are participating is seen as one of the main drivers of new energy developments. Led by Egypt-Israel and the Greece-Cyprus quartet, a new start was made to reshape the region’s energy market, with as crown jewel, Egypt’s LNG liquefaction capacity in Idku and Damietta. The combined reserves of the participants, especially Egypt’s elephant-sized fields Zohr and Noor, combined with Israel’s offshore wealth, could supply the European market. The EU and even the U.S. promote the so-called East Med Offshore Gas Pipeline project connecting the East Mediterranean with the Balkans and possibly Italy. The region is optimistic and strategies are being implemented at a remarkable speed. Even with Turkish military and political obstruction constraining or even threatening some of the projects, progress is made.

However, politicians and energy operators have maybe underestimated the environment they are working in. A global gas glut is emerging, threatening not only LNG exporters such as Australia, Qatar, Mozambique and others, but also the East Med Energy Hub dreams of the EMGF. Some of the region’s projects are already facing headwinds. Related: Oil Market Falls Deeper Into Abyss

In a remarkable move, Cairo has cancelled several tenders in 2019 as market prices offered were below expectations. Analysts stated that some bidders even offered prices which were below the break-even cost prices of production. Still, the members of the forum are not yet concerned at all it seems. Egypt believes that operational costs as its LNG plants should be very low, regarding the fact that the plants are already paid off, and all capacity is installed. If global LNG landing prices fall below Cairo’s production costs, the nation will have a real issue.

The position taken at present by the Egyptian oil ministry to sell LNG under term agreements with a target selling price of $5/MMBtu, rather than on the spot market, is a risky one. With a market able to get all volumes needed on the spot market, where prices are much lower, the real question is, if there will be any bidders interested in the prices as announced in the tender.

Globally prices have plummeted. Large Asian buyers such as China, Japan and South Korea are enjoying much lower prices. The JKM benchmark for Asian LNG spot prices has fallen by 50% since the beginning of 2019 from around $8/MMBtu to a little over $4/MMBtu. Long-term deals such as Egypt is offering are a risky proposition for any buyer. For example, selling an 18-month FOB deal at $5/MMBtu is very challenging at present. East Mediterranean nations can count on stiff competition from Qatar, Australia and others. And by now, most analysts expect that global gas and LNG markets will see a “lower for longer” price environment. 

The coming months will be decisive for Egypt’s LNG industry. The only parties interested at present could be new entrants to the market, or parties looking for some structural deals. If these, however, are not available, Egypt and its East Med partners could be facing a scenario in which LNG exports will be low or maybe even non-existing. Related: U.S. Rig Count Drops As Oil Price Slide Accelerates

In the meantime, Egypt’s gas production increase is impressive, the country produces more from its Zohr field than it can physically export. LNG exports from Egypt more than doubled year on year in 2019 to 4.8 Bcm of gas equivalent. On top of that, Cairo has started to import Israeli gas.

Egypt’s local market demand is still too low to absorb the current glut, and pipeline exports to Jordan are still very low. To counter the influx of Israeli gas (6 million cubic meter per year), Egypt is forced already to consider restarting its 2nd LNG plant in Damietta (5 million metric tons/year). A restart is currently being discussed by the operator Union Fenosa Gas (UFG), a 50-50 joint venture between Eni and Spain's Naturgy.

The LNG global market glut situation needs to be addressed not only by Egypt but all EMGF parties the coming months. The immense volumes available now and need to be monetized soon.  Egypt would do well to focus Eastern European markets (including the Balkans). In this market, it will have to find a way to compete with, Russia, Norway and Qatar. Price levels could be plummeting even further in the short term, so Cairo must make sure to sell its existing LNG inventory soon.

The Forum’s parties should take a realistic view on their offshore gas wealth, and dreaming about a major multibillion treasury trove like Qatar’s is maybe not realistic. A long-term vision is much needed, and Cairo needs to develop a clear understanding of its potential markets, which might not just be North or West, but possibly even in the East.


OPEC’s main oil producer, and Egyptian ally Saudi Arabia is still in dire need for additional gas volumes. Redirecting the former Arab Gas Pipeline (AGP), which was meant to export Egyptian gas to Jordan, Lebanon and Syria, to Saudi Arabia could be hitting two birds with one stone. Integrating regional energy and security while monetizing reserves.

By Cyril Widdershoven for Oilprice.com

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  • Mamdouh Salameh on February 01 2020 said:
    Egypt is already the energy hub of the Eastern Mediterranean by virtue of having the largest proven gas reserves, the biggest production and also the biggest export potential among countries of the region and the fact that it is the only country in the Eastern Mediterranean with LNG liquefaction capacity. Neither geopolitics no low LNG prices could change this fact.

    Egypt’s position will be underpinned by the following realities in the global gas market.

    The first reality is that natural gas and LNG are the pivot for global energy transition from hydrocarbons to renewables. Moreover, natural gas is the world’s fastest growing fuel for electricity generation and also an indispensable factor in helping to mitigate climate change.

    The second reality is that whilst there is a glut in the LNG market currently, this will soon be depleted by a movement to de-commission nuclear power and coal in electricity generation particularly in Japan and Germany and a huge demand from China in addition to environmental concerns. That is why gas and LNG prices will soon start to rise particularly after the containment of the coronavirus in China and a hopeful continuation of a trade truce between the United States and China.

    The third reality is that the bulk of Egypt’s gas and LNG exports as well as a large part of Qatar’s LNG exports will eventually be needed in Saudi Arabia and UAE to help the diversification of their economies once the siege on Qatar is lifted.

    The fourth reality is that Egypt has become a major prospective area for both oil attracting the world’s top oil and gas majors including ENI, BP and ExxonMobil who are either already operating there or seeking concessions for exploration. The latest newcomer is ExxonMobil which will start its exploration this year in Egypt’s Mediterranean waters and the Delta.

    The fifth reality is that the EastMed gas pipeline proposed by Israel, Cyprus and Greece to bring Israeli and Cypriot natural gas under the Mediterranean to the EU may never see the light of day. Firstly, Turkey opposes it and secondly Cyprus is yet to discover any sizeable gasfields. There is only Calypso and Israel to fill the pipeline. Israel has already signed a deal for Israeli gas exports to be sent to Egypt for liquefaction and re-exporting. Cyprus on its own couldn’t muster enough gas to fill the EastMed annual throughput capacity of 20 billion cubic metres (bcm). Moreover, Turkey will never allow the Greek Cypriots to produce more gas let alone export it without securing a share for the Turkish Cypriots.

    And to confirm its solid opposition to the EastMed, Turkey is planning to build its own undersea gas pipeline connecting its mainland with Northern Cyprus. The proposed North-South pipeline should start pumping gas by 2025. Its main goal is to lower the Turkish Cypriots’ energy bill by exporting gas from north to south, but the pipeline’s reverse-flow feature also allows the export of natural gas to the mainland.

    Turkey’s dual-use pipeline could compete with the EastMed pipeline as it would connect the Eastern Mediterranean with customers in Europe. Its main advantage is the relatively low construction costs. It is much shorter than EastMed and could connect to largely existing infrastructure on the mainland.

    Still, the Eastern Mediterranean gas producers will have to eventually reach an accommodation with Turkey if they want a peaceful and lucrative development of their gas riches. Reaching an accommodation with Turkey in the Eastern Mediterranean may have the additional bonus of easing out Turkey’s Libyan connection.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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