Egypt: Major steps on natural gas

Ahmed Kotb , Tuesday 2 Mar 2021

The reopening of the Damietta liquefied natural gas plant after eight years of closure is another step towards Egypt becoming a regional energy hub

Major steps on natural gas
Major steps on natural gas

After an eight-year hiatus, the Damietta liquefied natural gas (LNG) plant has re-opened, and two cargoes were shipped last week by the Italian energy company Eni, the main shareholder in the facility.

According to Eni, the main gas-producer in Egypt, the shipping of the LNG cargo represents an important milestone in completing the agreement on the plant reached in December settling pending disputes that had led to its closure.

The plant came back online after settling legal disputes between its main shareholders that saw Eni ending a joint venture with Naturgy that held 80 per cent of the plant. Eni is now the only foreign owner of the plant with a 50 per cent stake and the rest split between the Egyptian Natural Gas Holding Company (EGAS) and the Egyptian General Petroleum Corporation (EGPC).

The Damietta LNG plant has a capacity of 7.56 billion cubic metres of gas per year, but it had been idle since November 2012 until it resumed operations in the first quarter of 2021.

Egypt depended heavily on gas imports in the past, especially in the years following the 25 January Revolution when companies were reluctant to produce gas in the country due to the government’s failing to pay their arrears.

In 2016, Egypt imported $3 billion of gas, but it stopped importing it in late 2018.

The Damietta plant is a key part of Egypt’s strategy to grow its natural-gas exports and emerge as a regional energy hub by expanding the country’s ability to export liquefied natural gas to European markets.

Egypt also has the Idku LNG plant, which has a production capacity of around 4.5 billion cubic metres per year and started operations in 2005.

Spokesman for the Ministry of Petroleum Hamdi Abdel-Aziz announced in a statement that LNG tanker Golar Glacier had arrived in Damietta to transport the first experimental shipment from the plant for eight years.

“The return to operations of the Damietta plant on the northeast coast and the country’s other plant of Idku in the Beheira governorate will mark the revival and prosperity of Egypt’s LNG production,” he added.

Idku’s exports have picked up after dropping last year amid the Covid-19 pandemic.

According to London-based S&P Global Platts Analytics, Egyptian LNG exports from the Shell-operated Idku plant have remained strong in 2021 following what it called “a winter jump” in spot LNG prices.

Seven cargoes were shipped from the Idku plant in January, it said. This followed a total of 17 shipped in the fourth quarter of 2020, six in the first quarter of 2020, and only one between the end of the first quarter and October 2020, which was heavily affected by the coronavirus pandemic.

The Japan/Korea Marker (JKM) price for LNG has risen strongly in recent months, hitting an all-time high of $32.50/MMBtu in mid-January 2021, and this triggered a renewed wave of Egyptian LNG exports, according to S&P.

Egypt plans to use its position on Europe’s doorstep to become a major supplier of LNG to the continent, which is transitioning away from other fossil fuels.

Egypt has the infrastructure for the transport and handling of natural gas, with a main network of 7,000km of pipelines, as well as a distribution network of 31,000km, and 29 gas-treatment plants in addition to the two LNG facilities.

Natural-gas production rose to 7.2 billion cubic feet per day, compared to 6.8 billion during fiscal year 2018-19 and 3.8 billion cubic feet in 2012, with the support of discoveries over the last three years, mainly from the giant Zohr Field in the Mediterranean.

 The field started production in 2018 and is currently producing over three billion cubic feet of natural gas per day from 13 wells, helping Egypt to reach self-sufficiency in gas and to start exporting the excess. The state is saving around $3 billion as a result of halting imports, according to government figures.

Local daily consumption has reached six billion cubic feet per day.

A report issued in August 2020 by the International Gas Union (IGU) stated that global demand for LNG was expected to fall in 2020 by 4.2 per cent due to the coronavirus pandemic. Egypt’s total exports of liquefied gas rose to 3.5 million tons during the past year, compared to about 1.4 million tons in 2018, the IGU said.

The report pointed out that most of Egypt’s exports of liquefied gas went to countries in the European Union, with total exports amounting to about 1.3 million tons, adding that Egypt is expected to record further growth during 2020 after the Idku plant reached its maximum production capacity last year.

Globally, the volume of LNG trade increased by 13 per cent in 2019 to reach 354 million tons, compared to 314 million in 2018.

Government officials have repeatedly stressed that Egypt is steadily moving towards becoming a regional hub for the trade and distribution of oil and gas through developing national production, as well as facilitating the export of gas produced by neighbouring countries to different parts of the world.

Egypt, Greece, Cyprus, Italy, Israel, and Jordan started working on establishing the East Mediterranean Gas Forum in 2019, and the UAE has joined as an observer. France has applied to join, with the US and EU requesting observer status. The major objectives of the forum are to preserve the natural gas resources of members and guarantee that they will be used for achieving public interests.

The forum came into force as a regional organisation this week, and it seeks to develop regional policies for the production and distribution of natural gas in cooperation with member states, as well as to assist gas-consuming countries in securing their needs and building a regional market for the production and distribution of natural gas.

Egypt and Israel agreed on 21 February to connect Israel’s offshore Leviathan Field to LNG facilities in Egypt via an underwater pipeline in order to increase gas exports to Europe.

Tarek Al-Molla, Egypt’s minister of petroleum, agreed with energy officials in the Palestinian Authority (PA) to develop the Gaza Marine Field in order to supply Palestine with natural gas and enhance cooperation between the two countries.

Medhat Youssef, former head of the Egyptian Petroleum Authority, told the Chinese Xinhua news agency that Egypt had become a regional hub for gas circulation in the region after signing agreements with Israel and Palestine, adding that the establishment of the East Mediterranean Gas Forum had contributed to reaching these as Egypt, Israel, and Palestine were all members of the forum.

The forum urges its members to cooperate in fields related to global gas-trading and trade, he explained, adding that this cooperation enhanced the role of the forum and gave it leadership in managing the natural gas system of Eastern Mediterranean countries.

*A version of this article appears in print in the 4 March, 2021 edition of Al-Ahram Weekly

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