Can Egypt become a gas supplier to Europe?

Ahmed Kandil , Tuesday 22 Mar 2022

The Ukraine crisis might offer Egypt an opportunity to achieve its strategic aim of becoming a regional hub for the production, trade, and shipment of natural gas

In 2021, Egypt had the highest income from LNG exports in 10 years
In 2021, Egypt had the highest income from LNG exports in 10 years

Europeans have begun to feel the burden of their heavy dependence on Russian natural gas more than ever. The military operation that Russia launched in Ukraine on 24 February has heightened European fears that Moscow could turn off the gas taps in response to mounting Western sanctions against Russia and to punish the EU and NATO countries for failing to respect Russian security concerns. Moscow has long cautioned NATO against admitting Ukraine into its security framework and called for a new European security order that would take Russian national interests and concerns in mind.

In fact, on Monday, Russia’s Deputy Prime Minister Alexander Novak warned that Russia could cut natural gas supplies to Germany via the Nord Stream 1 pipeline. In a televised statement he said, “In connection with unfounded accusations against Russia regarding the energy crisis in Europe and the imposition of a ban on Nord Stream 2, we have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline.” He added, “So far, we are not taking such a decision.” But his announcement sent shivers through the market.

According to International Energy Agency figures, Russia is the largest gas producer in the world after the US. In 2021, it produced 761 billion cubic metres (m3), or 18 per cent of the global output of natural gas. Russia is the world’s largest gas exporter, with an export volume of 250 billion m3 in 2021, of which 210 billion m3 was transported through pipelines while the rest was shipped in the form of liquefied gas.

In 2021, Russia supplied the EU and the UK with about 32 per cent of their gas needs. This is a 25 per cent increase since 2009. Nevertheless, Russian gas exports to Europe declined considerably in the months leading up to the military offensive in Ukraine. The flow from Russia was 25 per cent lower in the first quarter of 2021 than it was during the same period the previous year. The reduction contributed to the rise in natural gas spot prices in Europe.

For some time, the EU and its member states have been looking for alternatives to Russian gas. Many foresaw scenarios whereby a Russian invasion of Ukraine followed by Western sanctions would cause a “politicisation and weaponisation of Russian gas” that would, in turn, obstruct European economic recovery efforts after the Covid-19 pandemic and aggravate already high inflation rates. The poor and lower income segments of European societies have been particularly hard hit by rising prices during the past two years.

Europe has two main options for weaning itself off of Russian gas: importing more from other countries that export natural gas through pipelines or importing more liquefied natural gas (LNG) shipped overland or by sea. Natural gas producing countries, such as Norway, The Netherlands and Britain, could not fully compensate for gas coming from Russia either because they are already producing at full capacity (Norway and The Netherlands) or they suffer a shortage themselves (the UK). However, Europe could benefit from imports transported through pipelines from Algeria and Azerbaijan. Both of these countries have surpluses, but the Algerian-Moroccan dispute would have to be overcome as it has interrupted the flow through North African-European pipelines since 2021.

As for the second option, it would be highly costly for Europeans to entirely substitute imported LNG for Russian gas. Practically speaking, the aim would be impossible to achieve, at least in the short term, in light of the lack of an immediate surplus among exporters such as the US and Qatar which are bound by existing contracts.

In this framework, Egypt has a unique opportunity to become one of the largest natural gas suppliers to Europe in the near future. To its advantage, here, is its success in establishing the East Mediterranean Gas Forum two years ago, in cooperation with Greece, Cyprus, Italy, Israel, Jordan, and Palestine. The forum is expected to expand further to include France as a member and the US, the EU, and World Bank as observers. Egypt’s proximity to Europe is another plus, as is the fact that it could soon have a larger surplus for export than other gas producers thanks to the vast underwater gas reserves discovered in the Eastern Mediterranean, such as the Zohr field, which made it possible for Egypt to achieve gas self-sufficiency in 2018 with a surplus for export.

In addition, Egypt has reached trade agreements with Israel and Cyprus to import gas from these two countries, process it in the Egyptian liquefaction plants in Idku and Damietta, and then re-export it to European and Asian markets. According to data from the Ministry of Petroleum and Mineral Resources, Idku and Damietta plants have an annual production capacity of 7.2 million and 4.8 million tons, respectively. In 2021, Egypt had the highest income from LNG exports in 10 years, with revenues jumping by 550 per cent, to $3.9 billion, up from $600 million in 2020. Egyptian LNG exports to Europe soared during this period as well, reaching 2.04 million metric tons, compared to only 270,000 metric tons in 2020.

Furthering Egypt’s prospects of becoming one of the largest gas suppliers to Europe in the near future is Washington’s decision, in January 2022, to withdraw its support for a pipeline to transport gas from gas fields in the Eastern Mediterranean to Europe via Greece. Proposed in 2013, it was supposed to go into operation in 2025, but work on it ground to a halt due to technical difficulties, environmental considerations and other feasibility issues.

Germany is by far the largest importer of Russian gas. In February, Berlin announced steps to reduce its dependence on Russia. Then, on 22 February 2022, in response to Russian President Vladimir Putin’s decision to officially recognise the breakaway republics of Donetsk and Luhansk in eastern Ukraine, German Chancellor Olaf Scholz suspended certification of the Nord Stream 2 pipeline project until further notice. Nord Stream 2 had taken five years to build at a cost of $11 billion.

Still, it is unlikely that the war in Ukraine will result in a total halt of Russian gas to Europe. Moscow earns $400 million a day from its sales in European markets. Using its gas as a political weapon would destroy Moscow’s reputation as a reliable supplier for its European clients, Germany above all. This said, the more that EU countries and the US impose devastating sanctions, such as banning Russia from the Swift system, the greater will be the possibility that Russia retaliates in the form of a cut-off of gas and oil supplies, delivering a powerful blow to European energy security. That sword hanging over Europe is why Egypt stands to become one of that continent’s most important gas suppliers.


*The writer is head of the Energy Studies Programme at Al-Ahram Centre for Political and Strategic Studies.

**A version of this article appears in print in the 10 March, 2022 edition of Al-Ahram Weekly.

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