Gas opportunities in Europe

Mai Ghandour, Tuesday 19 Apr 2022

Egypt is looking to capitalise on its resources and boost gas exports to Europe, reports Mai Ghandour

Gas opportunities in Europe
Egyptian exports of LNG reached 3.5 million tons

Egypt’s natural gas exports are anticipated to reach 7.5 million tons by the end of the 2021-22 fiscal year, with the country capitalising on its resources to increase its gas exports to Europe.

The total amount of Egyptian liquefied natural gas (LNG) exports reached 3.5 million tons during the first half of the current fiscal year, which means that natural gas exports will jump by roughly four million tons during the second half of the year.

In December, Minister of Petroleum and Mineral Resources Tarek Al-Molla told Reuters that Egypt’s capacity of natural gas exports has maxed out at about 1.6 billion cubic feet per day (bcf/d) from its two terminals, adding that natural gas production was stable and currently ranging between 6.5 and seven bcf/d.

Each one million tons of liquefied natural gas is equivalent to 48.7 bcf.

After an eight-year hiatus, Egypt’s Damietta gas liquefaction plant resumed production last year, which, taken together with the Idku plant, have a combined production capacity of 1.6 million tons per year. The Damietta plant’s main shareholder is the Italian energy company Eni.

In March, Eni pledged to pump more than 14 trillion cubic feet (tcf) of additional gas to the global market and mitigate Europe’s energy crisis by “leveraging established alliances with producing countries”, including Egypt, according to a press release.

“We are increasing our gas production and will send everything we have discovered to Italy and southern Europe,” Eni CEO Claudio Descalzi announced.

As Italy decided to cut back on imports of Russian gas, Eni struck an export deal with Egypt with the aim of providing LNG shipments to be exported via the Damietta plant to Italy and Europe.

The agreement will see Egypt increase local gas production in the short term and exploit its gas reserves while intensifying exploration.

After achieving self-sufficiency in natural gas in 2018, Egypt has planned to use its proximity to Europe to become a major supplier of LNG to the continent, which is transitioning away from other fossil fuels.

European countries’ gas consumption exceeds 550 billion cubic metres, of which Russia satisfies 40 per cent with about 200 billion.

However, Egypt only became self-sufficient in gas in 2018. Currently, natural gas production stands at 66 billion cubic metres per year, of which 62 billion is consumed locally. With only four billion cubic metres available, what Egypt has to offer is limited.  

Egyptian gas exports to the European continent ranged around two million tons in 2021, up from just 270,000 the previous year, according to data from S&P Global Platts.

According to a report by the European Bank for Reconstruction and Development (EBRD), opportunities for potential gas exporters in North Africa, namely Algeria, Egypt and Libya, are long-term solutions if Europe engages more actively to resolve current tensions and facilitate pipeline access.

Chevron, a majority shareholder in Israel’s two biggest offshore gas reservoirs, is planning to pipe two to 2.5 billion cubic metres more gas per year to Egypt.

The news comes as Israel plans to boost its natural gas exports to Egypt by as much as 50 per cent by the end of the month, deepening energy ties and helping Egypt to realise its goal to become a regional energy hub.

The new exports will be transferred through a pipeline traversing Jordan. Israel currently exports five billion cubic metres of gas each year to Egypt via a pipeline that connects southern Israel to the Sinai Peninsula. This is liquefied in Idku and Damietta for export.

The added volumes from Chevron will push forward plans to consolidate regional resources for export to bigger markets such as Europe.

Intensifying exploration and production in the deep waters of the Aphrodite, Tamar, and Leviathan Fields, along with Egypt’s Zohr Field, will increase production in the region as a whole and can be exported to Europe after liquefication in Idku and Damietta.

“When we talk about a hub, it makes no difference where the resources come from. Whether I am exporting or importing or locally producing, the criteria is the net result,” Amira Al-Mazni, an independent LNG regulation advisor and director of the Gas Regulatory Authority Board, told Al-Ahram Weekly.

“Egypt has the aspiration to become an oil and gas hub, and it is achieving real progress in this direction,” she added.

Nevertheless, Egypt does not currently have the capability alone to be an alternative to Russian gas for Europe. It needs to increase production and intensify exploration to participate in meeting the European need for gas, and this increase needs huge investments, estimated at tens of billions of dollars.  

Investments in research, development, and production in the gas sector are estimated at $1.6 billion in the current and next year, a small sum compared to the huge investments pumped into other countries in the region.

Nevertheless, Al-Mazni explained, Egypt will use the liquefaction capacities of both the Idku and Damietta plants to process gas from members of the East Mediterranean Gas Forum. Besides the Leviathan and Tamar fields in Israel, there are also agreements to bring Cypriot gas to Egypt for liquefication and export, implying that the forum may be the solution.

Talking about whether Egypt can fill the Russian gap for energy, Al-Mazni said that “it can help and be part of the solution, but it’s not a substitute. There’s no single source that can fill the gap of the Russian exports because of the huge volumes.

 “When it comes to the Forum, this looks like a potential substitute for a major portion of the Russian gas being sent to Europe. However, time is not on its side. This gas is still underground, not yet produced or connected to Europe.”

In order for it to reach Europe, there needs to be the infrastructure in place and this could take three to five years at least.

There isn’t one single alternative to Russian gas, but Europe needs to diversify its supply sources, Al-Mazni said, explaining that Russian gas comes through existing pipelines, is cheaper than other sources, meets the specifications of the European countries, and is readily available and abundant.

*A version of this article appears in print in the 21 April, 2022 edition of Al-Ahram Weekly.

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