International Courant
Egypt’s long-standing ambition to develop into a regional fuel hub and a significant exporter of liquefied pure fuel (LNG) seems to be in jeopardy after shipments to Europe got here to a standstill in June.
To make issues worse, the nation witnessed frequent energy outages in the course of the summer time months because of a scarcity of fuel to produce its personal energy stations.
All of it comes at a time when Egypt is going through a critical debt disaster, that means overseas foreign money LNG exports could be wanted now greater than ever.
The state of affairs begs the query: is the halt to exports only a hiccup for Egypt’s ambitions, or are the issues extra structural?
Elevated home demand
Egypt has the one two liquefaction vegetation within the japanese Mediterranean, that means international locations like Cyprus and Israel – which have giant fields however do not want a lot for the home market – want them to transform their fuel into LNG so it could are shipped to different international locations. Europe.
The biggest fuel area, Zohr, which was found within the Mediterranean in 2015 and got here on-line in 2017, has boosted its fuel ambitions because it produced sufficient for each home demand and exports.
Zohr accounts for nearly 40 p.c of Egypt’s whole fuel manufacturing, with an estimated 850 billion cubic meters of fuel, the equal of about 14 years of Egypt’s home consumption in accordance with 2022 figures.
The vitality disaster in Europe because of the struggle in Ukraine has brought about fuel costs to rise dramatically, creating alternatives for Egypt. LNG exports peaked at 8.9 billion cubic meters in 2022, producing $8.4 billion in revenues, up from $3.5 billion the yr earlier than.
Nevertheless, in February, Vitality Minister Tarek el-Molla mentioned Egypt anticipated a 50 p.c drop in fuel export revenues because of a worldwide drop in pure fuel costs.
In April, Egypt’s commerce deficit rose by virtually 24 p.c year-on-year, pushed by a decline within the worth of fuel exports.
No LNG was exported in any respect in June as fuel availability couldn’t meet greater home electrical energy demand in the summertime, resulting in deliberate energy outages in Egypt in the course of the summer time months.
El-Molla mentioned LNG shipments will resume in October as electrical energy demand falls with the onset of autumn.
On elevated home demand, Karim Elgendy, a non-resident scholar on the Center East Institute, pointed to an “improve in demand from energy-intensive industries on account of (a earlier) authorities determination to assist these industries.”
A market analyst, who requested to not be quoted, mentioned Egypt had stopped importing diesel and gasoline oil and due to this fact wanted extra fuel to produce its personal energy vegetation.
The choice was described by the analyst as “a miscalculation” as the federal government reversed the choice in July and began importing extra gasoline oil and diesel once more.
The federal government itself pointed to greater than anticipated demand for electrical energy in the summertime, because of unusually heat climate, as a purpose for the upper demand for fuel.
Aside from that, Egypt’s demand for electrical energy is of course rising yearly because of inhabitants development and the connection of extra households to the electrical energy grid.
Dependence on imports
On the provision aspect, the image is kind of easy: Egypt’s home fuel manufacturing fell, primarily because of a drop in manufacturing from the Zohr area.
Whole fuel manufacturing fell to the bottom degree in three years within the second quarter of 2023, oil and fuel evaluation platform MEES reported.
There are reviews that technical issues reminiscent of water infiltrating the undersea fuel reservoir brought about the decline, however the authorities denied such issues.
Business sources level to the pure depletion of sources within the Zohr area, a scarcity of funding to take care of manufacturing and fewer new discoveries as causes for declining fuel manufacturing.
“Gasoline manufacturing (…) is affected by excessive decline charges, which requires the oil firms… to always work their fields and likewise make new discoveries,” Peter Stevenson, editor at MEES, instructed Al Jazeera.
In August, President Abdel-Fattah el-Sisi met with the CEOs of worldwide oil and fuel firms BP and Eni, who introduced multibillion-dollar funding plans in Egypt, in accordance with statements from the Egyptian presidency.
These investments could be unfold over a number of years and will increase or not less than stabilize native manufacturing.
‘Feather skinny’ margins
Zohr’s manufacturing decline just isn’t new; manufacturing has been declining for 2 years.
Egypt has managed to proceed exporting LNG because of Israeli fuel imports, however by the summer time of 2022 the excess was already “minimally wafer-thin,” Stevenson mentioned.
“The writing was basically already on the wall from final yr, however the authorities didn’t anticipate that there could be an extra decline in Zohr manufacturing this yr.”
The Israeli fuel community is linked to Egypt by pipeline, making it appropriate for transportation.
In 2022, Israel exported 5.81 billion cubic meters of fuel to Egypt, a document excessive. Egypt, Israel and the European Union additionally signed a “historic settlement” to spice up fuel exports to the EU in June final yr, and in August Israel authorised an extra improve in fuel exports to Egypt.
Nevertheless, coping with such a rise in Israeli fuel move would require an infrastructure improve, which isn’t anticipated to be accomplished till 2025 or 2026.
The opposite gas-rich neighboring nation is Cyprus.
If Egypt desires to re-export Cypriot fuel, a pipeline must be constructed from the fuel fields in Cyprus to Egypt.
A consortium of worldwide oil firms plans to spend money on such a pipeline, however Cyprus prefers to have its personal floating LNG terminal, which might bypass Egypt.
The US authorities is in favor of a pipeline to Egypt over the floating LNG terminal, with a US supply telling Reuters in early September that together with Egypt within the fuel plan would assist “depart home peak consumption in the summertime peaks, improve stability and scale back tensions. within the area, and allow exports to Europe.”
Both approach, it might take years for that pipeline to be accomplished.
None of which means Egypt ought to shelve its fuel hub ambitions, Elgendy mentioned.
“The hub standing was concerning the Japanese Mediterranean and never Egypt’s personal fuel, so so long as Israeli and Cypriot fuel flows to the LNG amenities (in Egypt) improve, Egyptian ambitions will stay excessive,” he mentioned.
However, Stevenson famous, “a rise in Israeli and even Cypriot fuel won’t happen for a number of years.”
He anticipated Egypt would be capable to export “some portions of LNG” within the winter months, however would face shortages in the summertime months that might result in additional energy outages, “till it could both make extra discoveries or import extra regional fuel.”
Out of fuel? Egypt’s ambitions to develop into a regional fuel hub are waning | Oil and fuel information
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