Interfax: All quiet on Egypt’s LNG export front until after 2020

lngIndustry sources from inside and outside Egypt are confident the country can resume exporting LNG by the end of the decade. However, they have warned that the number of cargoes shipped from Idku will not rise out of single digits per year before then.

A source from Egypt’s Ministry of Energy, who wished to remain anonymous, said he expected LNG exports to resume after 2020.

He said occasional cargoes – such as the two sent this year from the only Idku train that remains operational – would continue, but they would not be regular.

SDX Energy Country Manager Ahmed Moaaz, former deputy chair at Egyptian General Petroleum Corp., told Interfax Natural Gas Daily that increased volumes from Eni’s Zohr field – estimated to hold 906 billion cubic metres of gas – would eventually return the country to being a net LNG exporter, as would increased and new production from majors such as BP, Edison and Shell. However, “between 2017 and 2019 we are not in a position to be a net exporter”, he added.

Egypt produced no LNG last year because of technical problems and a lack of feed gas, according to a report from the Group of International LNG Importers. Egypt shipped five cargoes in 2014, when exporters began operating under force majeure, and 50 in 2013 despite the shutdown of the SEGAS plant at Damietta, which was part-owned by Eni.

Both Eni and Shell are pushing for LNG exports from Egypt. Shell is negotiating with the Egyptian government to allow cargoes to be sent out from Idku.

“[The Idku plant] continues to export LNG at a low rate dependent on the availability of feed gas. Presently it is at a rate well below the full capacity of the plant,” Shell Egypt Vice President and Country Manager Aidan Murphy told Interfax Natural Gas Daily. “Discussions with the relevant authorities continue, but they are commercially confidential, and we are not able to comment further.”

Heavy debt

Cairo failed to make a promised $400 million payment to Shell in June. The country’s debts have risen to $1.1 billion after it also missed a $50 million bill for gas from the 19.4 million cubic metre per day (MMcm/d) Rosetta and Burullus concessions.

Eni Chief Executive Claudio Descalzi said after the Zohr discovery last year that the company would be interested in exporting some of the gas from that field through the Damietta plant.

BP has a contract to buy gas from Damietta until 2025. However, Charles Ellinas, chief executive of Cyprus National Hydrocarbons Co., said the $4.10/MMBtu price BP was being paid by the Egyptian government for West Nile Delta gas was good enough to forego exports.

Any move to restart LNG exports will be a balancing act between meeting rising domestic demand and satisfying gas companies as their production rises. Eni expects to be producing 56.6 MMcm/d from Zohr alone in 2019, while BP is anticipating its Egyptian output will hit the same level.

Data on Shell’s future Egyptian gas production is unavailable, but the company told Interfax Natural Gas Daily that the combined production of Shell and BG Group after their merger was approximately 250,000 barrels of oil equivalent per day.

Energy Minister Tarek el-Molla said in May he wanted to increase gas production to 170 MMcm/d by 2019, or a total of 62 bcm/y, fed largely by the country’s five biggest projects: North Alexandria, Salamat, Atoll, West Delta Deep Marine 9b and Zohr.

Growing domestic demand will be the main obstacle to restarting LNG exports – the Ministry of Energy estimates the country’s gas demand in 2016 will be 52 bcm compared with production of 42 bcm. Before 2012, gas demand was growing at a rate of 8.4-8.7% per year.

Ellinas told Interfax Natural Gas Daily that growth of 4-5% was more likely in future.

“Demand is growing, but there are reasons to think it will not grow as fast [as before 2012],” he said. Renewable energy and rising domestic gas prices for both industrial and residential customers will constrain demand to about 60-63 bcm/y, he added.

Despite the fervent hopes of Egyptian executives such as Moaaz that business rather than politics will prevail, gas from Israel and Cyprus is highly unlikely to ever feed an LNG plant in Egypt.

Talks over restarting the land-based East Mediterranean gas pipeline via the Dolphinus consortium have gone quiet since an arbitration court fined Egypt $1 billion for halting gas supplies to Israel in 2012, hurting the business case for regional gas usage.

“It never was really a serious option. Prices do not support it,” Ellinas said. “You have to produce it [at a cost of about $4.50/MMBtu], transport it, liquefy it and then transport it again to Europe […] the price would be far in excess of prices there.”

Zack Gold, an analyst with the Institute for National Security Studies, said Israeli opposition politicians would be likely to block any move to forego the $1 billion in favour of a gas deal.

(Source: Interfax Global Energy)

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