Gas deals pour in, LNG pours out: What can Egypt do to become a global gas hub?

“Exporting gas to other countries is easy, because we already have liquefaction plants – but becoming a global trade point will take time,” GM for Natural Gas and Economic Affairs in EGAS

Egypt recently celebrated what Minister of Petroleum Tarek El-Molla described as the last shipment of liquefied natural gas (LNG) to enter the country, declaring national self-sufficiency after the Zohr offshore gas field production increased its production by sixfolds. This amounts to 2 billion cubic feet per day (cfd), up from 350 million cfd when it began commercial production in January 2018.

Along with the skyrocketing production of natural gas, Egypt is starting to become a hotspot for natural gas liquefaction. A consortium licensed to work on the Aphrodite gas field – offshore the southern coast of Cyprus – is very close to a deal in order to export natural gas to be liquefied in Egypt, while the construction of a subsea pipeline to connect the field to the liquefaction plant of Idku was approved last month.

Moreover, Egypt had already sealed a deal with Israel to start importing natural gas for the same purpose as of March 2019 in a $15-billion deal, Bloomberg reported. This comes in parallel to Egypt’s new gas law which allows the private sector to import gas, as long as it obtains a license and an approval.

So is this enough to turn Egypt into an international gas hub that can export to Europe and become a focal point of global gas trade?

In Layman’s terms, or as general manager for natural gas and economic affairs in Egyptian Natural Gas Holding (EGAS) Mohamed Khafagy puts it: exporting gas to other countries is easy, because we already have liquefaction plants – but becoming a global trade point will take time.

Benefits of gas deals
“The gas deals with Israel, and possibly Cyprus, are of importance to Egypt. [Firstly], it will supply Egypt with additional feedstock to get its former LNG plants in Damietta and Idku running again,” long-time observer of the gas market Cyril Widdershoven told Business Forward via an email in February.

He further added that the combined Cyprus-Israel-Egypt gas connection will push Egypt to become a possible gas hub. But in order to do that, Widdershoven believes that Egypt needs to fast-track its operations, and not be as reluctant to implement gas exports deals. “Without the right approaches, others will be taking these contracts [and agreements].”

Former petroleum minister Osama Kamal is a strong believer in putting Egypt’s liquefaction plants to good use. “I am anti-export, and anyone who exports raw natural gas should be held accountable,” he tells Business Forward. “We have liquefaction plants that are not operating. If other countries want to export their production through these plants, they are welcome to do so.”

Cyprus-Israel-Egypt gas connection will push Egypt to become a possible gas hub

What does it mean to become a gas hub?
While the liquefaction plants are already established and the gas deals have been secured, what remains is securing the infrastructure that will enable the transition into becoming a gas hub.

“Being a gas hub does not mean that you are self-sufficient in production, while exporting surplus. The more important factor is becoming a focal point for gas trade, meaning that the gas coming from the East, West, South or the Gulf, can be re-exported to Southern Europe or the East Mediterranean region,” Khafagy emphasizes.

While Egypt has the required facilities, such as pipelines coming from the East and the West and two liquefaction plants, investments, more ports and storage capacity are needed. “We still need investments to expand our pipelines’ capacity and more ports with deeper terminals to receive the gas shipments,” he adds.

Hence, turning into a gas hub mainly depends on the country’s administration of gas, including having the capacity to store it in the Suez Canal Free Zone or old wells, Khafagy suggests, in order to export it to Europe when gas prices hike.

So what is the price tag on that? “The infrastructure needs at least $20-30 billion,” according to him.

Turning into a gas hub mainly depends on the country’s administration of gas, including having the capacity to store it in the Suez Canal Free Zone or old wells

Solution for Europe?
In an opinion piece to The National Interest, chief economist at Smith’s Research & Gradings Scott B. MacDonald argues that the recent gas discoveries of Egypt could be a solution for energy-hungry Europe, who aims to lessen its dependency on Russia.

He argues that Egypt will not be the immediate alternative to Russia in the eyes of Europe, from which the continent imports an average of 18 billion cfd of gas, but it is on its way to be “a major natural gas hub for the Eastern Mediterranean”.

While this sounds optimistic, energy analyst and chairman of iQ Power Inc. for renewable energy Sherif Elhelwa has a different opinion. He tells Business Forward that currently, the production of Egypt can hardly acquire any significant market share in Europe because the continent already imports from Russia, Qatar, Algeria and other countries that are “gas-rich”. Consequently, the mere process of liquefaction may not be enough to lure in the northern continent.

“It is not only far-fetched; it is almost impossible for Egypt to [become the main natural gas exporter] to Europe,” petroleum expert and former chairman of Khalda Petroleum Company Ibrahim Zahran says.

Domestic use
While the gas deals should “eventually allow natural gas found in the Aphrodite field to be sold to mainland Europe” after being liquefied in Egypt, as Bloomberg reported, local experts believe in the importance of filling the domestic gap first.

“We have gas fields and we will be self-sufficient by the beginning of 2019,” Elhelwa explains, adding that the inflow of investments, both foreign and domestic, will lead to an increase in the number of projects, and these projects need the energy to operate. The dependence on natural gas will therefore increase.

Zahran believes that the production of the discovered gas fields better be domestically used to get the industry sector running again. “If there is a surplus, then currently it is better to allocate it to open new factories and create domestic job opportunities,” Zahran concludes.

 

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