LNG pressures raise FX liquidity concerns – Standard Chartered

Market focus has shifted from tourism, Suez Canal revenues to declining foreign exchange earnings from LNG exports. Hydrocarbon exports down 60% y/y in FY24; we estimate lost revenue at $1 billion per month. We are revising our C/A deficit forecast as the hydrocarbon trade balance has reached a deficit, Standard Chartered economists Carla Slim and Bader Al Sarraf note.

Currency liquidity concerns persist despite the improvement

“Egypt has moved from being a net importer of hydrocarbons to a net exporter of hydrocarbons in 2020-23. This was driven by a sharp increase in LNG exports (mostly to Europe) on expanded domestic LNG production from its Al Zohr field in the eastern Mediterranean. However, Egypt relies on hydrocarbon imports, including from Israel, for domestic consumption and exports any remainder after domestic demand is met.”

“We estimate lost revenue from LNG exports at $1 billion per month this year as regional conflict exacerbates pressure on Egypt’s LNG trade through more volatile pipeline imports from Israel. LNG exports started to decline in early 2023 (see Figure 2) and came under further pressure in 2024. Hydrocarbon exports fell 60% year-on-year to $5.7 billion in FY24 ( year ended June 2024), turning the hydrocarbon trade balance into a deficit of $7.6 billion from a surplus of $0.4 billion a year earlier. Declining LNG exports and a rebound in imports on the back of improved foreign exchange availability led to a widening of the current account (C/A) deficit to USD 20.8 billion in FY24 from USD 4.7 billion in FY24 23. As such, we raise our C/A deficit forecasts for FY24 and FY25 to 7.0% (-3.0%) and 4.5% of GDP (-3.0%) respectively.”

“Market concerns about Egypt’s foreign exchange liquidity turned to the widening hydrocarbon trade deficit, in addition to losses in Suez Canal revenues (-24.3% y/y in FY24), although tourism revenues maintained (+5 .5% a/a). Tourism revenue reached US$14.4 billion in FY24, from the previous peak of US$13.6 billion; however, the expansion of the conflict in the Middle East in recent days could still pose a negative risk to tourism. Suez Canal revenues are also likely to decline further (to US$6.6 billion in FY24 from a peak of US$8.7 billion in FY23); President Sisi recently stated that Egypt faces losses of up to US$6 billion on the Suez Canal at the beginning of the year.”