Egypt’s ambitions to become a gas hub hampered by mounting debt challenges

Five years ago, Egypt was one of the promising new regional and potentially global gas hubs. Following the massive Zohr discovery about a decade ago, the promise was vindicated. Now, Egypt has had to borrow to keep the lights on.

The Zohr field, which Italy’s Eni discovered in 2015, started production three years later, rising very quickly to 2 billion cubic meters per day in September from 350 million cubic meters per day at the start of the year. Production rose further to 3.2 billion cubic meters in 2019. After that, it began to decline, falling to 1.9 billion cubic meters in the first half of this year. It was not enough to cover local energy demand. So Egypt was forced to import gas.

The country was already a sizeable importer of natural gas from neighboring Israel. This summer, however, Egypt had to reach out to its Gulf friends to keep the lights on, with Saudi Arabia and Libya both paying to ship LNG cargoes to Egypt, according to a new Reuters report.

The report said Libya’s National Oil Corporation bought a cargo of LNG for $50 million in July, while Saudi Arabia paid for three cargoes for a total of $150 million, unnamed sources told Reuters. Since the beginning of the year, Egypt has bought 32 cargoes of liquefied natural gas.

Related: European oil majors poised to scramble as oversupply found

Natural gas imports are not unusual for Egypt, which exports some of the gas it produces outside of the summer months. Summer, however, is the peak season for electricity consumption due to the heat, and demand appears to have increased considerably in recent years, while gas production has not. This led to power outages, which in turn spurred a rush to secure additional gas supplies.

In addition to rising summer demand, Egypt’s total gas production fell to a six-year low ahead of 2024. Part of the reason for this decline was lower Zohr production, along with reduced investment by major companies from energy operating in the country. The reason for this: unpaid debt.

Reuters reported this week that Egypt has run up about $6 billion in debt for gas and other fuel supplies. Of this total, $1.27 billion was owed to Italy’s Eni, most of which was accrued for gas supplies. Some of that has been repaid, a spokesman said, but he also said Eni had revised its investment plans for Egypt this year based on “efficiency and performance on the ground”.

Petronas, Malaysia’s state oil and gas operator, is another creditor to the Egyptian government, which is struggling with a 60 percent drop in the local currency this year. According to the same Reuters report, Petronas has scaled back its investment in West Nile Delta gas exploration until Egypt repays some of the money it owes the company.

Meanwhile, however, Carlyle Group said in June that it had acquired energy assets in Egypt from Energean and that it had big plans for those assets. Those plans included increasing both oil and gas production in the North African country and turning it into a distribution hub for its other assets in the Mediterranean.

Egypt had big ambitions as a regional gas power. These ambitions were well justified. What seems to have been left out, however, is the growing domestic demand for energy as population grows, urbanization advances, and so does industrialization. It is a process that has taken place in all developed countries and is ongoing in developing countries. This year’s energy crisis is yet another reminder of the vital importance of security of energy supply above all else.

By Irina Slav for Oilprice.com

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