Over the past couple of years, Egypt has seen its ambitions to become a regional natural gas supply and LNG export hub go up in flames, with a series of setbacks turning the country from a net exporter of the vital commodity to an importer.
Egypt's natural gas production has declined rapidly over the years due to the natural depletion of mature fields, including the Zohr gas field. Coupled with a lack of significant new discoveries since 2015, surging domestic demand for electricity, and past financial issues such as hard currency shortages and payment arrears to foreign companies, Egypt now finds itself in a tenuous position, becoming a net gas importer since 2022, and relying on imported Liquefied Natural Gas (LNG) as well as pipeline gas from Israel.
Last year, Egypt imported a record 981 million cubic feet per day of natural gas from Israel, good for 18.2% year-over-year increase. Egypt imports up to 20% of its gas from Israel.
Last month, Egyptian Prime Minister Mostafa Madbouly announced that the $35-billion gas supply agreement signed with Israel’s NewMed Energy (OTCPK:DKDRF), a key partner in Israel’s giant Leviathan gas field, was extended until 2040. But the fate of these gas flows now hangs in the balance, with tensions in the Middle East escalating after the Israeli military ordered residents of Gaza City to evacuate.
After spending more than a year constantly on the move, hundreds of thousands of people flooded back to Gaza City earlier in the year during the ceasefire. But now, Israel wants them to move out again. Last month, Netanyahu declared that he is "deeply committed to the vision of Greater Israel,’’ encompassing parts of Arab countries stretching from the Euphrates to the Nile. According to the Israel Hayom, Netanyahu has instructed officials "not to move forward with the massive gas deal with Egypt without his personal approval.”
However, Egypt is now daring Israel to cancel the lucrative deal, saying that it [Egypt] has other options.
"Netanyahu sees Egypt as an obstacle to his dream of Greater Israel and a danger to him, a thorn in his side, especially since Cairo is the first line of defense against Palestinian displacement,” Diaa Rashwan, head of Egypt’s State Information Service (SIS), said in televised statements. “The Egyptian administration has alternatives and scenarios for what may happen, and Netanyahu is trying to export a crisis to Egypt,” he added.
But replacing Israel’s gas is likely to come at a big cost to Egypt. Under the latest deal signed in August, Israel will sell ~130 bcm of gas to Egypt through 2040, or until the contracted volume is fulfilled. The gas will be delivered via pipelines, making it considerably cheaper than LNG. According to commodity experts, LNG prices are currently averaging $13.5 per million British thermal units (mmBtu) excluding the cost of leasing floating storage (FSRUs), much higher than $7.75 for Israeli gas. On the other hand, Israel can use the impasse to negotiate higher prices for its gas, with Reuters reporting in May it intended to increase the prices of exported gas by 25%.
Discovered in 2010, the Leviathan Gas Field is located approximately 130 km off the shores of Haifa. The 330-square kilometer field holds ~22.9 trillion cubic feet of recoverable gas, making it the largest natural gas reservoir in the Mediterranean, and one of the largest producing assets in the region. Production is facilitated by 4 subsea wells that are connected to an offshore platform via a subsea manifold and two 120 km long pipelines, where all processing of gas takes place.
The gas is then piped to shore into the Israeli national grid and distributed to clients in Israel, Egypt, and Jordan. NewMed is Leviathan's main operator with a 45.3% working interest; Chevron Corp. (NYSE:CVX) has a 39.7% working interes,t while Ratio Energies. (TASE: RATI) has 15%. Founded in 1992, Ratio Energy is one of Israel's leading energy partnerships, with a mission to develop and produce natural gas and oil.
With nearly 0.7 TCF produced by the end of 2021, the first phase of the field’s development has been a resounding success. Last year, the three companies announced plans to ramp up gas production and exports in 2025 in a bid to meet growing demand. Currently, a maximum capacity of up to 1.2 billion cubic feet of natural gas per day, or 12 billion cubic meters per year, can be piped from the Leviathan reservoir.
Chevron and NewMed Energy have also partnered in the Aphrodite Gas Field, with Anglo-Dutch oil major Shell Plc (NYSE:SHEL) a third partner. Chevron and Shell each have a 35% working interest in the field, while NewMed has 30%. Discovered in 2011, the Aphrodite natural gas field is located about 170 kilometers south of Limassol in Cyprus, just 30 kilometers northwest of Israel’s Leviathan gas reservoir. An appraisal well has already been drilled to confirm assessments regarding the nature and size of the Aphrodite gas deposit, and marks a “significant step” towards its development. The well is expected to serve as a production well following the completion of the development of the reservoir.
By Alex Kimani for Oilprice.com
