Egypt’s LPG Exports Face Challenges Amid Production Drop and Reliance on Israeli Gas

Egypt’s LPG exports, especially to European markets, are facing a number of challenges, most notably a drop in production and a growing reliance on natural gas imports from Israel.

Review of Israeli Gas Sales

Despite the signing of agreements between Cairo and Tel Aviv to increase the flow of Israeli gas to Egypt as Cairo liquefies it and re-exports it abroad, Tel Aviv is currently reviewing gas sales, according to reports from the Specialized Energy Platform.

A senior Israeli finance ministry official urged his country’s government to urgently look into the amount of natural gas it has to export to make sure it saves enough for itself.

Expected Increase in Israeli Gas Production

Israel is expected to double its gas production in the coming years as energy companies plan to expand production capacity and the pipeline network, with annual production expected to be around 40 billion cubic meters out of 20 billion cubic meters.

It comes as the country looks forward to completing a licensing round for new oil and gas exploration sites off Israel’s coast in a matter of weeks, Reuters said.

Applications for the fourth Israeli offshore licensing round, which includes 20 exploration blocks, are due to close on July 16, with winners to be announced later this year, according to the government’s latest schedule.

Increase in Gas Production and Exports to Egypt

Gas production in Israel has increased over the last year (2022) to around 22.2 bcm, up 13.8% from 19.5 bcm in 2021.

In 2022, natural gas exports to Egypt and Jordan increased by about 28.8% as part of a series of Israeli efforts to help countries in the European Union overcome the energy crisis and meet the continent’s demand for natural gas.

This resulted in an increase in gas export revenues of about 888 million shekels ($241.14 million), an increase of about 70.5% compared to 2021.

Concerns About Gas Export Policy

Israeli budget director Yogev Gardos said there was an “immediate need to look into” the gas export policy, Reuters reported.

In a letter to the Director-General of the Ministry of Energy, he added that Israel’s energy landscape has partly changed since the previous review in 2018 due to slower-than-expected deployment of renewable energy in the country.

As a result, he noted, excessive exports “could jeopardize Israel’s energy security” and drive up electricity prices.

Energy Minister Yisrael Katz responded to the letter on Twitter by saying: “Decisions regarding the gas sector take into account broad political considerations such as the status of Israel, and the person who makes the decisions is me – the minister, elected by the people.”

Israel’s Gas Export Deals and Access to Foreign Buyers

In 2013, after discovering huge amounts of gas off its Mediterranean coast more than a decade ago, Israel imposed limits on the amount that could be sold abroad and set aside about 60% of the reserves for domestic consumption.

Tel Aviv has since signed major export deals with Egypt and Jordan, as well as a framework agreement to supply Europe. This access to foreign buyers has prompted international energy companies, including Chevron, to invest in the emerging Israeli market.

Dependence on Israeli Gas Imports for Egypt’s LPG Exports

Egypt’s liquefied gas exports are dependent on the volume of its Israeli gas imports in light of declining production from Egypt’s Zor field and Cairo’s plan to run liquefaction plants at full capacity to meet growing demand, especially in Europe.

Egypt is the only country with liquefaction plants in the eastern Mediterranean, as the liquefaction plants at Damietta and Idku have capacities in excess of 12 million tonnes per year and are considered to be among the most important pillars in facilities and infrastructure that Egypt possesses for trade and turnover of natural gas.

Impact of Production Decline and Cuts on Egyptian Exports

Concerns about the impact of cuts in Israeli supplies on Egyptian liquefied natural gas exports came as Zor’s production declined amid efforts by the Egyptian government to cut domestic consumption in order to funnel the surplus to exports.

Egyptian Zor production declined by 11% in the second half of last year (2022) and continued to decline during the first months of this year (2023).

Production from the Zor field (the largest gas field in the eastern Mediterranean) was 2.45 billion cubic feet of gas per day compared to the level reached in 2021, which is estimated at 2.74 billion cubic feet.

Imports from Israel and rationalization of consumption helped to maintain Egypt’s LPG exports in the first quarter of this year (2023) at the level recorded in 2022 itself.

Egypt’s LPG Exports in the First Quarter of 2023

According to a report by the Organization of Arab Petroleum Exporting Countries (OAPEC), Egypt’s LPG exports in the first quarter of 2023 amounted to about 1.90 million tons, which is confirmed by what Cairo receives from other fields in the region under agreements with foreign companies.

Source

Source: Energy Platform