Egypt Plans More LNG Deals, Driving Global Competition for Fuel

Egypt is poised to boost liquefied natural gas (LNG) purchases until the end of the decade, tightening the global market and raising the prospect of yet-higher import bills.

The nation is planning to buy LNG beyond the sizeable volumes it’s already agreed to until 2028, as it looks to meet surging demand and fill a gap left by declining local output, according to people familiar with the situation. It has signed 10-year deals for import infrastructure and is in talks over long-term gas supply contracts.

The plans signal Egypt is likely to miss a 2027 target for resuming exports, highlighting the dramatic reversal in energy fortunes that turned it into a net gas importer only recently. 

There’s no sign the situation will improve in the longer term as it grapples with soaring power demand exacerbated by climate change, and North Africa’s fastest-growing population.

Egypt’s recent import deals have already contributed to tightening the global LNG market, at a time when Europe has been looking for extra shipments to refill storage sites and replace Russian gas.

 If the nation keeps attracting cargoes for years, it’s likely to absorb some of the additional supply as new projects come online and help support prices.

For Cairo, the financial impact of the heavy purchases is significant. Its import bill for petroleum products and LNG is expected to be about $20bn this year, up from $12.5bn in 2024, according to people familiar with the plans who asked not to be identified because of the sensitivity of the matter.

Egypt is seeking to revamp the economy after securing a $57bn bailout package last year, and heavy LNG purchases will add new financing pressures. 

The country is already grappling with a plunge in Suez Canal revenue caused by Yemeni militant attacks on Red Sea shipping over the past 18 months, although tourist arrivals are expected to hit a new record this year.

“The natural gas shortfall is going to be one of the biggest burdens on Egypt’s current account and dollar liquidity for the foreseeable future,” said Riccardo Fabiani, interim program director for the Middle East and North Africa at the International Crisis Group.

Egypt’s oil ministry didn’t respond to a request for comment.

The country re-emerged as a net LNG exporter in 2019 thanks to new production from Eni SpA’s giant Zohr discovery, ending several years in which liquefaction facilities at Damietta and Idku had been idle due to insufficient domestic gas supply.

Restarting exports was an economic boon. LNG shipments peaked at about 9bn cubic meters in 2022, just as European gas prices surged following Russia’s invasion of Ukraine. Egypt’s gas export revenue reached $8.4bn in 2022, up from $3.5bn in 2021, government data show.

The windfall was short-lived. By 2023 domestic gas production was posting double-digit annual declines, led by Zohr dropping below its peak levels.

Eni declined to comment on current supply. “However, we confirm that production is in line with plans, that it is off-plateau, and that Zohr production trends are comparable to those of fields with similar characteristics across the world.”

The Italian company planned to drill two additional wells at Zohr, after the Egyptian government had started to clear a payment backlog, Chief Financial Officer Francesco Gattei said on an earnings call in February.

At the same time, Egypt’s demand for gas to generate power has risen due to a growing population and sweltering weather, which increases demand for air conditioning. Cairo had to choose between keeping the lights on and giving up LNG exports.

By 2024, the country was again a net LNG importer. Egypt’s total gas output recently dropped below 4bn cubic feet a day for the first time since July 2016.

President Abdel Fattah al-Sisi’s government last year bulked up on LNG imports as it vowed to end rolling power cuts, a plan that was largely successful. It’s also pushing ahead with the plan to make monthly repayment of arrears to foreign energy companies to encourage them to boost investments.

“For Egypt to get back to self-sufficiency, that would require significant exploration success and several years to bring discoveries to market,” said Martijn Murphy, principal analyst for upstream North African and Eastern Mediterranean at consultant Wood Mackenzie Ltd.

With plans to stimulate domestic production still to take effect, authorities are focusing on securing long-term imports and insulating the country against geopolitically-linked market price fluctuations.

Besides LNG, Egypt also buys Israeli gas through a pipeline. Last month, Israel’s war with Iran prompted the precautionary shutdown of the Leviathan field in the eastern Mediterranean. Exports were halted for over a week, and Cairo was forced to temporarily cut off supplies to some industries.

“The solution shouldn’t be cutting gas supplies to fertiliser plants, because this impacts farmers, agriculture produce and exports,” Egyptian billionaire businessman Naguib Sawiris told Al Arabiya in an interview. “We shouldn’t have depended on Israeli gas.”

Adapting to the new reality, Egypt agreed with giants including Saudi Aramco, Trafigura Group and Vitol Group to bring in as many as 290 LNG cargoes, running from July until 2028.