Jordan commits long-term as LNG imports return to Egypt [Global Gas Perspectives]
Track back only a few years and Egypt was set to become the pre-eminent gas hub of the MENA region. Production had risen to such an extent that exports were again possible. Debts to developers had been paid down and pricing reform and a reduction in subsidies had made the domestic market a more attractive option.
Israeli pipeline gas added to supply, as well as finding a route to international markets via Egypt’s underused LNG plants. Gas was flowing to Jordan. The beginnings of a regional pipeline network, long frustrated in the gas-rich region by mutual suspicion and national rivalries, was starting to emerge with Egypt at its centre. It was an exceptional turnaround in fortunes for Cairo.
Fast forward to today and LNG imports are back in vogue. In May, Hoegh LNG announced the deployment to Egypt of the Floating Storage and Regasification Unit (FSRU) Hoegh Galleon, highlighting the country’s immediate need for gas to meet the summer surge in demand. The FSRU arrived at Ain Sokhna in June, received its first cargo in July and is expected to stay in place for 19-20 months ahead of its eventual deployment to an LNG import terminal at Port Kembla in Australia.
Meanwhile, Jordan has announced the award of a contract for the construction of an onshore LNG terminal in the Port of Aqaba, the location of its existing FSRU, which currently supplies LNG to both Jordan and Egypt. The decision implies a more permanent role for LNG imports, even if the Hoegh Galleon’s presence proves temporary.
Jordan has little immediate need for LNG
The 3.8mn t/yr FSRU Energos Eskimo is under contract to the Jordan National Electric Power Corp until 2025. An agreement was signed last year to allow Egypt to use the vessel until the end of its contract period, but when that ends – at roughly the same time as the short-term deployment of the Hoegh Galleon – both Jordan and Egypt will require a new means of importing LNG to offset their current dependence on Israeli pipeline imports.
The capacity of the new LNG terminal, at 5.4mn t/yr, is larger than the Energos Eskimo. The contract has been awarded to South Korea’s GAS Entec, its group company AG&P and local partner Issa Haddadin. The terminal’s customer will be the Aqaba Development Corporation. The aim is to bring the terminal, jetties and storage facilities onstream within 22 months. Operations would therefore start in the second quarter of 2026.
It is a large terminal and significant investment for a country which last year saw net LNG imports of just 0.13mn t, following only 0.07mn t in 2022. Most of Jordan’s limited gas demand of about 4bn m3 in 2023 was met by pipeline imports from Israel, owing to a lack of gas from Egypt.
Israel’s gas production is on an upward trajectory, while Egypt’s has suffered a relatively sudden decline, reversing its re-emergence as a gas exporter and putting it back into import mode.
Israeli gas surplus to grow
According to the Oxford Institute for Energy Studies, Israel’s gas surplus will increase to 15.5bn m3 this year and rise to a peak of 21.0bn m3 in 2026. In the absence of LNG export capacity, Israel’s gas export options are limited to Egypt and Jordan via three routes: a northern pipeline which connects with the Arab Gas Pipeline in Jordan, a direct connection to Jordanian industrial gas users around the Dead Sea and the offshore East Mediterranean Gas Pipeline (EMG), which connects Israel directly with the Egyptian gas system.
Planned capacity expansions will raise total export capacity from 13bn m3 to 19bn m3, while an additional pipeline was approved in May last year. This would run onshore from the Ramat Hovav area to the Egyptian border near Nitzana with a capacity of 6bn m3/yr.
Jordan’s decision to build a permanent onshore LNG terminal appears to reflect concern over its high level of dependence on Israeli pipeline gas, for which it competes with the much larger Egyptian market. Cooperation with Egypt regarding the Energos Eskimo could be extended to the use of the planned onshore facility, reducing costs for Jordan and providing both markets with an alternative to Israeli gas.
Gas flows from Israel to Egypt have increased, despite the war between Israel and Hamas, which resulted in a temporary shutdown of the Tamar field and the rerouting of gas in fourth-quarter 2023. In the first quarter of this year, Israeli export volumes to Jordan and Egypt combined reached an all-time high, rebounding from the reduced volumes exported at the end of last year. Exports to Egypt in 2023 totalled 8.6bn m3 and to Jordan 2.9bn m3, an increase of 39% over 2022.
The goal for Israel’s gas exporters is to make use of Egypt’s two LNG plants, Damietta and Idku, which have capacity of 5.0mn and 7.2mn t/yr respectively, thereby gaining access to international markets. But, for the moment, such is Egyptian demand for gas that all imports are being used domestically.
Egyptian gas crunch unlikely to see quick resolution
A decline in Egyptian gas output has seen the country divert imported Israeli gas to its domestic market with LNG exports falling as a result. Having exported only limited amounts of LNG between 2013 and 2020, exports rose to 9.1bn m3 and 9.2bn m3 in 2021 and 2022, respectively, before dropping by almost half last year. This year, LNG exports were halted in May to free up gas to meet surging summer demand.
The heart of the problem is Egypt’s inability to meet domestic demand for gas. Having successfully overcome an earlier period of import dependence, which saw gas production jump from 48.8bn m3 in 2017 to a peak of 67.8bn m3 in 2021, output slumped by 11.5% last year to 57.1bn m3. Gas consumption meanwhile continued upward, until capped in 2022 and 2023 by higher prices. At just over 60bn m3 last year, demand has again overtaken production.
Declining output from the giant offshore Zohr field, in particular, has eaten into the available gas supply. The field accounted for 40% of the country’s total gas output in 2021. Production from the field has fallen this year to the lowest level since it was brought onstream. Egypt produced 13.4bn m3 of gas in first-quarter 2024, down from 15.5bn m3 in first-quarter 2023.
With the economy weakening and revenues from the Suez Canal reduced by the slump in traffic caused by attacks on shipping in the Red Sea, government debt levels to oil and gas producers have also risen. The fall in Zohr’s production has been attributed variously to water infiltration, natural decline and a reduction in drilling activity, owing to unpaid debt.
Outlook dependent on new exploration success
Expectations that Egypt can turn its gas production around again soon are low, despite the award of exploration blocks to a number of major oil and gas companies.
According to consultants Rystad Energy, the outlook for exploration wells is good; between 180-220 should be drilled by 2030, depending on the oil price. However, the forecast for the country’s production wells is not so buoyant. Rystad forecasts that the number of development wells will fall from 218 this year to 86 in 2030.
The picture painted by the consultancy is one of continued production decline, which is only likely to be arrested by major discoveries, most likely offshore. Nonetheless, Rystad ended its note with optimism, saying: “the country can be reasonably confident in finding untapped resources to alleviate its reliance on gas imports and potentially become a consistent net exporter in the years to come.”
If it were to do so, it would create a dilemma for Israel, which would need a new export outlet. It would also pose questions for Cyprus, which hopes to develop its offshore gas discoveries and is looking to the Egyptian market as the closest major demand centre for its gas.
The development of renewable energy provides another uncertainty. Egypt’s gas balance is in no small part a function of rising demand, as well as its decline in output. Increased renewable power generation would reduce gas burn and demand. Power generation accounts for the main use of gas in both Egypt and Jordan. However, while they have ambitious plans, renewable energy capacity in recent years has made only modest gains, with little impact on gas for power demand.