EU backs Egypt hub plans

14 November 2018
01 May 2018, Week 17, Issue 737

European Commissioner of Climate Action and Energy Miguel Arias Canete paid a three-day visit to Egypt in May 2018. The official toured some of the country’s energy infrastructure projects and signed a four-year memorandum of understanding (MOU) with top Egyptian energy officials for a strategic energy partnership. 

While interest in Egypt as a future energy hub is rising, there are some concerns over various legal woes that may slow development. Gas output is on the rise, while a new licensing round is being discussed and there is talk of Cypriot and Israeli gas being imported to Egypt for liquefaction. 

Increased domestic production should allow Egypt to halt the import of LNG by 2020, perhaps in addition to restarting liquefaction facilities on its Mediterranean coast – at Idku, operated by Royal Dutch Shell, and Damietta, operated by Eni and Union Fenosa. Further adding to hopes for those terminals are negotiations on imports of Cypriot and Israeli gas.

There are existing contracts with European companies for LNG produced at Idku and Damietta that have gone unfulfilled since Egypt was forced to halt supplies of gas to the plants earlier this decade. Those contracts are expected to be met while additional LNG produced from the facilities is also likely to go to Europe, which is keen to establish new sources of supply. 

There will be sufficient markets for gas in Europe in the future and providing Egyptian LNG is a straightforward way to meet that demand. Brussels is very interested in cultivating a close energy relationship with Egypt and other countries in the East Mediterranean with large gas resources, hence the visit by Canete.

Prior to his arrival in Cairo, Canete said: “Egypt can lead the way of the clean energy transition in the Eastern Mediterranean and thus contribute to the Paris climate goals and worldwide decarbonisation effort. Likewise, Egypt is becoming an important gas and electricity hub that can provide energy security for the EU and for the entire region. There is much to gain in terms of access to new sources of energy and market opportunities, for European and Egyptian citizens and businesses alike.” 

Cañete added that the EU would support Egypt in its energy market reforms and assist with sustainable energy investment. While in Cairo, the commissioner said the EU might provide as much as US$4.64 billion towards energy projects in Egypt. 

“The EU is keen to support Egypt with [the] sharing of experience, financial and technical assistance, and with the mobilisation of international finance,” Canete told a gathering in Cairo. “We need to not only provide public funds, but in particular private investment to accelerate the Egyptian energy transition in order to scale up renewable and efficiency investment, modernise the gas sector and turn Egypt again into an energy hub.”

Canete met with Egyptian President Abdel Fattah al-Sisi to discuss all the possibilities of joint energy co-operation and financing, plus Egypt’s relations with countries in the region. Egypt is member to a tripartite grouping with Cyprus and Greece that has focused on energy co-operation and promoting East Mediterranean energy development. 

Sisi, as well as Egyptian Petroleum Minister Tarek al-Molla, has stated on several occasions that Egypt has a target of becoming a regional gas hub. Without saying so explicitly, this would entail not only exporting Egyptian gas but also re-exporting gas from regional producers, namely from Cyprus and Israel. 

Plans for Israel gas imports hit a snag last week when objections were filed in an Egyptian court against a recent agreement between Dolphinus Holdings and the partners in Israel’s Leviathan and Tamar gas fields – Noble Energy of the US and Israel’s Delek Group. Importing Israel gas – which many Egyptians see actually as Palestinian gas – is a long-running argument in Egypt.

In 2017, Egypt passed a gas liberalisation law permitting private Egyptian companies to import natural gas. The law cleared the way for the Dolphinus Holdings deal, but legal disputes between Egypt and Israel over the past sale of Egyptian gas to Israel continue to linger. Earlier this year, Molla said any gas imports must add value to the Egyptian economy and all arbitration between Egypt and Israel must be settled. Both sides will try to take steps to resolve the legal disputes as it is in both their interests.

Egypt’s current gas output is around 155.76 mcm per day. This is expected to rise to 169.9-198.2 mcm per day by the end of next year or by 2020.v

Edited by

Ed Reed

Editor

Any questions? Please get in touch