Union Fenosa Gas (UFG), the Madrid-based joint venture between Naturgy (formerly Gas Natural Fenosa) and Italy’s Eni, has won US$2 billion in compensation from Egypt in a legal dispute over gas supplies. The claim was filed over the loss of natural gas feedstock to the UFG-operated Damietta LNG plant in the North African country.
The World Bank’s International Centre for Settlement of International Disputes (ICSID) ruled on the claim lodged by UFG in 2014 and found against Egypt for the “unilateral interruption of gas supply to UFG’s liquefaction facilities”.
ICSID upheld arguments in UFG’s claim, finding Egypt to be “responsible for the breach of the bilateral investment protection treaty between Spain and Egypt, since the company was not granted the fair and equitable treatment required”.
The arbitration tribunal that considered the case said Cairo must compensate UFG for damages caused, with the Spanish operator owed US$2.013 billion plus interest and associated arbitration and legal costs.
Damietta LNG is one of two Egyptian LNG export plants which, along with the two-train Idku plant, had been supplying LNG to European buyers, primarily Italian and Spanish import terminals. From around 2012, however, Egypt’s domestic gas demand grew rapidly and outstripped supply, forcing the country to import LNG. Damietta was deprived of feedstock and could no longer function, which led UFG to turn to international arbitration. LNG exports halted entirely in 2015 but have since restarted, with Idku producing around one cargo a month.
Speaking exclusively to NewsBase Intelligence (NBI), an executive from the Spanish company welcomed the ICSID verdict and confirmed that UFG was committed to restoring LNG production at Damietta. The spokesperson said the 5 million tpy plant had exported 17 cargoes in 2012, its last year of operations, and was then idled. At full capacity, the facility had capacity to dispatch around 80 cargoes per year.
This week’s judgment has raised hopes that Damietta LNG could spring back into life in the next few years. Egyptian gas demand is forecast to remain strong. BP’s statistical review for 2017 showed gas consumption stood at 56 bcm last year, up from 49.4 bcm in 2016 and 46 bcm in 2015. It is anticipated that buoyant demand from the industrial and power sectors will ensure demand remains healthy.
Even so, the supply-demand imbalance that emerged in 2012 is set to switch back to a gas surplus, as new resources such as Eni’s 850-bcm Zohr field and other discoveries come on stream.
BP’s data show that Egyptian gas production was 49 bcm in 2017, up from 40.3 bcm in 2016, reversing a decline that began in 2008. Demand for Damietta cargoes is likely to be strong too, with new terminals in Croatia and Greece in line to soak up supply. Zohr, in 2019, should reach capacity of 76 mcm per day – 27.7 bcm per year –while the BP-led West Nile Delta project should be producing around 37 mcm per day – 13.5 bcm per year.
The expectation had been that Damietta LNG would become fully operational again sometime in the early 2020s. Assuming the Egyptian authorities do not appeal against the ICSID ruling, UFG should be able to focus on restarting the plant within that timeframe.
The UFG spokesperson could not confirm press speculation that the Egyptian gas authorities had already given the green light for a return to LNG production at Damietta in 2019. UFG said the only certainty from its perspective was the verdict that had been handed down, but no other details could yet be confirmed. According to reports in the Egyptian press, Eni intends to supply gas from the Zohr field to its partly owned Damietta plant next year.
UFG will now seek a comprehensive agreement with Cairo based on compensation for damages, continuous supply of feedstock gas and guarantees of contractual compliance in the future. “[The verdict] will allow us to reaffirm, as always, our clear and sound commitment to Egypt and our willingness to continue the operations in the country in the long term,” the UFG official said.v
Zohr starts up fifth train
Zohr has reached the 2 bcf (56.6 mcm) output per day mark, Eni said on September 8. The company noted that production had only begun in December 2017 and that this new milestone had been expected to come in December 2018.
Eni said production had increased as a result of starting up the fifth production unit, T4, with a new 218 km pipeline, which was commissioned in August. Eni and its partners hope to reach a plateau rate of more than 2.7 bcf (76 mcm) per day in 2019. In total, seven production units are planned. The second production unit, T1, began in April this year and the third, T2, in May. Each has capacity of 400 mmcf (11.3 mcm) per day, suggesting peak total of 2.8 bcf (79 mcm) per day.
Zohr, Eni said, was “playing a fundamental role in supporting Egypt’s independence from LNG imports”. Cairo has said it expects the last LNG cargo to be delivered in October and is in talks to release one of its floating storage and regasification units (FSRUs).
The Zohr field lies in the Shorouk block, which is 190 km north of Port Said. Eni has a 50% stake in the block, while Rosneft has 30% and BP and Mubadala Petroleum 10% each.
Work is being carried out by Petrobel, in which Eni and Egyptian General Petroleum Corporation (EGPC) participate, on behalf of the Petroshorouk venture, which is held by Eni and its partners and Egyptian Natural Gas Holding (EGAS).
While Zohr’s rise in Egypt has been meteoric, Eni is also involved in the Nooros field, which is producing around 34 mcm per day. v