Egypt's Shift to Long-Term LNG Agreements
Egypt is currently negotiating with U.S. and other foreign companies to secure long-term liquefied natural gas (LNG) contracts, aiming to mitigate reliance on the pricier spot market. This strategic move comes as the country grapples with a significant decline in domestic gas production, which has forced it back into the role of a net importer of natural gas. According to sources, Egypt plans to secure supplies for three to four years to protect against sudden price hikes while also seeking flexible terms to adapt to future supply needs.
Data from the Joint Organizations Data Initiative (JODI) reveals that domestic natural gas supplies fell to their lowest levels in seven years as of September, primarily due to reduced output from the Zohr field and increased energy consumption. Projections from consulting firm Energy Aspects indicate that domestic production may decrease by an additional 22.5% by the end of 2028, while energy consumption is expected to rise by 39% over the next decade. This alarming trend underscores the urgency of Egypt's negotiations for long-term LNG agreements.
Infrastructure Developments and Production Challenges
In preparation for increased LNG imports, Egypt is enhancing its infrastructure, particularly in Ain Sokhna and Alexandria. The country is also set to introduce a second floating storage and regasification unit early next year. Despite these efforts, Egypt's average production from the Zohr gas field has dropped to 1.9 billion cubic feet per day in the first half of the year, raising concerns about potential technical issues and reduced investment in the sector.
Additionally, Egypt faces a financial crisis regarding overdue payments to oil and gas companies, which has hindered exploration and production activities. The Ministry of Petroleum has announced plans to address these debts by linking payments to increased production levels. An incentive package has been launched to encourage partners to boost output, with the additional revenues earmarked for settling outstanding dues. As Egypt navigates these challenges, the hope remains that increased production and strategic long-term agreements will stabilize its energy landscape.
