East Mediterranean gas exported via Egypt is heading to Europe, but the cargoes remain modest and are unlikely to be ramped up significantly, given capacity restrictions at a time when the US and the EU are scouring the globe for supplies to the continent to potentially replace Russian gas, if geopolitical tensions with Ukraine worsen.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Egypt, which has substantial domestic gas production and is also supplied with Israeli gas from the giant Leviathan field in the Mediterranean, exported 6.64 million mt/year of LNG in 2021, a 10-year high, according to Kpler shipping data.
Egyptian LNG exports, which in the past have mostly headed to Asia, increased to Europe in 2021 to reach 2.04 million mt, compared with just 270,000 mt in 2020, Kpler shipping data showed.
"Egypt may be able to reorientate some supplies that had previously gone to Asia to Europe, although this is not likely to make a significant impact on balances in the case of Russian pipeline supplies being constrained," said Luke Cottell, team lead, EMEA LNG, at S&P Global Platts Analytics.
"Given the existing high-priced environment on the global gas market, there is limited upside to total LNG supply, as most exporters, including Egypt, are already incentivized to produce as much as possible."
Historically high prices
The US and the EU are courting LNG cargoes as far afield as in Japan to guarantee supplies to Europe in the case of a Russian invasion of Ukraine that could potentially disrupt deliveries from the continent's main gas supplier.
European gas prices remain at historical highs due to low levels of storage, curtailed Russian flows, and winter supply concerns amid the standoff between Russia and the West over Ukraine.
European Commission officials have held talks with key suppliers in recent weeks in a bid to secure additional gas supplies, including Qatar, the US and Azerbaijan.
The TTF day-ahead price hit a record high Eur182.78/MWh on Dec. 21, 2021, an increase of 985% year on year, according to S&P Global Platts price assessments.
Prices have cooled since though they remain high, with the TTF day-ahead contract assessed Feb. 10 at Eur74.675/MWh, quadruple the Eur18.075/MWh level reached a year ago.
"In practice, this jump [in Egyptian LNG] might be short-lived," said Nikos Tsafos, a senior fellow with the energy security and climate change program at the Center for Strategic and International Studies. "Egypt needs continuous investment and imports to sustain exports. Even then, the existing capacity is probably the maximum we can expect out of Egypt."
Egypt is forecasting its LNG and gas exports in the current financial year that ends in June to reach 7.5 million mt, Magdy Galal, the chairman of state-owned Egyptian Natural Gas Holding Co said Feb. 10. Egypt is planning to add 450 MMcf/d in the 2022-23 financial year that starts in July, up from 375 MMcf/d added in the first half of the current financial year.
However, the future potential of East-Mediterranean gas hinges on energy transition policies in consuming countries.
The region sits on a yet undiscovered 286.2 Tcf of resources, according to a US Geological Survey assessment.
"Egypt is importing gas from Israel through an existing pipeline and could import more gas from the Leviathan field to be fed into its LNG plants if a new pipeline was to be built, but the history of security problems between Israel and Egypt makes any such investment highly risky," said Jonathan Stern, a research fellow at the Oxford Institute for Energy Studies.
However, Cyprus has yet to exploit its gas discoveries in the Mediterranean amid energy transition concerns and disagreement with Turkey.
To make matters worse, Israel decided not to hold a fourth international licensing round for offshore gas exploration as planned in 2022 as it shifts its focus instead to the development of renewables.
Pipeline to Europe
"East-Med gas is pretty much dead in relation to exports to Europe with the exception of small volumes of LNG," said Stern.
"Nothing is going to change this outlook as European buyers cannot sign any new long-term contracts for fossil gas due to their net zero reduction targets. The future for large scale East-Med gas supply is in the East-Med region but this depends on a resolution of regional politics."
Moreover, the US withdrawal of support for a proposed EastMed gas pipeline to Europe has sounded its death knell.
"We remain committed to the energy security and connectivity of the Eastern Mediterranean," a US State Department spokesperson told Platts. "Electricity interconnection to Europe will link East Mediterranean countries to each other and to Europe, allowing for future exports of electricity produced by renewable energy sources, benefiting nations in the region."
The Eur6 billion project envisaged building a 1,250 km subsea pipeline designed to supply Europe with natural gas from Israeli and Egyptian offshore fields via Cyprus and Greece.
"Platts Analytics has long held the view that market realities and supply competition would preclude the development of an EastMed pipeline to Europe, with insufficient economic signals in place for a new intra-regional pipeline," Cottell added.