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Talks resume on restarting Egypt's idled Damietta LNG facility: Eni

Highlights

February deal terminated in April after conditions not met

5 million mt/year facility idled since 2012

Egyptian LNG exports all but dried up since March

London — Talks focused on finding a new agreement to allow for the restart of the idled Damietta LNG export facility in Egypt have resumed, a spokesman for project partner Eni said Oct. 9.

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The restart of Damietta, which has been idled since 2012, would provide additional export optionality for Egypt, which currently has a surplus of gas.

A previous deal agreed in February fell through in April after certain terms under the agreement were not met.

"The parties have resumed negotiations to try and set the framework of a possible new agreement to resolve all existing legal disputes and to restart the plant," the Eni spokesman said.

An industry source also said the Egyptians were interested in accelerating talks.

Damietta LNG is operated by Union Fenosa Gas, a 50-50 joint venture between Eni and Spain's Naturgy.

Under the February agreement, UFG's 80% share in Damietta was to be divided between Eni (50%) and state gas company EGAS (30%), meaning Damietta's shareholders would have been Eni (50%), EGAS (40%) and state-owned oil company EGPC (10%).

It would have also seen Naturgy exit the project and receive $600 million in cash and most of UFG's assets outside of Egypt.

Naturgy declined to comment on the current status of Damietta LNG, while EGAS and EGPC could not be reached for comment.

LNG export collapse

Egypt currently only exports from the 7.2 million mt/year Idku facility operated by Shell, but weak global LNG prices have led to a near total collapse in shipments.

In August, Egypt completed its first LNG cargo export since March, with a shipment from Idku arriving in Taiwan on Aug. 16, according to data from S&P Global Platts Analytics and Platts trade flow software cFlow.

Egyptian LNG exports ground to a halt in late March as spot LNG prices fell to record lows, with the JKM spot Asian LNG price falling to just $1.825/MMBtu in late April.

Egypt is among a small group of spot-exposed LNG exporters that were forced to curtail production because of the low prices.

However, the JKM price has risen in recent months and was assessed by Platts on Oct. 8 at $5.39/MMBtu, above Egypt's estimated LNG production breakeven cost.

According to cFlow, though, no cargoes have left Idku since the August export to Taiwan.

Arbitration award

The situation with Damietta LNG has been complicated by a legal dispute over compensation due to the operators after the plant was idled in 2012.

UFG was awarded $2 billion by the World Bank's International Centre for Settlement of Investment Disputes after feedgas to the plant was diverted by Egypt for use on the domestic market.

The February agreement would have provided for the resolution of all outstanding disputes.

Naturgy said in April it would continue to pursue its claim for its 50% share of the compensation from the Egyptian government following the collapse of the agreement.

The termination of the deal was triggered in part by an inability of workers to access the plant due to the coronavirus pandemic and a devaluation of the asset due to falling prices, according to a source with knowledge of the matter.

The source said that one of the main conditions to advance the February agreement was for the plant to start operating before the deal could complete.

Work to bring the idled facility back to normal operation was expected to take three months, meaning a June deadline for restarting the plant would not have been met.