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Egypt exporting bunker fuel to Europe, using domestic gas for generation: traders

London — Egyptian General Petroleum Corp., which formerly imported high sulfur fuel oil from Europe, is now exporting bunker fuel, adding to oversupply in the European market, as Egypt's generation needs are now met by domestic natural gas, traders said Friday.

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"Egypt used to import much more fuel oil than now, so while I appreciate there are [refinery upgrades in Northwest Europe] and less fuel oil is coming out, but there is also less demand," a trader said.

State-owned EGPC has offered around five 25,000 mt (plus/minus 10%) cargoes of RME 180 CST bunker fuel over the last few weeks loading FOB Alexandria or Suez, traders said. The most recently released tender was to load 180 CST RME FOB Alexandria over April 3-5. The last import tender was for three 30,000-45,000 mt of fuel oil loading over October 28-30 into Alexandria and Suez.

EGPC previously imported about five to six 30,000 mt Handysize cargoes of high sulfur fuel oil per month into Alexandria and Suez, pulling away barrels from net-long Europe. Over the years these volumes have decreased sometimes to only one to two 30,000 mt cargoes monthly.

EGPC could not be reached for comment Friday.

To meet its exploding generation demand, Egypt started importing LNG in 2015 after curtailing exports from its SEGAS LNG and Idku LNG projects. At one point, Egypt, once an LNG exporter, was the largest importer in the Middle East.

"LNG is cleaner and cheaper, fuel oil is too expensive," an analyst said. "There are good routes into Egypt for LNG from Europe."

But Egypt has since switched back to onshore gas for generation due to new finds at the BP-led West Nile Field and the ENI-led Zohr gas project. Despite the promise that the extensive refinery upgrade program in Northwest Europe will reduce the volumes of fuel oil in the market, the absence of Egyptian power demand has notably affected the Mediterranean market.

The 3.5% Med/North has maintained a contango structure through most of the first quarter amid an oversupplied complex and lackluster demand. By comparison, Q1 2017 saw tighter availability of Mediterranean cargoes creating a surge in buying interest, thus supporting premiums over the 3.5% FOB Rotterdam barges.

European refineries, meanwhile, are upgrading to reduce the amount of fuel oil in favor of lighter, more valuable distillate products in the run-up to the 0.5% global marine sulfur cap. ExxonMobil's Antwerp coker, for example, is expected to be online in the coming months and traders anticipate a tighter fuel oil complex towards the end of this year.

An ExxonMobil spokeswoman, who asked not to be identified, Friday said the delayed coker will be fully operational in 2018, adding that the start-up is a "complex process and can take several months."

--Eleni Pittalis,
--Desmond Wong,
--Edited by Richard Rubin,