Egypt's Ambitions to Become a Gas Hub Hindered by Mounting Debt Challenges

Five years ago, Egypt was one of the promising new regional and potentially global gas hubs. Following the massive Zohr discovery about a decade ago, the promise was justified. Now, Egypt has been forced to borrow to keep the lights on.

The Zohr field, which Italy's Eni discovered in 2015, began production three years later, ramping up very quickly to 2 billion cu ft daily in September from 350 million cu ft daily at the start of the year. Production rose further to 3.2 billion ft in 2019. After that, it began to decline, falling to 1.9 billion cu ft in the first half of this year. It has not been enough to cover local energy demand. So, Egypt has been forced to import gas.

The country was already a sizable importer of natural gas from neighbor Israel. This summer, however, Egypt had to reach out to its friends in the Gulf to keep the lights on, with Saudi Arabia and Libya both paying for LNG cargos to be delivered to Egypt, according to a new Reuters report.

The report said that Libya's National Oil Corporation bought one LNG cargo for $50 million in July, while Saudi Arabia paid for three cargos for a total of $150 million, unnamed sources told Reuters. Since the start of the year, Egypt has bought 32 cargos of liquefied natural gas.

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Imports of natural gas are not unusual for Egypt, which exports some of the gas it produces outside the summer months. Summer, however, is peak electricity consumption season due to the heat, and that demand seems to have risen considerably in the past few years while gas production has not. This has led to rolling blackouts, which in turn spurred the rush to secure additional gas supply.

In addition to the rising demand during the summer, total gas production in Egypt sank to the lowest in six years earlier in 2024. Part of the reason for this decline was the drop in Zohr's output, along with investment reductions by the energy majors operating in the country. The reason for that: unpaid debt.

Reuters reported this week that Egypt had accumulated debt of some $6 billion for gas and other fuel supplies. Of this total, $1.27 billion was debt to Italy's Eni, most of it accrued for gas supplies. Some of that has been repaid, a spokesman said, but he also said that Eni had revised its investment plans for Egypt this year based on "efficiency and field performance."

Petronas, Malaysia's state oil and gas operator, is another creditor of the Egyptian government, which is struggling with a 60% drop in the local currency this year. Per the same Reuters report, Petronas had reduced its investments in gas exploration in the West Nile Delta until Egypt repays some of the money it owes the company.

Meanwhile, however, investment heavyweight Carlyle Group said in June that it had acquired energy assets in Egypt from Energean and had big plans for these assets. These plans included an increase in both oil and gas production in the North African country, and turning it into a distribution hub for its other assets in the Mediterranean.

Egypt had big ambitions as a regional gas power. These ambitions were well justified. What seems to have been left out, however, is the growing domestic demand for energy as the population swells, urbanization advances, and so does industrialization. It's a process that took place in all developed countries and is currently underway in developing nations. This year's energy crunch is yet another reminder of the vital importance of energy supply security above pretty much anything else.

By Irina Slav for Oilprice.com

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