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HomeWorldEgypt domestic gas demand to block more exports

Egypt domestic gas demand to block more exports

Egypt looks set to extend a two-year moratorium on new gas export deals to meet surging domestic demand, a move that will disappoint some majors eyeing deals to develop reserves for overseas customers.

Europe’s desire to diversify away from Russian supplies has focused attention on alternative producers like Egypt, which wants to join its Arab Gas Pipeline to the Nabucco link running via Turkey to Europe.

But a long-standing ambition to bolster its trade balance and state finances by becoming a major exporter of the fuel has been disappointed for now as differences with energy companies over commercial terms stymied development, analysts say.

Most additional volumes are going to satisfy Egypt’s growing appetite for natural gas, the fuel of choice as new power plants come on line to meet a government target to triple power generation capacity by 2027.

The government imposed the moratorium on new export deals in 2008 to protect domestic gas supplies. It is due to review the moratorium at the end of this year.

With domestic demand seen growing at least 8 per cent a year, higher output volumes previously allocated for export could end up being burned in Egyptian homes, factories and power plants.

‘If the domestic supply-demand shortfall persists, one could easily see the moratorium being extended,’ said Femi Oso, upstream research analyst at Wood MacKenzie.

The damp outlook for exports is hardly likely to improve after this summer’s power crisis. Blackouts across the country stirred public anger and put further pressure on the government to prioritise local needs.

‘There is some potential for exports a bit further down the line, but with these shortages there will be renewed pressure from the Egyptian population and industry to continue with the moratorium,’ said Samuel Ciszuk, senior energy analyst for the Middle East and North Africa at IHS Energy.

‘And as long as that continues, it adds to company reluctance to invest upstream.’

In any case, the profitability of gas globally has also been undermined by huge reserves of shale gas and an international supply glut after recession dented industrial demand.

Egypt emerged as a significant natural gas producer in the past decade, swiftly developing mainly offshore Mediterranean gas reserves. It exported its first liquefied natural gas (LNG) cargo early in 2005 and boosted foreign sales by pipeline.

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