Ongoing global risks heighten Egyptian LNG, LPG export uncertainty

The domestic Egyptian LNG and LPG export markets have continued to face woes as global risks and trade constraints shroud it with uncertainty.

Ongoing tensions in the Middle East were heard to be depressing the domestic Egyptian market, with a lack of available gas from Israel hindering LNG and petrochemical product exports.

Now currently with global risks persisting and production growth being lower than expected, uncertainty in the Egyptian export market has continued in the first quarter of 2024.

Egyptian LNG exports this month stood at 70,000 mt as of Feb. 9, 35% of the levels seen in the previous month, according to data from S&P Global Commodity Insights. The entire volume was headed to the UK.

LNG exports from Egypt had largely diminished since the escalating tensions in the Red Sea, which are driving shippers to avoid the Suez Canal. Despite exports rising slowly this month, Egyptian exported 270,000 mt of LNG so far in 2024, down by 64% when compared to same period last year, according to S&P Global analysts.

"Egypt experienced the most significant year-on-year decline in LNG exports in 2023, down nearly 50% to 3.7 million mt, as its domestic production fell by just over 10% year on year," Ayush Agarwal, LNG Analyst at S&P Global, said in a report. "The market did not export any cargo between July and October 2023 due to the diversion of gas in the summer months to meet surging domestic demand."

Egyptian LNG exports went through a difficult year in 2023, with three especially muted months. They were halted in Q3 2023 due to the Israel-Hamas conflict, with the Israeli Tamar gas field, on which Egypt relies to fulfill domestic demand and for re-export, was shut down.

Ayush added that despite the resumption of flows from Israel, LNG exports remained limited, and war-related delays in building additional gas pipelines to support increased Israeli flows will likely contribute to further declines in Egyptian LNG exports in 2024.

The current bearish dynamics across Europe and the Mediterranean have also provided little support for incentivizing stronger exports from Egypt. Platts, part of S&P Global, assessed the East Mediterranean Marker for March LNG at $8.319/MMBtu on Feb. 8, a 20 cents/MMBtu premium to the Northwest European LNG market.

Suez Constraints

"Ships transiting between Europe and Asia via the Suez Canal must pass through the Bab al-Mandab Strait, which connects the Red Sea to the Gulf of Aden. The strait is an important oil and natural gas chokepoint, accounting for 12% of seaborne oil trade and 8% of liquefied natural gas (LNG) trade in the first half of 2023," the US Energy Information Administration said in a report. "Some vessels began opting to avoid the Bab al-Mandab chokepoint -- a narrow strait that borders the Yemeni coast and is the southern entrance to the Red Sea. Instead, they're choosing to take longer, more costly routes around the tip of Africa."

With the ongoing tensions in the Red Sea, many shipowners have been navigating alternate routes such as taking the longer voyages around the Cape of Good Hope. As a result, Egyptian exports have taken a hit.

Data from the EIA showed that in December, 24% less LNG and 1% more LPG were traded globally compared with the rest of 2023. Vessel restrictions at the Panama Canal due to a drought are also causing more VLGCs to depart from the US to head east toward either the Suez Canal or the Cape of Good Hope.

The EIA said that after the attacks began in November, flows of oil, refined products, and natural gas passing through the Bab al-Mandab Strait slowed, with about 18% less crude oil flowing through the strait in December compared with the January to November 2023 average.

Diverging petrochemical exports

Egyptian LPG exports for December totaled 48,400 mt, up from just 12,200 mt the month prior, according to Platts Commodity at Sea data. This year, however, Egyptian LPG exports have tumbled, with sources citing marginal LPG outflows of around 4,000 mt for January.

Egypt is currently a net exporter of propane, producing 40,000-50,000 mt/month, according to analysts at S&P Global. "We expect exports to decline over the long term, and the country may eventually become a net importer," the analysts said.

On the butane front, "Egypt produces around 100,000 mt/month of butane from natural gas and refining, and the remainder is imported. We expect growth in butane production like propane," they added. Despite the expected growth in LPG production, with slower-than-anticipated growth in natural gas production in the country, the incline could be limited.

On the other hand, Egyptian polymer producers saw demand jump in January in contrast to December following the scale-up in Houthi attacks on vessels in the Red Sea which caused significant disruptions to container shipping in the region. Export demand for Egyptian polyethylene, polypropylene and polystyrene saw a healthy improvement from Turkey in particular, a country which is a major importer of polymers. Delays to imports of polymers into Turkey saw prices shoot up, providing attractive netbacks to Egyptian producers. Platts assessed CFR Turkey PP Fiber at $1,210/mt Feb. 8, up 27% from the start of December.