Egypt commences summer LNG procurement with two trades for prompt deliveries: sources

Egypt has begun importing summer LNG cargoes, as the country battles with natural gas production declines, heightened summer demand and risks surrounding Suez Canal restrictions, market sources told S&P Global Commodity Insights.

Platts assessed the May TTF futures contract at $8.16/MMBtu April 3.

Market sources said the Egyptian Natural Gas Holding Company (EGAS) bought two cargoes for prompt delivery at a steep premium to Dutch TTF from Vitol and Trafigura.

Email queries sent to EGAS and Vitol did not elicit a response at the time of writing. Trafigura declined to comment.

Sources said the cargoes commanded a premium primarily because of the longer voyages owing to Red Sea restrictions and the geopolitical risk in the region.

"Premium is due to [Red Sea] risk... and the general geopolitical risk in the region," said an Atlantic-based trader.

Another trader agreeing with the sentiment added, "Based on shipping [premium] makes sense, with Suez closed, everything must come from the Atlantic."

According to market sources the deliveries are to be made at the Aqaba, Jordan floating storage and regasification unit.

Egypt has rarely imported cargoes in the past five years since the discovery of Zohr field, which made Egypt an exporter of LNG again after importing LNG from 2015-2018.

The country has not imported LNG since late 2018, with only four domestically produced cargoes received at its remaining FSRU over 2019-2023, as well as a partial import cargo that was re-exported in late 2023, according to S&P Commodity Insights analytics data.

"Rapid declines in domestic gas production--down more than 10% in 2023 after a 5% decline in 2022--have pushed Egypt back to net importer status," said Mehrun Etebari, Associate Director at S&P Global Commodity Insights.

On the supply side, the country's export volumes have seen a significant fall since Q3 2023. Egypt's domestic demand for natural gas is higher for the cooling season, and hence it has a wider capacity to export the molecule in the heating season. In the winter of 2023-24, Egypt exported a total of 903,000 mt of LNG, down 79% year-on-year. The domestic gas demand of the country rose 2.4% year on year in 2023, according to a S&P Global report.

A decline in domestic production and expectation of rise in demand for gas in the summer is expected to boost demand from Egypt.

Market sources said that Egypt would need to procure 15-20 cargoes with deliveries spread over the Egyptian summer.

Etebari pointed out that an increase in pipeline supply from Israel would have helped meet Egypt's increasing gas needs by this summer, but construction of a key pipeline in southern Israel was stalled by the Gaza war.

"Amid these trends, we forecast that Egypt will need just over 1 million tons of LNG--roughly 18 cargoes--this summer. We estimate that summer LNG imports will likely be needed through 2027, depending on the pace of commercial agreements aimed at bringing new Israeli and Cypriot gas developments to the Egyptian market," Etebari said.

A Singapore-based source said that trade to Egypt could pose risks if ships go through the region near Yemen which may be prone to attacks by militants, but a Europe-based source said that cargoes for Egypt could be sourced from US or Algeria to avoid the Red Sea.

Platts assessed May DES East Mediterranean LNG at $8.145/MMBtu April 3, a 25 cent/MMBtu premium to the Northwest European LNG market and a 1.5 cent/MMBtu premium to the Dutch TTF.