Egyptian LNG Q1 2025 procurement could tighten European LNG market: analysts, sources

Imports of liquefied natural gas into Egypt at the start of 2025 due to ongoing domestic constraints could further tighten the European market as Europe looks to replace lost Russian gas volumes through Ukraine with LNG, sources said.

With Egypt’s switch to a net importer this year due to domestic production constraints and growing demand, the global LNG market has seen spells of tightness during the summer restocking season with expectations for this to continue over winter into early next year.

Egypt halted LNG exports in April of this year before switching to importing the super-chilled fuel. Egypt has imported around 24 cargoes, or 1.59 million metric tons, so far this year, according to S&P Global Commodity Insights data.

Egypt is also expected to import two cargoes between now and the beginning of November, one cargo of 70,000 t on Oct. 24 and another of 70,000 t on Nov. 4, the data showed.

Sources now expect Egypt to purchase more volumes of the super-chilled fuel over the first quarter of 2025, which could contribute to expectations of a tighter waterborne LNG cargo market and stronger cargo prices.

“Egypt will definitely look to buy cargoes then [in Q1 2025],” an LNG trader said. “It’s a structural issue right now.”

Traders see the current constraints with domestic gas supply coupled with expectations for demand to continue to grow as drivers for Egypt’s need for LNG in the short-term.

Egyptian short-term demand for LNG is forecast to grow from around 2.50 MMt for 2024 to 3.57 MMt in 2025 before growing to a peak of 4.85 MMt in 2027 and dipping down to 3.80 MMt in 2028, Commodity Insights data showed.

Some traders have been eyeing Q1 demand from Egypt. “I expect they would be looking for the same number of cargoes [20 cargoes] as Q4,” said an Atlantic-based LNG trader, adding that Egypt might have some uncovered demands for the rest of Q4.

Competition with Europe

Egypt has released tenders to procure these volumes over the summer period and into Q4 2024 for LNG volumes to satiate domestic power generation needs. During these periods, European gas and LNG prices have risen as sellers in the market withhold their offers to sell into these Egyptian tenders.

Platts, a part of Commodity Insights, assessed the DES Northwest European LNG marker at $12.704/MMBtu on Oct. 14.

In the latest tender – where Egypt looked to buy 20 LNG cargoes for Q4 – to when the tender was awarded on Sept. 12, Northwest European LNG prices jumped around 11% from $11.346/MMBtu on Sept. 5 to $12.61/MMBtu on Sept. 12.

Traders saw a lack of offers in the Atlantic basin and increasing demand in Egypt contributing to the price rises seen during the Egyptian tenders over summer and for Q4 2024.

Global competition for the liquefied fuel has kept LNG-TTF spreads narrow for most of this year, sources said.

NWE LNG prices have averaged around a 15 cents/MMBtu discount versus the Dutch TTF gas hub over summer – April to September – compared to an average of around an 87 cents/MMBtu discount seen over the same period in 2023.

So far this winter, the NWE-TTF discount has averaged 20 cents/MMBtu versus the 71 cents/MMBtu seen in 2023, over the Oct. 1-14 period.

While the supply impact is still uncertain, given the premiums Egypt is paying for cargoes, Europe may see strong bidding activity to remain competitive globally versus Egypt, Latin America and Asia over the full course of winter.

Expected demand for Q1 2025 will also arrive at a time where Europe will look to LNG to replace any gas volumes lost through the likely expiry of the Russia-Ukraine transit in January. The expiry of the 42 million cu m/d pipeline would lead to Europe needing around 10 cargoes per month of LNG to account for the lost volumes, sources said.

Already, an LNG vessel was diverted away from Europe to the North African country. Diamond Gas Sakura, is currently unloading in the Hoegh Galleon FSRU in Egypt. It was loaded with some 68,000 mt of LNG from Freeport, US, with an original destination of Malta before diverting to Egypt, data from S&P Global Commodities at Sea(opens in a new tab) showed.

Should tensions in the Middle East escalate further, traders have pointed to looming supply risks, which may tighten the Atlantic LNG market further.

“Apart from risk premium, which is obvious drag on markets, Israel is exporting 8 million cu m/d of gas to Jordan and 30 million cu m/d to Egypt,” Alija Bajramovic, senior research analyst for European and Russian LNG, at Commodity Insights said. “30 million cu m/d is equivalent to 10 cargos a month, any disruption in Israeli production/exports would disrupt spot LNG markets without doubt.”

Middle East tensions

If the tensions in the Middle East were to escalate further and lead to shutdown of Israel’s gas supply to Egypt, traders and analysts at Commodity Insights expect further tightness to build in the European market.

Traders are already foreseeing a tighter winter balance across Europe, with expectations for Europe to have to compete for LNG volumes.

“The potential of an extended shutdown — or multiple shorter shutdowns — of one or more of Israel’s gas fields for security reasons amid the nation’s deepening conflict with Hamas, Hezbollah, and their allies remains a key upside risk to LNG demand in the Middle East in the coming months,” Mehrun Etebari, a senior analyst at Commodity Insights, said. “LNG imports remain one of the key levers for Egypt and Jordan to call on in the event of a cutoff of Israeli pipeline exports during such a disruption.”

Etebari added that Egypt's and Jordan's ability to fully replace Israeli gas flows with LNG is limited. Although collectively, they could potentially import an additional five to seven cargoes per month in the absence of gas from Israel, this would be less than half of the gas volumes they were receiving.

Traders also added that given the limited capacity that Egypt may have to look to alternative supplies such as fuel oil to meet domestic power generation needs, given that LNG would not be able to fully meet the supply deficit should Israel halt supply. However, Egypt would still look to LNG to help satiate demand given the available spare capacity.

“If Israel has to shut down, then there is still capacity available in Aqaba [in Jordan], but that's only about 12 cargoes or four cargoes per month, which is considerably lower than the volumes Israel sends,” an LNG trading analyst said.

One trader added that there may or may not be a severe impact from the shutdown of the Israeli supply to Egypt depending on how prompt the supply cuts may be.

“At prompt, it shouldn’t be that much impactful, but later, especially during winter, it might be more challenging,” the trader said.