Eastern Mediterranean LNG heading to Europe, but unlikely to meet growing gas demand

Eastern Mediterranean gas exported via Egypt is heading to Europe, but shipments remain modest and are unlikely to increase significantly, given capacity restrictions at a time when the United States and the EU travel the world to supply the continent to potentially replace Russian gas. gas, if geopolitical tensions with Ukraine escalate.

Egypt, which has significant domestic gas production and is also supplied with Israeli gas from the giant Leviathan field in the Mediterranean, exported 6.64 million tonnes/year of LNG in 2021, a 10-year high, according to Kpler’s shipping data.
Egyptian LNG exports, which in the past went mostly to Asia, increased to Europe in 2021 to 2.04 million tonnes, from just 270,000 tonnes in 2020, according to shipment data from Kpler.

“Egypt may be able to redirect some supplies that were previously destined for Asia to Europe, although this is unlikely to have a significant impact on balances in the event that supply from the Russian pipeline would be limited,” said Luke Cottell, Team Leader, EMEA LNG. , at S&P Global Platts Analytics.

“Given the current high price environment in the global gas market, growth in total LNG supply is limited as most exporters, including Egypt, already have the incentive to produce as much as possible. .”

Historically high prices
The United States and the EU are courting LNG shipments to Japan to secure supplies to Europe in the event of a Russian invasion of Ukraine that could potentially disrupt deliveries from the continent’s main gas supplier.

Gas prices in Europe remain at historic highs due to low storage levels, reduced Russian flows and winter supply problems amid the standoff between Russia and the West over the Ukraine.

European Commission officials have held talks with key suppliers in recent weeks in a bid to secure additional gas supplies, including Qatar, the United States and Azerbaijan.

The daily TTF price reached a record high of 182.78 euros/MWh on December 21, 2021, an increase of 985% year-on-year, according to price assessments from S&P Global Platts.

Prices have since cooled, although they remain high, with the TTF daily contract being valued on February 10 at 74.675 euros/MWh, four times the level of 18.075 euros/MWh reached a year ago.

“In practice, this leap [in Egyptian LNG] could be short-lived,” said Nikos Tsafos, senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. “Egypt needs continued investment and imports to support its exports. Even then, the existing capacity is probably the maximum we can expect from Egypt.

Energetic transition
Egypt expects its LNG and gas exports in the current fiscal year ending in June to reach 7.5 million tonnes, said Magdy Galal, the chairman of state-owned Egyptian Natural Gas Holding Co. .d during the 2022-23 financial year which begins in July, compared to 375 MMcf/d added in the first half of the current financial year.

However, the future gas potential of the East Mediterranean depends on the energy transition policies of consumer countries.

The region is underpinned by an as yet undiscovered resource of 286.2 Tcf, according to an assessment by the US Geological Survey.

“Egypt imports gas from Israel through an existing pipeline and could import more gas from the Leviathan field to supply its LNG plants if a new pipeline were to be built, but the history of security concerns between Israel and Egypt makes such an investment very risky,” said Jonathan Stern, a researcher at the Oxford Institute for Energy Studies.

However, Cyprus has yet to exploit its gas discoveries in the Mediterranean amid energy transition concerns and disagreement with Turkey.

To make matters worse, Israel has decided not to hold a fourth international licensing round for offshore gas exploration as planned in 2022, as it instead focuses on renewable energy development.

Channeling to Europe
“East-Med gas is pretty much dead compared to exports to Europe, except for small volumes of LNG,” Stern said.

“Nothing will change this outlook as European buyers cannot sign any new long-term fossil gas contracts due to their net zero reduction targets. The future of East-Med gas supply at large scale is in the East-Med region, but it depends on a regional policy resolution.

Moreover, the US withdrawal of support for an EastMed gas pipeline project to Europe sounded the death knell.

“We remain committed to the energy security and connectivity of the Eastern Mediterranean,” a US State Department spokesperson told Platts. “The electricity interconnector with Europe will connect the countries of the Eastern Mediterranean with each other and with Europe, allowing future exports of electricity produced by renewable energy sources, for the benefit of the nations of the region.”

The 6 billion euro project included the construction of a 1,250 km undersea gas pipeline to supply Europe with natural gas from offshore fields in Israel and Egypt via Cyprus and Greece.

“Platts Analytics has long believed that market realities and supply competition would prevent the development of an EastMed pipeline to Europe, with insufficient economic signals in place for a new intra-regional pipeline,” Cottell added. .
Source: Platts