MENA – Apr 2018

Published at 17:54 30 May 2018 by . Last edited 11:17 22 Aug 2019.

Countries in the Middle East and North Africa (MENA) region imported just 0.56 Mt of LNG in April, lower y/y by 0.75 Mt. This came as demand from all of the main buyers underperformed versus expectations, which poses downside risks to our forecast that the region will import 12.5 Mt over 2018. Egypt, in particular, continues to sharply reduce imports as domestic supply gets closer to meeting demand. MENA exports were flat y/y at 7.79 Mt in April as maintenance reduced loadings in both Algeria and the UAE. Qatar is pushing ahead with plans to expand gas production and liquefaction as it seeks to remain a critical player in the global market beyond 2020.   

One of the largest y/y reductions in imports was seen in the UAE, which received no LNG in April compared to 0.27 Mt in April 2017. This closely matched a 0.26 Mt cut in exports to 0.23 Mt over the month. The slowdown in exports was probably due to maintenance, with volumes picking up again in May, which left more gas available for domestic consumption. However, cargo-tracking data from Kpler show no imports in May either. In previous years, the seasonal upswing in arrivals was always visible by May, so the situation needs to be closely watched over the coming months, as it could be the start of a structural change in import trends for the UAE.

Kuwaiti imports were also lower y/y in April, at 0.24 Mt, which is likely tied to mild temperatures as CDDs were 18% lower y/y and 8% below the five-year average. Kuwaiti imports should pick up in May but may still be lower than the May 2017 reading (0.48 Mt). While Jordan’s imports were also marginally lower in April, it was Egypt that again registered the largest y/y loss—down by 0.35 Mt to just 0.13 Mt—as the structural shift in Egyptian gas balances continues to unfold.

Egypt approaches balance

Egyptian gas production continues to rise, averaging 5.5 bcf/d in Q1 18 according to the latest official data and reached 5.9 bcf/d by late May according to Egypt’s oil minister as Eni’s Zohr field hit 1.1 bcf/d earlier this month. Output will continue to grow over the rest of 2018 and through 2019 as Zohr ramps up to its 2.7 bcf/d plateau and the Giza, Fayoum and Raven fields start up in the West Nile Delta. Total Egyptian production should hit 7 bcf/d by late 2019. Although largely masked by these gains, output from many legacy offshore fields is declining by 10-15% per year, which means Egypt will need to continue discovering and developing significant new resources each year to maintain output at higher levels beyond 2020. With this doubtless in mind, Egypt launched two bid rounds in late May for a total of 27 onshore and offshore blocks, with a deadline of 8 October.

Rising domestic supply is helping to unlock incremental demand that was previously going unfulfilled. Consumption averaged 5.5 bcf/d in March according to lagged official data, higher y/y by 0.5 bcf/d. We expect the structural gains to continue throughout the year, together with a seasonal increase to meet peak summer demand—in 2017, August demand of 7.1 bcf/d was 2.0 bcf/d higher than in January. A heatwave this May pushed temperatures above 40 degrees Celsius in parts of the country, which in previous years could have provided a substantial boost to LNG imports, but cargo tracking suggests volumes have remained subdued.

Power sector gas demand will receive a more structural boost when the 9.6 GW second phase of the Siemen’s 14.4 GW power plant starts up in mid-2018. The Egyptian government is looking to become a regional power hub but wants to ensure that it does not return to being an LNG importer. As such, Egypt is pursuing multiple projects to diversify generation sources, including 6 GW of coal-fired capacity at Hamrawien, a 4.8 GW nuclear plant in Dabaa and a 1.5 GW solar park in Aswan. These form just part of the government’s ambitious plans to increase generation capacity over the coming decade. May saw Egypt and Cyprus sign an inter-governmental deal for a pipeline, costing upwards of $800 million, that would allow gas from the Aphrodite gas field of Cyprus to be exported through one of Egypt’s two largely idle liquefaction plants.

Qatar’s high ambitions

MENA countries exported a total of 7.79 Mt in April, flat y/y. Maintenance kept Algerian loadings subdued and reduced exports from the Das Island terminal in the UAE as noted above. Qatari exports, meanwhile, were up y/y by 0.26 Mt at 6.12 Mt. Qatar is pushing ahead with its plans to increase North Field production and total liquefaction capacity. It is in discussions with existing partners about constructing three new liquefaction trains, which would raise capacity from 77 Mtpy to 100 Mtpy, with a goal of at least one starting up by end-2023. We understand it may be looking for investors to commit to debottlenecking of existing trains as a ‘sweetener’ in their bids as well as exploring the possibility of a fourth new train. Qatari export capacity could rise earlier than 2023 and could go above 100 Mtpa later in the 2020s. While not entirely preventing new FIDs elsewhere, it underlines Qatar’s desire to retain its current position in global LNG markets.

Fig 1: UAE LNG imports and exports, Mt Fig 2: Egypt domestic gas balance, bcf/d
Source: Bloomberg, Kpler, Energy Aspects Source: CAPMAS, Energy Aspects

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