MENA – Aug 2018

Published at 16:20 25 Sep 2018 by . Last edited 11:18 22 Aug 2019.

Countries in the Middle East and North Africa (MENA) imported 1.35 Mt of LNG in August, lower y/y by 0.34 Mt. Rising production in Egypt, and to a lesser extent Kuwait, continues to put structural downward pressure on total imports even during the peak of summer. A slight decline in MENA LNG exports—lower y/y by 0.37 Mt at 9.01 Mt—masks continued strength in Omani exports. Work continues to clear the path for regular Egyptian exports.  

Egyptian imports were 0.31 Mt lower y/y in August at 0.34 Mt as domestic production continues to trend higher. Eni confirmed in early September that output from the Zohr field hit 2 bcf/d, after a fifth production train started in late August, which has taken overall Egyptian production to a record-high 6.6 bcf/d. As Zohr is due to hit its 2.7 bcf/d plateau in 2019 and Shell’s 0.4 bcf/d West Delta Deep Marine Phase 9B will start up in October before ramping up next year, Egypt is still on course to cease LNG imports in 2019, and potentially start exports through Egypt’s two liquefaction plants. Egypt’s rising gas production has also helped reduce neighbouring Jordan’s LNG imports, which fell by 0.18 Mt (45%) y/y. Jordan has a gas pipeline with Egypt and had been importing some LNG to send to Egypt. That need is now over, and we expect that the pipeline will be reversed by next year, with Egypt resuming exports to Jordan, backing out LNG imports.    

Rising Kuwaiti production caps imports

Kuwait provided some support to overall August imports, receiving 0.54 Mt, higher y/y by 0.25 Mt. However, the base from August 2017 was unusually low, following extremely strong imports in July 2017. Averaging the two months, Kuwaiti exports were broadly flat y/y—1.18 Mt in July-August this year vs 1.19 Mt in July-August 2017.  Domestic production gains, although less dramatic than in Egypt, are capping Kuwait’s appetite for LNG imports.  The 0.3 bcf/d second phase of the Jurassic Gas Project is now fully online, which has boosted non-associated gas production to 0.5 bcf/d. Associated gas production adds around 1.5 bcf/d and is also likely to be rising as Kuwait increases oil production in response to OPEC’s decision in June to loosen production quotas. Unlike Egypt, Kuwait will continue to need LNG imports. We expect Kuwaiti imports to remain relatively steady around 4.0-4.2 Mt over the next two years even as the country develops a larger 11.3 Mtpa onshore terminal to replace its existing FSRU in 2021.

Turning to LNG exports, August saw the continuation of two competing trends we highlighted last month. The first is higher domestic supply from the Khazzan field boosting Omani LNG exports, which were up y/y by 0.18 Mt at 0.74 Mt. Oman is now considering investing in up to 1.5 Mtpa of debottlenecking at its liquefaction plant, the first 0.5 Mt of which could be ready by the end of next year. The second trend is Algerian LNG exports coming under pressure due to higher pipeline exports to Europe, with LNG loadings a striking 0.84 Mt lower y/y at 0.57 Mt. Algerian pipeline flows into Spain and Italy were 0.52 bcm (0.38 Mt) higher y/y as Europe tried to narrow its storage deficit alongside strong power sector gas demand. Underwhelming Russian pipeline flows during September are likely to keep the pull on Algerian gas strong this month and potentially into Q4 18, in turn further limiting LNG exports.

Qatar sells more to China

As the US-China trade war escalates, Qatar is making further inroads to China, signing a 22-year 3.4 Mtpa deal with CNPC on 10 September that starts immediately. Qatar sent 7.5 Mt to China last year, above the 5 Mtpa tied to existing long-term contracts, and was making further gains this year even prior to this new deal. The volumes will come from the existing Qatargas train 2 facility, replacing some of the long-term contracts that are coming to an coming to an end.

Egypt as a regional export hub?

Looking further ahead, several announcements sought to address obstacles to LNG exports from the eastern Mediterranean. An international arbitration body settled a dispute between Egypt and Union Fenosa Gas, which operates the Damietta terminal. Egypt was ordered to pay $2 billion in damages, in gas rather than cash, for deciding in 2012 to divert supplies to the domestic market. The decision will allow the terminal to restart. Shell’s Idku export terminal has continued to get small volumes of gas for export to avoid a similar lawsuit. Given Egypt’s rapidly improving gas balance, these export facilities are likely to be in regular service from next year.

Egypt is also pushing forward with plans to become a regional LNG export hub. On 20 September, Egypt and Cyprus signed an agreement to support the development of a pipeline to transport gas from Noble’s 4.5 tcf Aphrodite field—and potentially Eni’s Calypso discovery—to Egypt, although a lot more work will be needed to make this project a reality. The market is also waiting to see whether the deal to buy Israeli gas, signed in February by Egypt’s Dolphinus Holdings and which could provide further feedstock for export from Egypt, will come to fruition.

Fig 1: Oman gas supplies, bcm Fig 2: Chinese LNG imports from Qatar, Mt
Omani gas supply Qatar LNG to China
Source: NCSI, Energy Aspects Source: China Customs, Energy Aspects

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