We are delighted to present our new Monthly publications, formerly known as Data Review, which will share our short-term forecasts.
Egypt has announced it has received its final cargo of LNG imports, and one of its two FSRUs has already departed following a deal with Hoegh to terminate the contract early. This points to further downside for MENA LNG imports in 2019, although the start-up of Bahrain’s FSRU in late Q1 19 will provide some new buying. Meanwhile, Cyprus has tendered for an FSRU despite its own giant offshore gas fields—further evidence that supplies will be piped to Egypt’s existing liquefaction facilities, at least initially. While Egypt has ambitious plans to be an export hub, we expect actual volumes to rise gradually, to 2.7 Mt in 2019 and then 4.9 Mt in 2020.
September was another weak month for LNG imports into the Middle East and North Africa (MENA), which totalled 1.05 Mt, lower y/y by 0.66 Mt. Egypt took just 0.06 Mt, and Egyptian officials declared this would be the final cargo to arrive due to rising domestic production. Jordanian imports continued to decline, lower y/y by 0.12 Mt at 0.21 Mt, also linked to rising Egyptian supply as Jordan no longer imports LNG to send on to Egypt. In mid-October, one of Egypt’s two FSRUs, Hoegh Gallant, sailed away after Hoegh agreed to terminate the contract early as it plans to charter the vessel as a regular LNG carrier amid surging freight rates. Elsewhere, UAE imports also fell, and Kuwaiti arrivals were flat y/y in September.
Regional imports will benefit from the start-up of Bahrain’s LNG facility—the project remains on track for a Q1 19 start-up with the first commissioning cargo likely to arrive by February. We currently estimate Bahrain will receive 0.4 Mt next year. The market is also watching to see which other MENA countries might eventually join the line-up of LNG importers. Saudi Arabia’s $5 billion investment in Yamal 2 is prompting new speculation the Kingdom might turn to LNG to help meet rising domestic demand, Morocco has launched a tender for an up-to-5 Mtpa onshore terminal that could be ready by 2025, and Cyprus has tendered for an FSRU.
The Cypriot announcement is perhaps the most interesting—both because it could come online by Q4 20, and because of what it indicates about plans to develop the 4.5 tcf Aphrodite field and Eni’s recent 6-8 tcf Calypso discovery. Egypt and Cyprus have signed agreements to pipe Aphrodite gas to Egypt for export via the Idku and Damietta liquefaction terminals.
The FSRU tender suggests this remains the plan, even though Calypso might eventually add enough gas to justify a new export facility in Cyprus itself. Imported LNG will be used to displace expensive liquid fuels from power generation. While rising domestic supply might eventually make such imports redundant, Cyprus may be banking on replicating Egypt’s move and cancelling the FSRU contract early if such a situation emerges.
Egypt’s gas balance implies slow export ramp-up
This brings us back to Egypt, which was a net LNG exporter in September for the first time since December 2014, although just marginally at 0.02 Mt. This turnaround comes at a fortunate time for Egyptian finances, given recent gains in LNG prices. Egypt’s previous period as an importer coincided with relatively low LNG prices, although this was by coincidence rather than design.
The next question is how much the country will be able to export in the years ahead. On the one hand, domestic production will continue to rise from already-record highs, and agreements to receive and export volumes from fields in Israel and Cyprus are advancing. That said, domestic consumption is also growing rapidly, and Egypt has signed a deal to supply Jordan with 0.25 bcf/d from 2019—although there are logistical challenges, given plans to use the same pipeline to import Israeli gas. Egyptian officials have stated the plan is to start supplying 0.75 bcf/d of gas feedstock to the Damietta terminal by the end of Q1 19, partly to pay off the arbitration settlement, which would imply over 5 Mtpa of additional exports. However, this looks unachievable given the competing factors in the Egyptian gas balance, particularly during the summer months when domestic demand peaks. We are forecasting a more gradual ramp-up to 2.7 Mt in 2019 and 4.9 Mt in 2020.
September exports from the MENA region were slightly up y/y, up some 0.4 Mt. Algerian exports were again lower y/y by 0.44 Mt y/y, as pipeline exports to southern Europe remain strong. Qatari exports were strong, up 0.60 Mt y/y, while planned maintenance at the end of the month trimmed Omani volumes to 0.65 Mt, although this was still marginally higher y/y thanks to the additional supplies coming from the Khazzan field.
|Fig 1: Egypt net LNG trade and LNG prices||Fig 2: Bahrain LNG import forecast, Mt|
Source: Bloomberg, Reuters, Energy Aspects
|Source: Energy Aspects|