The structural decline in LNG imports into the Middle East and North Africa (MENA), led by Egypt, is now accompanied by a seasonal downswing, cutting volumes to below 0.8 Mt in October. While Egypt’s days as an importer are now over, its ambitious plans to ramp up exports are not without challenges. The latest to emerge is pipeline bottlenecks that will need to be tackled before Israeli exports to Egypt can rise to anywhere near the contracted 7.2 bcm/y—a level that is unlikely to be reached before 2023 at the earliest.
The MENA region imported just 0.79 Mt of LNG in October, lower y/y by 0.80 Mt. Egypt was again the main culprit as it received no cargoes for the first time since March 2015, in line with official statements that imports had finished in September. Given Egypt imported 1.1 Mt of LNG in Q4 17, it accounts for the bulk of the 1.6 Mt of y/y decline in regional imports we forecast for the current quarter. Similarly, the 2.0 Mt of y/y losses in 2019 represents a majority of the 3.0 Mt regional decline, followed by Jordan, which is no longer importing volumes on behalf of Egypt.
Indeed, Jordan imported 0.17 Mt in October, lower y/y by 0.08 Mt. The UAE also registered another weak month, importing just 0.20 Mt, lower y/y by 0.11 Mt. This was offset by a similar 0.11 Mt y/y increase in Kuwaiti imports to 0.42 Mt, but seasonality in Kuwaiti imports means we do not expect it to remain a source of growth in the winter. Overall, we expect MENA exports to fall below 0.5 Mt from November and to average just 0.3 Mt per month until May 2019.
Israel-Egypt flows face bottlenecks
Complications have surfaced for plans to export Israeli gas to Egypt, which form part of Egypt’s strategy for becoming a regional LNG export hub. Deals have been signed to supply up to 64 bcm over 10 years—the offshore Tamar and Leviathan fields are each set to supply half of the total—and in September, a consortium of Israeli and Egyptian companies bought a 39% stake in the East Med Gas (EMG) pipeline that runs between the two countries. A reversal of that pipeline is meant to allow Israeli gas to start flowing to Egypt next year, with a goal of reaching 0.3 bcm per month by end-2019 before rising to 0.6 bcm per month by 2021, once both fields are supplying gas. But these plans face infrastructure bottlenecks and new competition.
The initial supplies will come from Leviathan, which is still being developed. Although Tamar has been operational since 2013, all of its output is consumed in the domestic market. During a Q3 18 earnings call at the start of November, Noble Energy—part of the consortium developing Leviathan—indicated the project is 67% complete and on track to achieve first gas sales by end-
2019, so exports to Egypt will not begin until late next year at the earliest. Leviathan gas will land at Dor, in northern Israel, meaning it must be transported through Israel’s domestic pipeline network (INGL) before it can be exported on EMG. However, according to recent reports, the 8 bcm/y southern corridor of INGL is already transporting 5-6 bcm/y for the domestic market, leaving insufficient capacity to handle the full 3.6 bcm/y of Leviathan export gas implied by the deal—particularly as Israeli domestic gas demand will continue to grow over the next few years.
An alternative to expanding the INGL southern corridor would be to lean more heavily on Tamar to supply gas for export. Gas from Tamar lands further south, at Ashdod, but would face the same bottleneck unless a new pipeline gets built from the Mari B platform to connect to the EMG. Noble suggested such a connection could be quickly established, but this would still require further agreements to allow Leviathan gas to backfill the domestic Israeli market, thus freeing up Tamar gas. Tamar exports are only planned to start in either H2 20 or 2021. Israeli exports to Egypt should start to materialise by 2020, unless Leviathan gets heavily delayed, but much more work will be needed to get those exports to the planned 7.2 bcm/y. November has also seen some progress on the feasibility study for a 10-20 bcm/y East Med export pipeline to southern Europe, via Cyprus. The project is still at an early stage but if it goes ahead and gas is flowing by 2025 as planned, this would create further competition for Israeli export flows.
Omani export growth offsets softness elsewhere
Total MENA exports were broadly flat y/y at 8.43 Mt in October, with Qatari loadings largely unchanged from year-ago levels at 6.22 Mt. The biggest increase came from Oman, higher y/y by 0.36 Mt at 0.86 Mt—in the six months since the Khazzan field reached capacity, Omani LNG exports have been higher y/y by 1.4 Mt in total—but the growth will moderate from Q2 19. This sustained strength, together with Egyptian exports picking up to 0.21 Mt in October, offset declines in loadings from the UAE (-0.15 Mt to 0.41 Mt) and Algeria (-0.31 Mt to 0.74 Mt). Unusually, the softness in Algerian LNG exports coincided with weak pipeline exports to Europe, lower y/y by 0.48 bcm (0.36 Mt), which has allowed LNG exports to strengthen m/m in November (although they may still come in lower y/y, given a high reading for November 2017).
|Fig 1: Israeli gas demand forecast, bcm||Fig 2: Omani LNG exports, y/y change, Mt|
|Source: Israeli Ministry of Energy, Energy Aspects||Source: Bloomberg, Energy Aspects|