Middle East & North Africa

Published at 13:54 27 Feb 2019 by

The trend of declining LNG imports by countries in the Middle East and North Africa (MENA) region notched up a milestone in January, as no cargoes arrived for the first month in over four years. Seasonally low winter demand played a part as did rapidly rising Egyptian gas production, which could reach 8 bcf/d by next year. Egypt will be the main story this year on the LNG export front as well as we forecast volumes will double y/y to 2.7 Mt. Most other MENA exporters are set to have relatively steady trends in 2019, with Algeria looking to new production to stem declines and a restart of Yemen’s liquefaction plant still a distant prospect given the fragile political environment.

The MENA region imported no LNG in January (-0.5 Mt y/y), which was the first month of zero imports since December 2014. Demand is seasonally low in winter as LNG is mostly used to help meet peak summer demand, but the lack of imports last month also underlines the structural shifts that are occurring rapidly in the region, primarily due to rising Egyptian production. We see MENA imports struggling to rise much above 1 Mt per month even in peak summer this year.

Egyptian output taking another leg higher

Egyptian production comfortably exceeded domestic consumption over Q4 18, by an average of 0.6 bcf/d, after output from the Zohr field reached 2 bcf/d in September 2018. Eni, which operates Zohr, reported that the field exceeded nameplate capacity to produce 2.1 bcf/d in January and expects the start-up of three more production units between May and September to boost output to 3.2 bcf/d, having raised the plateau target for the project from 2.7 bcf/d late last year. A further supply boost comes from BP starting up its West Niger Delta (WND) Phase 2 project in early February. The project is currently producing 0.4 bcf/d and will ramp up to 0.7 bcf/d in Q2 19. The 0.2 bcf/d WND Phase 3 is also due online by year-end. Egyptian officials expect the pace of supply additions to slow in 2020, with production at around 8 bcf/d by mid-2020, over double the low point in early 2016.

We expect the ramp up of these projects to keep the Egyptian gas balance in surplus even as demand increases seasonally this summer. This will allow Egypt to continue supplying gas by pipeline to Jordan, backing out LNG imports there, and exporting more LNG from the Damietta and Idku liquefaction terminals. Once demand eases after the summer this will leave more gas available to export as LNG. As such, we have revised our Q4 19 export forecast upwards by 0.3 Mt to around 0.5 Mt. We expect Egyptian LNG exports to almost double y/y in 2019 as a whole to 2.7 Mt and then to rise by another 2 Mt y/y in 2020.

Algerian exports remain weak

Exports from the MENA region rose m/m to 9.57 Mt, but we still expect them to be slightly lower y/y. Egyptian exports were modest at 0.14 Mt, while the data from Middle Eastern exporters contained few surprises. In Algeria, stagnant production growth left LNG exports weak in January, lower y/y by over 0.3 Mt at 0.63 Mt, even as pipeline exports to both Spain and Italy fell y/y due to competition from alternative supplies. A small piece of positive energy news for Algeria came earlier this month as commissioning started at the 0.45 bcf/d Touat project, which should be providing gas for export by end-June.

Yemen is unlikely to return this year

A minister in Yemen’s Saudi-backed government has predicted that the country will restart LNG exports this year, with an ambitious goal of exporting over 3 Mt in 2019. Yemen’s 6.7 Mtpa Balhaf LNG plant was shut in 2015 because of the conflict between Houthi rebels and government forces backed by a Saudi-led military coalition. While a partial ceasefire has been in place for several months, efforts to resolve the conflict have made little headway, so risks on the ground remain high. The lead shareholder of Yemen LNG, Total, made no mention of restarting the plant in its latest earnings call earlier this month, which hardly suggests an imminent restart. Until there is a durable diplomatic breakthrough, we believe the plant will remain offline, so we are not adjusting our forecasts for now. 

Fig 1:     Egypt domestic gas balance, bcf/d Fig 2:  LNG quarterly exports – Egypt, Mt
Source: CAPMAS, Energy Aspects Source: Bloomberg, Energy Aspects

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