LNG imports by countries in the Middle East and North Africa (MENA) remained low in February. We expect a seasonal increase during Q2 19, aided by the UAE not having the same incentive to avoid LNG due to high prices as in Q2 18. But MENA imports will still be 0.7 Mt lower y/y in Q2 19, because of higher Egyptian production. That higher production will also start to boost Egyptian LNG exports, with EGAS offering four cargoes for loading in April-May. But Egyptian exports will be limited by rising domestic demand, the need to resolve a $2 billion arbitration case on the Damietta liquefaction terminal and the fact that pipeline flows from Israel will not reach meaningful levels before end-2019.
MENA imports totalled 0.23 Mt in February, lower y/y by 56%. These volumes were spread between Kuwait, Israel and Jordan. The latter, along with Egypt, were the main culprits for the large drop from February 2018, in both cases due to the growth in Egyptian gas production.
We expect March imports to come in low as well, before rising temperatures in the region start to boost volumes in Q2 19. However, our forecast of 1.9 Mt of imports over the quarter is still lower y/y by 0.7 Mt. We expect UAE imports to recover relative to the weakness seen in Q2 18, when only a single cargo arrived as DUSUP drew on gas in storage to limit purchases in a period of high prices. Low prevailing LNG prices this year will not incentivise the same behaviour and so we expect imports to exceed 0.5 Mt, which is still softer than Q2 17.
Delays to new import facilities
Another source of modest support on the demand side will come from the start-up of Bahrain’s 6.0 Mtpa FSRU. It was initially due to have started operations in Q1 19, but after sailing into the region, it has been anchored at Fujairah and is now due to enter service in May, according to the National Oil and Gas Authority (NOGA). No reason for the delay was given. Looking further ahead, the Kuwait Petroleum Corporation (KPC) now expects a 2022 start date for the 11 Mtpa Phase 1 of its Al Zour terminal, which is significantly later than previous guidance of a September 2020 start date, dampening prospects for LNG imports in 2021.
February exports flattered by a low baseline
Exports from MENA countries reached 9.09 Mt in February, higher y/y by over 1 Mt. Qatar led the gains, largely because of a weak base in February 2018 rather than high outright volumes—the 6.8 Mt Qatar exported this February was only slightly above the 6.5 Mt average of the preceding 12 months. Algeria managed to break the nine-month streak of y/y declines, exporting 1 Mt of LNG in February, higher y/y by 0.25 Mt. This is because extremely weak pipeline flows to Europe (-1 Mt y/y) left more gas available to export as LNG, implying overall gas production continues to decline. This apparent strength in LNG exports, at the expense of pipeline flows, may continue through March and April, particularly as maintenance took a train of the Skikda facility offline for 40 days over March-April 2018.
More Egyptian cargoes are coming
In line with our expectations that Egyptian LNG exports will begin to rise this year, EGAS offered four cargoes to load over April and May from the 7.2 Idku liquefaction facility. Meanwhile, Eni expects to complete a pipeline between Zohr’s gas processing plant and the 5 Mtpa Damietta terminal. Eni also operates Damietta but is still negotiating with the Egyptian government in a $2 billion arbitration case related to the terminal after Egypt diverted gas to the domestic market in 2012. The terminal will only be able to reopen once a deal has been reached.
Another important driver for LNG exports from Egyptian terminals will be pipeline flows from Israeli gas fields. Israeli firm Delek Drilling recently confirmed that it expects gas from the Tamar field to start flowing on the East Mediterranean Gas pipeline during Q2 19. However, the company indicated the initial flows will just be testing the status of the pipeline and will be below the 3.6 bcm/y volumes implied by the contract with Egypt’s Dolphinus. As we have noted previously, Israel needs to bring more production online and resolve bottlenecks in the domestic pipeline infrastructure in order to start exporting meaningful volumes of gas to Egypt (see Global LNG Monthly: Middle East & North Africa, 28 November 2018). The gas to test the pipeline will come from the Tamar field, which is already unable to fully meet Israel’s domestic demand. Israel’s gas balance will only move into surplus once the Leviathan field comes online, which is due in Q4 19. Even then, flows to Egypt will still depend on debottlenecking work having been completed, with Delek Drilling and its partner Noble still reportedly considering various approaches. So these flows will only be material for Egyptian LNG exports in 2020 at the soonest.
|Fig 1: UAE LNG imports, Mt||Fig 2: Israel domestic gas balance, Mt|
|Source: Bloomberg, Energy Aspects||Source: CBS, Delek Drilling, Energy Aspects|