Middle East & North Africa

Published at 10:55 30 Sep 2019 by . Last edited 11:59 30 Sep 2019.

LNG imports by countries in the Middle East and North Africa (MENA) remained weak in August, declining y/y by 0.26 Mt, but the pace of declines will ease from September onwards. Overall exports from the region rose only marginally y/y in August, as Egyptian exports were flat due to a combination of slower-than-expected production gains and strong summer demand. We expect Egyptian loadings to rise from October after new fields started up in September, although Egas may be struggling to find buyers willing to pay prices it finds acceptable.  

The MENA region imported 1.11 Mt in August, which was lower by 0.26 Mt y/y. The decline was once again entirely due to the loss of Egyptian imports, which stood at 0.34 Mt in August 2018, but this base effect has almost run its course as Egypt received its last cargo in September 2018. Kuwait registered the second y/y increase, up by 0.17 Mt to 0.71 Mt, amid strong gas demand from the power sector to meet peak cooling demand. Jordanian imports were lower by 0.10 Mt y/y while volumes arriving in the UAE and Israel were unchanged y/y.

The Egyptian base effects will fade from here, but we expect September LNG imports by MENA countries to fall below 1 Mt because of a seasonal easing in demand. Across Q4 19 we forecast imports of 1.20 Mt, which is lower y/y by 0.15 Mt, a much slower rate of decline than in any of the previous nine quarters as Egypt is no longer weighing on the total.

Egyptian exports yet to accelerate

LNG exports from the MENA region totalled 9.40 Mt, slightly higher y/y (+0.08 Mt). The biggest y/y change was a 0.43 Mt rebound in Algerian exports to 1.00 Mt. In August 2018, Algeria boosted pipeline exports to Europe at the expense of LNG exports as Europe tried to narrow a y/y storage deficit. This year the opposite is true—European storage is nearly full, leading to lower Algerian pipeline flows that are leaving more gas available to export as LNG. The belated start-up of the Touat project at the start of September will provide a further boost, but overall Algerian production remains on a declining trend.

Egypt exported 0.20 Mt in August, which was flat y/y but below our earlier expectations (0.4 Mt), after Egas withdrew a tender for three August-loading cargoes. September is also likely to be low, based on Egas cancelling another three-cargo tender for the month. Egas has offered six cargoes for loading over October and the start of November, suggesting a rising surplus available for export, although there are reports not all cargoes were awarded due to low bids.

Egyptian exports have come in below expectations in Q3 19 due to slower-than-expected production gains and strong domestic demand over the last two months. Egyptian production reached 7 bcf/d in early September as the Zohr field hit 2.7 bcf/d, but delays to the start-up of new Zohr phases meant this was the first significant sequential gain since February when total production first reached 6.8 bcf/d. Further increases will come from the start-up of the 0.5 bcf/d Baltim South West Field and the 0.9 bcf/d Raven field during September, at initial rates of 0.1 bcf/d and 0.35 bcf/d respectively. Zohr production is also due to rise above 3 bcf/d by year-end. We expect the return of incremental production growth and the seasonal decline in demand to result in Egypt exporting 1.5 Mt of LNG over Q4 19, although this depends somewhat on buyers bidding at prices Egas finds acceptable.

Qatari expansion remains on track

Looking further ahead, Qatar’s 33 Mtpa expansion of LNG export capacity is continuing to move ahead. Qatar is currently shortlisting potential international partners and expects to announce the results of this process in Q1 20. Qatar has made it clear it is looking for partners that will bring ‘added value’ to the project, but that it does not need a partner to complete the expansion project. Indeed, the Qataris plan to award the remaining engineering and construction contracts by the end of 2019. While we expect a formal FID to be issued once a decision has been made on any partnership—which suggests an FID on the project in Q2 20 rather than the earlier timeline of end-2019—the award of contracts this year will keep the project on track to come online around 2024.

Qatar faces a challenge finding buyers for this 33 Mtpa of new LNG and the 35 Mtpa of existing LNG contracts that are due to expire by 2025. Still, it has taken merchant risk on its expansions before. Qatar has been developing relationships with new buyers such as Bangladesh—1.16 Mt of Qatari LNG departed for Bangladesh over January-May according to customs data—and has a portfolio of regas capacity in Northwest Europe, and uses that capacity to absorb uncontracted volumes when Asian demand wanes. It was reported this month that Qatar has contracted all of the capacity at Belgium’s Zeebrugge regassification terminal out to 2044.

Fig 1: Egyptian gas production, bcf/d Fig 2: Qatari LNG exports to Bangladesh, Mt
Source: CAPMAS, Energy Aspects Source: Qatari customs, Energy Aspects

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