Middle East & North Africa

Published at 11:44 31 Oct 2019 by . Last edited 13:15 31 Oct 2019.

The y/y declines in LNG imports by countries in the Middle East and North Africa (MENA) are slowing now that the base effects of Egypt halting imports are no longer a factor. However, we still forecast a y/y decline in imports of 0.7 Mt to 6.0 Mt in 2020. Meanwhile, Qatari LNG exports are likely to slow in Q4 19 to remain within the 77 Mtpa annual cap, with several trains undergoing planned maintenance in October. Egypt has also been cancelling export tenders and ordering reductions in domestic gas production because prevailing LNG prices below 5 $/mmbtu made exports uneconomic. Egyptian production shut-ins could become a regular feature, particularly in the shoulder seasons, as the LNG market manages excess supply.  

Now the base effects of Egypt’s LNG imports halt are behind us—the country received its final cargo in September 2018—we expect the pace of y/y declines in MENA imports to slow. This trend was evident in September, when imports of 0.99 Mt were lower y/y by just 0.06 Mt as increased Kuwaiti and Jordanian arrivals offset a lower UAE total. Over Q4 19, a seasonally weak period due to the lack of cooling demand, we forecast imports at 1.20 Mt, lower y/y by less than 0.20 Mt. Over 2020, we expect imports of 6.0 Mt, a y/y drop of 0.70 Mt.

MENA exports were higher y/y by 0.40 Mt in September at 8.32 Mt. Algerian flows were up y/y by 0.25 Mt as reduced pipeline exports to Europe again left more gas available to liquefaction. As a result, Algeria exported 2 Mt more LNG y/y over January–September than during the same period in 2018. However, going into 2020 we believe European buyers have exhausted much of the flexibility to trim Algerian pipeline flows under long-term contracts, limiting the upside for Algerian LNG exports as overall gas production is not growing.  

Qatari exports were also 0.20 Mt higher y/y in September, but they will have softened in October due to planned maintenance on two Ras Laffan liquefaction trains. According to ConocoPhillips, which is a joint venture partner in the 7.8 Mtpa Qatargas 3 train, strong exports over January–September will require Qatar to moderate exports in Q4 19 to stay within its 77 Mtpa cap. Our balances currently have Qatari exports on track for the annual total, suggesting that as lagged customs data emerges, we may have to make upward adjustments to earlier months in 2019.

Egypt struggles with low LNG prices

Egypt only exported 0.07 Mt of LNG in September, having cancelled several tenders over the summer due to low prevailing LNG prices. State-owned Egas appears unwilling to sell LNG cargoes for less than around 5 $/mmbtu because this is uneconomic given the price Egas pays to purchase gas (see E-mail alert: Egypt cuts production rather than award LNG tenders at low prices, 16 October 2019). On a recent earnings call, Eni stated Zohr production is currently around 2.3–2.4 bcf/d, below the 2.7 bcf/d capacity, supporting earlier reports in local media stating that Egas had cut Egyptian gas production from 7 bcf/d to around 6 bcf/d to prevent oversupply amid low LNG exports and a seasonal decline in domestic demand.

The seasonal recovery in spot LNG prices during winter should be sufficient to persuade Egas to start awarding tenders again, although October loadings will remain subdued given the production curbs for at least part of the month. Given global LNG markets look set to remain oversupplied, we expect to see further restrictions on Egyptian supply in response to low LNG prices, especially during shoulder seasons. 

Restarting the 5.5 Mtpa Damietta liquefaction terminal could boost for Egyptian LNG exports. The terminal has been offline since 2012 as Egas diverted gas to meet domestic demand, resulting in a $2 billion arbitration award in favour of the terminal operator, Union Fenosa Gas (UFG) in 2018. Egas has been exploring ways to pay the settlement through supplying feedstock gas, either from Egyptian fields or potentially by allowing the terminal to export Israeli or Cypriot gas. An arrangement is yet to be finalised, despite negotiations that have dragged on all year. Several recent media reports suggested a deal is close, although similar rumours back in April proved inaccurate. Naturgy, which owns 50% of UFG, confirmed on 30 October that negotiations with Egas have not yet concluded and that further legal action remains an option. As such, the restart of Damietta still seems a long way off, which may suit Egypt for now given this environment of low LNG prices.

Fig 1: MENA LNG imports, y/y change, Mt Fig 2: Egypt net LNG flows vs spot prices, Mt
Source: Bloomberg, Energy Aspects Source: Bloomberg, Argus, Energy Aspects

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