Egypt buys LNG, as a preemptive measure against anticipated fuel shortages this summer. The objective is to control reserves and prevent failures in the nation’s electrical systems.
Dependence on gas to combat extreme heat
According to reports from traders familiar with the situation, Egypt Natural Gas Holding has recently made at least one shipment purchase for delivery next month, and is looking to acquire several more. The nation, which relies on gas to combat extreme heat, is taking early steps to secure supply and avoid potential chronic outages, such as those experienced last summer.
[post_relacionado]Obtaining a $50 billion international bailout will partly alleviate the worst economic crisis Egypt has faced in decades and provide the funds needed to boost its imports. However, these purchases will pose a challenge to foreign exchange reserves, especially at a time when Suez Canal revenues are declining due to militant attacks in the Red Sea.
Egypt buys LNG to achieve reserves increase
This shift towards LNG purchases marks a reversal for Egypt, which had largely stopped importing the fuel in 2018, thanks to increased domestic production driven by the huge Zohr field, which made it an exporter. However, local gas production has declined to worrying levels, according to Oil Minister Tarek El-Molla, who attributed this drop to the natural decline of the gas fields.
Egypt’s entry into the LNG market coincides with a decline in prices from record highs in 2022. Low demand due to a mild winter and lower industrial activity has led to a 20% decline in European gas prices this year. With inventories at seasonally high levels and abundant supply, competition for this resource has been reduced.
For Egypt, where summer temperatures can exceed 35°C (95°F), the availability of LNG will be crucial and important for energy performance. The country has experienced blackouts of up to two hours a day during previous summers and 2024 could be even more extreme. In addition to meeting general energy needs, Egypt requires gas to power energy-intensive industries, such as fertilizer producers.
LNG exports
Last year, Egypt halted LNG exports LNG exports during the hottest months and could be forced to do the same again this year, according to El-Molla. Vessel tracking data indicate that no cargoes have been shipped since March 11. Previously, El-Molla had indicated that exports would continue until March or April, before prioritizing domestic consumption during the summer.
The latest shipment of shipment of imported LNG imported is expected to be routed through a facility in Jordan, traders reported.
In February, Egypt secured a $35 billion investment commitment from the United Arab Emirates, followed by an $8 billion bailout program from the International Monetary Fund, as well as financial aid and grants from the European Union and the World Bank. These funds are being used to pay overdue debts to foreign oil companies and attract foreign investors to revitalize the country’s economy, which has seen a flight of capital.
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Source: Bloomberg
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