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Door still open for East Med-Egypt gas

Despite the country's natural gas sector booming, it could eventually need to import the fuel again

On 14 November, Egypt's oil minister Tarek El-Molla, told Bloomberg that "Egypt will stop importing liquefied natural gas in 2018 and may eventually export gas". This statement appeared to signal an end to the prospect of Eastern Mediterranean gas exportsfrom Israel and Cyprusfinding a market in Egypt. In Israel, much of the media interpreted his remarks as a sign that the country's hopes of exporting gas from the offshore Leviathan and Tamar gasfields to Egypt were dead.

At present, it's hard to imagine a day when Egypt would again be looking abroad for supplies. The second half of 2018 will be a golden moment, with its legacy gasfields still producing strongly, and the first phase of the mega-giant offshore Zohr field ramping up towards full production of around 76m cubic metres a day.

On the export front, even today, despite the shortage of gas supply for the local market, Egypt has allowed small volumes of liquefied natural gas sales, via Shell's Idku facility (0.8bn cm in total in 2016 and an expected 1.2bn cm in 2017).

But a possible cloud over the gas boom comes in the form of gasfield depletion. Existing fields in the Western Desert, the Mediterranean and the Nile Delta are declining at a fast pace. Some analysts reckon that Zohr, together with Nooros, Atoll and WDNalong with probable future developmentswill be unable to keep up with rising domestic demand. That again would put a strain on finding gas, particularly through the peak-demand summer months, to provide sufficient feedstock for the 12.2m tonnes a year of Egypt's LNG export capacity.

With Egypt's gasfields depleting at around 20% per year, huge investments will be required to maintain production at around 70bn cm/y. Local demand is expected to reach 72bn cm/y by 2020 before rising to 90bn cm/y by 2025, according to a report by Gaffney, Cline & Associates, a consultancy.

Not only is Egypt expected to continue to import LNG during the summer months, even in 2018-19 (about 4bn and 2bn cm/y respectively). At this year's average price of $7-$8 per million British thermal units, Egypt is paying more than it would for receiving pipeline gas from Israel. From a technical perspective, Egypt could begin importing gas immediately from Tamar and by late 2019 from Leviathan, through the existing East Mediterranean Gas pipeline.

A recent decision by the Egyptian government to deregulate the gas sector has led to speculation that private firms may seek to import Israeli gas, with operators eager to find overseas markets. Allowing the private sector to deal in Israeli gas might be a convenient way of establishing trade without the Cairo government backing down from its official position-that there can be no deal until a legal dispute over the halting of Egyptian gas exports to Israel is resolved. But there's no guarantee that the Egyptian authorities would turn a blind eye to private ventures.

No legal restraints stand in the way of Cypriot gas being exported to Egypt, but the development of the island's offshore reserves hasn't even begun. So while there remains potential for East Med gas exports, the details of any future Israel-Egypt-Cyprus tie-up remains as uncertain as ever.

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