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Egypt looks to LNG quick fix

Off-take agreements complicate Egyptian option

Advocates of Egyptian solutions for monetising Cypriot and Israeli gas discoveries lean on two planks — large domestic demand and two LNG plants that have already been constructed and thus offer a 'cheap' export solution.

But there are a number of problems with both of these arguments. Egypt will need additional supplies the equivalent of a Zohr field every two-to-three years to satisfy its growing demand for power, according to Ryan Pereira, global director, gas and LNG at consultancy Gaffney Cline. However, finding a country comparable to Egypt that has experienced that level of exponential demand growth is not easy.

It remains an uncomfortable truth for the "pipe-it-to-Egypt" supporters that, even when Egypt's gas demand was outstripping domestic production to the extent that it had to export expensive LNG, the appetite to lock in substantial long-term volumes from Aphrodite, Leviathan and Tamar was negligible. It is stretching credibility to suggest that will change positively in a post-Zohr and Nour world.

Idle LNG capacity just waiting for Cypriot and Israeli volumes to flow through it seems even more fanciful. For one thing, according to cargo tracking firm Kpler, the Idku plant is already sending out cargoes, emphasising that Egypt's domestic production is beginning to fill this supposedly available access to the global markets.

It also ignores the fact that the Idku plant started up with off-take agreements in place, with the volumes fully contracted to what are now divisions of Shell and Total. There is nothing to suggest these contracts are no longer in place.

The idea that producers, based in Cyprus, Israel or Egypt themselves, can use Idku or Damietta — where most of the capacity is contracted to a division of Spain's Naturgy and where court rulings seem to emphasise that previous contractual obligations remain in place — as a cheap and easy tolling facility, delivering gas and getting a cargo of LNG in return, does not stand up to any scrutiny.

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