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Apicorp sees more woes for Egyptian and Algerian LNG

The multilateral lender flags risks of ongoing shut-ins and difficult contract negotiations

Egypt’s LNG liquefaction plants could remain “heavily underutilised” until 2022, exporting less than 4mn t/yr, according to the 2020-24 gas and petrochemical outlook published by Saudi Arabia-headquartered multilateral development financier Apicorp. Algeria is also “entering a renegotiation of some of its contracts in a buyer’s market”, it warns. Egypt’s particular problem, the report notes, is that the feedstock for its plants comes from expensive deep offshore fields. Apicorp estimates that its upstream cost of gas is $4.50/mn Btu (see Fig. 1), which “alone may exceed current hub prices”.

Adding on $1.75/mn Btu in liquefaction costs puts average Egyptian LNG costs on a free-on-board (Fob) basis north of the $6.50/mn Btu mark—far in excess of the $4/mn Btu European, $5.50/mn Btu East Asian and $4.50/mn Btu Indian reference prices Apicorp models as destination markets even before shipping costs.

The Egyptian government’s decision to cut domestic gas prices for industrial users, to $5.50/mn Btu in October last year and again to $4.50/mn Btu in March, will increase domestic call for gas, Apicorp predicts. “Combined with its inability to resume LNG exports given the depressed global prices in the first half of 2020, it is now expected that Egypt’s LNG plants will remain heavily underutilised until around 2022, exporting under 4mn t/yr of its low-priced onshore feedstock gas only, a quantity which represents roughly 35pc of the country’s gas production capacity in 2020-21.”


Algeria “is in a relatively more favourable position as its LNG feedstock gas is onshore and comes with lower costs”, says Apicorp. But, even with lower production and liquefaction costs, it still estimates Algeria’s average Fob costs at a hefty-by-current-market-environment $4.93/mn Btu, enough to put its overall netback in all destination markets at the reference prices used firmly in negative territory.

>$6.50/mn Btu – Egyptian LNG on Fob basis

The country is entering a renegotiation of some of its contracts in a buyer’s market, Apicorp warns. “It may be difficult to negotiate its expiring LNG contracts on favourable terms.”

It is not alone, Qatar and Oman also have a considerable number of expiring contracts in 2020-24 (see Fig. 2), albeit for relatively small volumes, particularly in Qatar’s case. Some of these may also “prove hard to renew on favourable terms in case of a sluggish or prolonged global gas demand recovery”, Apicorp predicts.

Qatar will, though, retain its cost advantages, which should give it an edge in a competitive landscape. But Apicorp puts its average upstream cost at $0.50/mn Btu, rather than the negative value some analysts attribute it given the value of the NGLs that also come off the North Field production stream. And that cost still leaves Qatar with a slightly negative netback to a $4/mn Btu European delivered price, according to Apicorp calculations.   

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