A recent drop in Egypt’s natural gas exports might signal the end of nearly two golden years during which the cash-strapped country benefited from record-breaking LNG prices on the global market, according to experts.

Last week, Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS) announced that the country’s natural gas and LNG exports had fallen by more than 75% in April compared to the same month in 2022.

“Egypt had a good run from mid-2021 to end 2022 as LNG prices surged, but that’s over for now,” David Butter, a Middle East economic analyst, and associate fellow in the Chatham House MENA program told Zawya. “It is doubtful whether Egypt will match the 2022 export performance in either volume or value.”

In 2022, Egypt’s natural gas exports reached a record high amounting to $8.40 billion compared to $3.50 billion the previous year. The surge in exports was attributed to the rise of LNG prices globally following the Russian invasion of Ukraine. However, LNG prices have been going down since September to their pre-war levels in Europe_ the main recipient of Egypt’s LNG exports.

Besides decreasing global prices, Butter believes other factors also played a role in the recent drop of Egypt’s exports.

“Lower production and higher [domestic] consumption are the main reasons,” he said. “Production was down by about five percent in 2022, and there have been further declines in 2023. This is because mature fields are depleting, and there is not enough coming from newly developed fields.”

“Another factor is that power stations are not burning as much fuel oil as was the case in 2022, when oil consumption rose by 16.5% because it made economic sense to import fuel oil for this purpose, including discounted supplies from Russia,” he said.

Ninety percent of Egypt’s electricity comes from fossil fuel including oil and gas. In 2022, the government decided to increase its use of mazut in power stations and save more natural gas for export as global prices and demand were high.

On the sidelines of last week’s OPEC meeting in Vienna, Egypt’s Oil Minister Tarek El-Molla said that revenues from LNG exports were expected to fall by 50% this year. Egypt did not export any natural gas in June because of the increasing domestic demand in the summer season, he said.

To increase its production, Egypt still needs to encourage more exploration and production in partnership with foreign energy companies, according to Butter. Yet, the unstable forex situation might make it hard to attract this form of foreign investment.

“The government’s financial crisis means that international oil companies are once more facing long delays in receiving payment for gas and oil that they are contracted to sell to the government. This tends to work as a disincentive against investment,” Butter explained.

The country’s census agency has noted that the recent drop in natural gas exports was the primary cause behind a 24-percent increase in Egypt’s trade deficit in April compared to the same time last year.

“There is the chance that the trade deficit widens as natural gas and LNG exports decline, resulting in weaker receipts,” James Swanston an analyst with Capital Economics told Zawya. “However, the impact could be partially offset if the natural gas is still being produced but consumed domestically as that could reduce the need to import other fossil fuels for electricity generation.”

“Similarly, there may be some positive offsetting factors from the services trade balance as Egypt enters its peak tourism season to increase its exports. What’s more, the weakness of the pound has created some import suppression as the currency has increased the cost of importing and there has been a decline in non-hydrocarbon imports in recent quarters,” Swanston added.
Source: Reuters (Reporting by Noha El Hennawy; editing by Seban Scaria)