Egypt Gas Puzzle: Reversing the Flow?

This is the third in a series of articles written about "Egypt Gas Puzzle". The first article appeared in Gulfoilandgas.com on March. 13 and describes the idle Natural Gas Export Infrastructure in Egypt. The second article, on March 19, analyzes the different groups fighting over Egypt's Natural Gas. This article focuses on opportunities and options to secure gas supply in the Mediterranean region through Egypt.

Business Tycoons: A short-term gas supply gap for a long-term comfort zone

The peak in gas demand is normally triggered during Egypt's hot summer months to fulfill the power generation needs of the country. The short-term gas shortage coupled with the current political vacuum offer a window of opportunity for two visible groups to unite for one common goal: the introduction of coal to Egypt. According to those groups, coal is the only viable alternative for natural gas.

Government officials, who set the gas export strategy during the last 15 years of Mubarak’s rule, represent the first group who likes to see a long-term gas surplus for export to justify the decision to build the expensive gas export infrastructure. On the other hand, Egypt's cement business tycoons represent the second group who wants to maximize profits and avoid paying high prices after removal of subsidies on natural gas.

A third invisible group is directly or indirectly linked to deals with global coal producers and ready to capture the expected fortune from the introduction of the coal business to Egypt.

Environmentalists and the civil society are leading the opposition to the introduction of coal and in the absence of an elected parliament to moderate a healthy national debate, the policy makers in Egypt find themselves under a great pressure to deliver NOW on the Energy front.

Today, coal supporters in Egypt are using every possible weapon to win the coal import battle. Therefore, advancing any quick solution including the below model to fix the gas puzzle would weaken the coal introduction argument in Egypt.

Could Egypt become the natural gas export hub for the East-Mediterranean?

The $16bn idle gas export infrastructure case is a clear example for how things went wrong in Egypt during Mubarak’s presidency. A 1,200 km pipeline was supposed to carry Egyptian gas to Israel and East Mediterranean Arab countries. Two LNG plants were built to export gas to Spain, France and few other countries. Unfortunately, numbers proved to be wrong leaving no gap between supply and demand and at current consumption levels, Egypt will not have enough gas surplus for Export.

New Gas discoveries in the East-Mediterranean neighboring countries are a game changer. When it comes to gas transportation, emerging East-Med exporters face many challenges. Unlike other commodities, exporting natural gas is a very expensive decision. East-Med producers have to build expensive infrastructure and to wait few years before getting the first gas shipment to consumers. Cyprus is trying to justify the construction of Vassilikos LNG plant which will cost around $12bn. Israel, the US and the EU are putting pressure on the Cypriot government to go ahead with the project. The investment is huge and risky especially when you carefully study the negative experience of Egypt.

Recent developments in the Mediterranean bring a new dimension to the Egyptian case. Today, there is a good opportunity for Egypt to capitalize on the existing gas export investments and to redefine its role as the regional hub for gas export by reversing the gas flow direction.

Reversing the flow will provide Egypt with:

• Decent Return on Investment
  
• Greater choice and flexibility about when and how much to export
  
• The ability to quickly respond to local gas crisis
  
• Relief from contractual commitments for export volumes that are difficult to meet
  
• The ability to avoid the introduction of coal
  
• Long-term energy security that the country badly needs
  

Sources and routes of the export gas hub model

The situation can be completely changed if Egypt export assets come to the picture. The following infographic describes possible scenarios which can ultimately redefine the East-Med Energy corridor.


This section lists the export options for sending gas to Egypt:

1. New Gas Pipeline From Cyprus to Arab Gas Pipeline: A new marine pipeline segment (around 220 km) can be constructed to transport gas from Cyprus to Tripoli in Lebanon.
   
   
2. Reversing the Arab Gas Pipeline from Lebanon/Jordan to Egypt: The existing Arab gas pipeline can be adapted to reverse the gas flow all the way to Egypt. The gas situation offshore Lebanon is very promising. The political developments in Lebanon will define how and when Lebanon will join the exporter club. Jordan may also become a future net gas exporter considering the positive outlook of its unconventional resources.
   
   
3. New Gas Pipeline from Cyprus to Damietta LNG: Cyprus could send natural gas from its Aphrodite field (Block 12) field by undersea pipeline to the Damietta LNG plant in Egypt: The distance - more than 180 km - would probably need to be longer to circumvent geological challenges on the seabed and would require a relatively small investment in the range of 5% of the investment needed for building Vassilikos LNG plant.
   
   
4. CNG from Cyprus to Egypt: The compressed natural gas (CNG) method is proposed in the absence of a pipeline from the Cypriot Aphrodite field to Damietta LNG or Idku plants. The idea is to use a specially constructed ship, which would be cheaper and suit the temporary nature of the need of supplies from Cyprus.
   
   
5. Gas Pipeline from Iraq to Aqaba and Egypt: Iraq is planning a dual oil and gas pipeline from Basra to Aqaba. Iraq natural gas can provide additional supply to Egypt's redefined gas export hub.

Conclusion

There is no doubt that Egypt's gas export infrastructure can be an excellent opportunity to achieve energy security for Egypt. It is obvious that redefining Egypt gas export role in the East-Med has many benefits for Egypt and the Mediterranean countries. However, the timing for reversing the flow may not be in the best interest of those who want to capitalize on the pressure of a temporary gas supply gap to introduce coal to Egypt. The question now is: can gas producers in East-Med wait?

Articles in the Egypt Gas Puzzle series:

• The $16 billion Abandoned Gas Export Infrastructure
  
• Who is Fighting over Egypt's Natural Gas?
  
• Reversing the Flow
  
• Egypt Gas Puzzle: Use a Partial Truth to Tell a Complete Lie