A new link-up between natural gas fields in Cyprus and processing facilities in Egypt was greenlit last week, with European energy giants TotalEnergies and Eni taking their final investment decision to fund the project.
The deal will allow for natural gas produced in Cyprus to be liquefied and exported from Egypt’s Mediterranean coast by 2028, a step that TotalEnergies CEO Patrick Pouyanné said would bolster “Europe’s energy security.” The bloc’s main natural gas suppliers have been hit in recent months by the disruption that the United States’ war on Iran has wrought on regional energy markets, as well as by ongoing tensions over the four-year war in Ukraine.
More importantly for Egypt, the long-awaited investment brings the country a step closer to fulfilling its ambition to become “a regional energy hub” — a policy target that successive governments have failed to hit since its adoption in 2018 .
Sources previously speaking to Mada Masr have described the Cyprus deal as a route to soothing Egypt’s energy deficit and, consequently, its dependence on Israeli gas imports, which have proved a source of diplomatic tensions in recent years adding to existing friction over Israel’s wars in the region.
The link-up also holds major potential to bolster Egypt’s foreign currency inflows from its Mediterranean coast, adding to existing revenue from Red Sea shipping, former Suez Canal Authority board member and maritime transit specialist Wael Kaddour told Mada Masr.
But the long-term prospects of this and similar deals were immediately stress-tested on Wednesday, when a drone strike hit energy vessels related to Egypt’s gas imports at its Damietta Port, just a handful of km away from the gas facilities at the heart of the new investment deal.
Eni and TotalEnergies’ new investment is already in the pipeline and unlikely to be derailed by a single drone strike, said Kate Dourian, a non-resident fellow at the Washington-based Arab Gulf States Institute and a fellow at the United Kingdom’s Energy Institute.
But from Egypt’s perspective, said Kaddour, the incident underlines the importance of global cooperation to ensure the security of key transit and logistical routes.
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Italy’s Eni and France’s TotalEnergies announced Tuesday the adoption of their new investment plan for the development of Cyprus’s offshore Cronos gas field. The decision represents a breakthrough after years of technical and economic feasibility studies and talks with the Cypriot government since the field was discovered in 2022 .
Once production begins — which is not expected before 2028 — Cronos is to produce an output of around 500 million cubic feet of gas per day from four wells.
New infrastructure will then deliver the gas from Cronos to existing processing facilities at Egypt’s own Mediterranean field, Zohr, before it is piped onward to the Damietta liquefaction plant, where it can ultimately be stored in liquid form for export.
The Damietta plant is one of two liquefaction plants on Egypt’s Mediterranean coast, both built in the early 2000s. The gas from Cronos alone will utilize around 68 percent of the plant’s capacity.
The start of development at Cronos marks a major step to activating the plants as part of Egypt’s plans to become an export gateway for gas produced in countries across the southeastern Mediterranean.
Under the strategy conceived in 2018, Egypt was to combine its own energy surplus with natural gas piped in from neighboring countries to liquefy both at its northern coast plants for re-export to international markets.
Egypt had successfully played that role in the early 2000s using its own domestic surplus, but its success was short-lived.
Economic turmoil, declining domestic production and rising consumption since then have created instead a domestic energy deficit that has left Egypt a net energy importer, heavily dependent on gas imported via pipeline from Israel and on liquid cargo shipped mainly from the United States at present.
Reviving the plan rests on Egypt securing access to imports from gas fields in Cyprus, a step that has been in the pipeline for almost a decade but that has been repeatedly stalled as commercial and sovereign players in the region have vied to prioritize their own position in the southeast Mediterranean gas market.
The Cypriot government spent years negotiating with Chevron Corporation to settle on the “ optimal development plan ” in terms of returns for Cyprus before approving the company’s proposal last year.
With Cyprus’s small population and limited domestic demand for natural gas, the commercial viability of production at both Cronos and Aphrodite — Cyprus’s largest gas field discovered in 2011 — depends heavily on the establishment of export infrastructure which Cyprus currently lacks.
Routing production through Egypt’s processing and liquefaction facilities emerged years ago as the most economical option, especially since Eni is a leading developer at Zohr, a partner in Cronos’s development, and the owner of a 50 percent stake in the Damietta plant.
A similar plan was drawn up even earlier for the development of Cyprus’s largest offshore gas field, Aphrodite, to Egypt’s liquefaction facilities. Work on the pipeline linking Aphrodite to the Damietta plant has now begun, with a final investment decision expected by 2027 and production targeted to start in 2031 at around 800 million cubic feet per day.
But the deal was held up for years and not only over investment costs. Israel held up Aphrodite’s development over a dispute concerning a small portion of the reservoir, arguing that part of the field extends into Israeli waters — despite the two countries already agreeing on their maritime boundary.
Israel has also used the cross-border reservoir dispute as pretext to object to the framework agreement between Cyprus and Egypt to build a subsea pipeline connecting Aphrodite to Egypt’s liquefaction facilities. Negotiations between Cyprus and Israel are still ongoing, but no final agreement has been reached.
Egypt stands to derive substantial economic benefit from the multiple gas fields in the East Mediterranean that could link up to Egypt, said Kaddour.
“Even though the gas itself doesn’t belong to Egypt, the liquefaction process can take place at Egyptian facilities, so the country receives a share of the proceeds,” he said, referring to the Damietta plant and Egypt’s second Mediterranean liquefaction plant at Idku.
Those foreign currency inflows would be a precious boost for Egypt’s economy, which has been sorely hit in recent years by disruptions to shipping at its Red Sea coast, both during Israel’s three-year war on Gaza and in the war that Israel and the US launched on Iran earlier this year.
Egypt hopes that development of the two Cypriot fields will allow it to receive around 800 million cubic feet of gas per day by 2030, as part of its broader effort to become a leading regional player in the energy sector, Hafez al-Salmawy, the former head of the Egyptian Electricity Utility and Consumer Protection Regulatory Agency, told Mada Masr.
A former Egyptian General Petroleum Corporation (EGPC) source told Mada Masr last year that the link-up would also help “reduce Egypt’s dependence” on Israeli imports — a dependence that left Egypt waiting for months as Israel pushed for higher prices in negotiations over a new deal between the two last year.
Achieving that ambition will require that Egypt reduce its domestic consumption of gas, which currently soaks up all local production and most imported supplies.
Egyptian gas fields produced only 3.281 billion cubic meters of gas in May, the lowest monthly output since February 2016, according to data from the Joint Organizations Data Initiative.
Imports now cover around 40 percent of domestic gas demand, according to Mada Masr’s calculations.
To meet growing electricity demand, Egypt currently relies on two suppliers for 90 percent of its gas imports. The first is Israel, which delivers gas via pipeline under supply agreements running through the end of the next decade, the latest of which was signed late last year. The second is the US, which supplies LNG cargo.
The government expects domestic gas demand to plateau at its current level of around 7 billion cubic feet per day by the end of this decade, according to Salmawy. He expects demand to fall further to around 4 billion cubic feet per day by the end of the next decade as renewable energy sources expand and the Dabaa nuclear power plant becomes operational.
This is contingent on Egypt meeting its 2028 goals to scale up production and maximize clean energy. Doing so would cut local gas usage and free up the surplus for global export, according to Salmawy.
Cypriot gas is expected to give Egypt greater room to maneuver and reduce the extent to which its energy system is tied to Israeli supplies, Salmawy and the former EGPC source say.
“But until then,” Salmway added, “we’ll remain dependent on Israeli gas, with all the implications that situation brings.”
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Cairo barely had time to ride the high of the final investment decision before crisis struck. Last week’s drone strike brought Egypt, for the first time, within the scope of the airstrikes that have rocked the Gulf since the US began its war on Iran.
The target was US-owned regasification vessel Energos Winter, which has been stationed in the Damietta Port under a government agreement to receive and process imported LNG to be burned in Egypt’s power stations.
But the port lies only a few km away from the liquefaction plant that lies at the heart of Egypt’s energy hub plans.
Egypt is yet to announce the conclusion or result of its investigation into who conducted the strike. Even once provenance is established, it is unlikely to pursue an escalatory route, with a senior government official telling Mada Masr last week that there is no appetite for Cairo to get dragged into taking sides in the conflict playing out over the Strait of Hormuz.
But the first strike in the war to hit Egyptian territory has sparked speculation about what it portends for Egypt’s energy plans.
As far as Egypt’s short-term supply goes, the government is at pains to reassure the public that Egypt is well equipped to supplement the energy inflows taken offline by the strike, pointing to additional regasification vessels stationed in the Red Sea’s Ain Sokhna Port and emergency consignments of mazut that can plug the gap.
The argument was rehearsed again on television over the weekend, with Justice Party MP Mohamed Fouad reassuring anchor Lamis al-Hadidy that the vessel struck represents only around seven percent of the country’s net natural gas demand, even expressing surprise that Ain Sokhna Port was not hit due to its more prominent role in guaranteeing Egypt’s own supply.
But what the strike really throws into question is the scope of disruption to global markets wrought by the ongoing war. So far, disruption has been focused in the Persian Gulf, where Iran’s strikes and its closure of Hormuz have shuttered production at oil and natural gas facilities across the Arab Gulf states. The blow has hit markets hard, sending crude prices up to over US$100 per barrel at their peak. But actors have found ways to contain the scale of disruption: Saudi Arabia has been able to divert some of its crude oil production to Egypt via infrastructure on its western coastline; the International Energy Agency has responded quickly to inject 400 million reserve barrels into the global economy; and Asian markets have significantly less need for urgent oil and gas supplies than in recent years thanks to their ongoing energy diversification. The US has boosted its LNG exports to supplement QatarEnergy going offline.
The drone strike at Damietta signals that if the war spreads, it would be less easy to contain.
Egypt is currently “a bright spot” in the regional energy market, said Dourian, with a comparatively high degree of investor interest in upstream oil and gas development, lively mergers and acquisitions activity ongoing, and new importance to Saudi Arabia now loading its crude production via Sidi Kerir.
And Eni and Total’s final investment decision shows Egypt on the brink of becoming even more symbiotically enmeshed with global oil and gas markets.
Oil and gas prices on global markets rose slightly at the end of last week, Dourian notes, but, overall, they have taken the drone strike and the broader disruption at Hormuz in stride so far.
And for the Cyprus link-up, “the investments have already been made,” she said.
But it’s tough to predict what the spread of disruption from the war into the Mediterranean could bring about.
Since the drone strike took place and following a round of reported intervention over the weekend from both Saudi Arabia and Egypt to deter the US from launching a new round of strikes against Iranian energy facilities, negotiations toward a truce seem to be back on track.
“At this point we just have to wait and see how these things develop, because every day brings something new,” said Dourian. “You’ve got to take into account the fact that Iran said if we can’t export, then nobody else can.”
For Kaddour, the drone strike’s message is simply that the scope of the conflict could widen beyond the already widespread disruption it has wrought to markets.
Gesturing to the broad range of actors with interest in international maritime trade routes, from China to Pakistan to India to the United States, he stressed that “to ensure the smooth flow of goods and the continuity of supply chains, the world needs to understand that cooperation is required.”
As for what Egypt can do to ensure stability, he stressed that these maritime routes are “the responsibility of the entire world” and that “it cannot be left to a single nation to control them — that simply won’t work.”
The post Damietta drone strike underscores precarity of Egypt’s ‘regional hub’ ambitions after energy link-up to Cyprus first appeared on Mada Masr .
Damietta drone strike underscores precarity of Egypt’s ‘regional hub’ ambitions after energy link-up to Cyprus
Aggregated summary from an independent source. Read the original at MadaMasr.