Opinion| Egyptian gas and the crisis of the European Union

Hatem Sadek
6 Min Read

Over the past few years, Egypt has witnessed a boom in the gas sector. Indeed, it was the first to lead the trend to benefit from the gas wealth in the Eastern Mediterranean. This trend was reinforced by the gas crisis in the European Union due to the war in Ukraine.

Egypt’s liquefied natural gas production is expected to reach about 7.5 million tonnes this year, slightly higher than 2022’s, when 80% of production went to Europe. At the same time, CEOs of international companies operating in the energy industry revealed that Egypt has become an ideal destination for investment, especially in the field of energy, due to the government’s supportive approach to investment. They also stressed that now is the perfect time to invest in the Egyptian energy sector.

Egypt has all the capabilities to become one of the most important players on the global energy map, especially after its transformation from a gas importer to an exporter. At the same time, the world now needs all forms of energy, and the main goal is to reduce carbon emissions. So there is a need to use technology faster and strengthen regional cooperation.

In addition, investment in Egypt in this particular sector is now described as very good, in the language of investment. The government also has a clear plan, and the climate is perfectly suitable for investment, supported by the infrastructure that Egypt enjoys. All this is in addition to the diversity of renewable energy sources that enable companies to produce and export gas.

Egypt’s opportunities are very promising in the gas export sector, and investors in the natural gas market and most analysts expect that the results of the “gas war” between Russia and Europe, which began last year with the war in Ukraine, will appear clearly this year. The Financial Times published an important analysis this week, indicating that the crisis may have a more adverse reaction on Russia than on Europe. Therefore, it is difficult, of course, to predict natural gas prices for this year. Nevertheless, the expectations of the global economic recession increase the possibility of a decline in global demand for energy, and thus lower gas prices. This assumes, of course, that the volume of supply remains unchanged, as well as the production of liquefied natural gas while excluding any crises in the supply chains.

In fact, the natural gas crisis in Europe began in 2021, months before the Ukraine war due to disagreements with Russia, but it worsened further after the start of the war at the end of February last year. And with a series of European sanctions on Moscow, Europe stopped importing most of its needs of Russian natural gas.

Before the war in Ukraine, Europe relied on Russia to provide 40% of its natural gas needs. With the beginning of the war and the imposition of sanctions by Europe and Western countries on Moscow, a debate arose over the currencies by which the price of gas would be paid. Moscow stipulated that payment be made in Russian rubles, which made many European buyers stop buying Russian gas even before the complete European ban on energy imports from Russia.

At the beginning of the current year, European gas reserves were at 85%, which is a high%age compared to their average fullness at this time of year over the past five years at 70%. Natural gas prices in Europe fell in the first week of this month by more than 75% from the highest rate they reached last year. Although it remains three times higher than normal gas prices in Europe and the current gas price in the United States, it is now at levels that Europeans can afford.

But the danger is not completely over, says the Financial Times report. Analysts still expect Chinese demand for LNG to rise as the economy recovers. And the director of the International Energy Agency, Fatih Birol, warns that “many of the factors that helped the European Union countries to refill their stocks of natural gas before the current winter season may not be repeated this year 2023.” Thus, the potential for natural gas prices to fluctuate in the global market, and consequently rise in Europe, still exists. Here comes the Egyptian opportunity to be present and to seek to increase its export share in gas destined for Europe.

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