Israel-Hamas Conflict Threatens EU-Egypt LNG Deal, Oxford Energy Institute Says

An agreement to ramp up LNG liquefied natural gas (LNG) exports to the EU is no longer feasible due to supply disruptions caused by the conflict in Gaza, according to a report published Wednesday by the Oxford Institute for Energy Studies (OIES), a leading energy research organization.

The memorandum of understanding (MOU) signed in June 2022 between Israel, Egypt and the European Union came in response to Russia's invasion of Ukraine. It aimed to drastically increase the volume of natural gas to be produced in Israel, shipped to Egypt via pipeline and then exported to European markets as LNG.

But the agreement is now untenable, according to the OIES. "The prospect of the EU receiving more LNG from Egypt in the short and medium term looks unachievable. The June 2022 Memorandum of Understanding between Egypt, Israel, and the EU, committing to higher supply, is now probably undeliverable," Julian Bowden, Senior Visiting Research Fellow, said in Wednesday's report.

The OIES found that Egyptian LNG exports to Europe are unlikely to resume after being paused in late October due to "limited prospects of higher Egyptian production or imports from Israel." The agreement did not detail specific LNG import quotas.

Chevron closed operation of the Tamar natural gas field on October 9 in reaction to instability generated by the Oct. 7 Hamas attack and subsequent Israeli military campaign in Gaza. The Tamar field is responsible for 70% of Israel's energy demand for electrical generation, according to Chevron.

Egypt imported a record 5.8 billion cubic meters (bcm) of natural gas from Israel in 2022 and exported 3.7 million tons of LNG, 80% of which went to the European Union. Natural gas accounted for 74% of Egypt's electrical generation in 2022, according to Ember Climate.

Egyptian gas production already reached a three-year low in the third quarter of 2023, and the country experienced a wave of blackouts over the summer amid an energy shortage.

The OIES estimates that the amount of Israeli natural gas production presently available "would only leave some 1 bcm for exports to Egypt" per year, less than 20% of the 2022 peak, further limiting Egypt's ability to export excess supply to Europe.

The OIES predicts that Egypt will be unable to resume exporting LNG to Europe in the near future due to domestic supply constraints. "Egypt's LNG exports look set to remain low to zero over winter," Alex Froley, LNG analyst for consultancy ICIS, told Reuters on Wednesday.

On Monday, Egypt received its first imported shipment of LNG for domestic consumption since July, as S&P Global reported.

Egypt's Ministry of Petroleum and Mineral Resources did not immediately reply to a request for comment from International Business Times.