Israel has halted production at two of its major gas fields and cut pipeline exports to Egypt, but resulting LNG demand may only come later this summer when Egypt builds out its LNG import capacity.
Israel's Karish and Leviathan fields have stopped production following a government order issued in the wake of Israeli airstrikes on Iran. Israel's energy ministry today said it expects the minister to declare a state of emergency in the gas sector.
Pipeline exports to Egypt and Jordan have since dropped sharply, market participants said, resulting in Egypt cutting gas supply to urea plants as it prioritises gas for power generation.
But Egypt has access to only one LNG import terminal at present — the 170,000m³ Hoegh Galleon floating storage and regasification unit (FSRU) at Ain Sukhna. Three carriers were holding offshore today waiting to deliver, and the terminal is importing at maximum capacity already, so Egypt cannot import more than it already is through the facility.
And Jordan no longer has LNG import capacity, with the 160,000m³ Energos Eskimo having departed ahead of installation later this summer in Egypt. The FSRU at present is at a shipyard in Egypt's Ain Sukhna, unable to import LNG for either Jordan or Egypt. The gas supply cuts from Israel also come ahead of the region's peak cooling demand season.
LNG demand could rise if Israeli gas supply is constrained for an extended period of time. Egypt plans to build out its LNG import terminal capacity to three FSRUs later this summer, as well as an additional temporary FSRU for summer leased from Turkey's Botas, and additional LNG import capacity would allow for stronger imports if Israeli supply remains constrained. Two of these FSRUs — the Energos Eskimo and 174,000m³ Energos Power — are at Egyptian shipyards and could be installed in the coming weeks or months.
Egypt is understood to have bought at least 110 cargoes for delivery this year, which is equivalent to just under 8mn t. But the country plans to add about 18mn t/yr of LNG import capacity for its peak summer season, assuming 750mn ft³/d of regasification capacity at three FSRUs.
Egypt imported 10.2bn m³, or almost 8mn t, of pipeline gas from Israel last year, according to data from the Joint Organisations Data Initiative (Jodi), meaning that with three FSRUs, Egypt has enough capacity to substitute lost Israeli volumes with LNG imports.
But it remains unclear for how long Israeli gas exports will be curtailed. Iran also struck Israeli targets with missiles in early October last year, with Israel's Tamar and Leviathan fields having gone off line temporarily, although production returned after one day.
Another potential impact of escalating tensions in the Middle East is disruption to shipping around the Strait of Hormuz, but LNG carriers have continued to transit the route as normal today.
The tensions could compound insurance costs, adding to shipping costs from the Middle East. More than 80mn t/yr of LNG supply, mostly from Qatar, has to transit the Strait of Hormuz to reach international delivered markets.
