Egypt Buys LNG in Rare Move to Avoid Summer Gas Crunch

(Bloomberg) -- Egypt began buying liquefied natural gas, a rare move by the fuel exporter to avoid shortages this summer.

Egyptian Natural Gas Holding Co. recently bought at least one shipment for delivery in the next month and is looking for several more, according to traders with knowledge of the matter. The country, which uses gas for cooling to escape extreme heat, is securing supply this early in the year to potentially avoid the chronic power blackouts of last summer.

The North African country is set to receive a $50 billion international bailout, helping ease the worst economic crisis in decades and giving it the funds to boost imports. Heavy purchases, however, will be a drain on foreign currency reserves, just as Suez Canal revenues plummet due to attacks by Houthi militants on commercial shipping in the Red Sea.

The LNG purchases mark a major shift for Egypt, which largely stopped importing the fuel in 2018 when the massive Zohr field boosted domestic production and turned the country into an exporter of the fuel. Local gas output, however, has dropped to the lowest level in years, which Oil Minister Tarek El-Molla said in February was because of natural decline at its fields.

“Egypt is getting a bailout in excess of $50 billion, but it also has bills to pay,” said Ziad Daoud, chief emerging-markets economist for Bloomberg Economics. “It needs to provide dollars to clear an import backlog, settle arrears with international companies, and ease capital restrictions. Turning from a fuel exporter to importer adds to the size of the bill.”

Egypt oil ministry officials didn’t immediately reply to requests for comments.

Even Hotter

Egypt is coming into the LNG market at a time when prices have dropped from the record highs of 2022. European gas is down 20% this year as demand has been weak because of a mild winter and reduced industrial consumption. Gas inventories in the continent are at a seasonal high and supply is ample, reducing competition for the super-chilled fuel. 

The higher LNG availability will come as relief for Egypt, where summer temperatures of over 35C (95F) have caused blackouts that can last up to two hours a day. Last year was the hottest on record, and experts are predicting 2024 could be even worse. Besides use in power, the country needs gas to feed energy-intensive industries such as fertilizer producers.

Egypt halted LNG exports during the hottest months last year, and may be forced to do so again this year, according to El-Molla. No cargoes have been shipped out since March 11, ship-tracking data show. El-Molla had said in October that exports will continue until March or April before local consumption takes precedence during the summer. 

The latest imported LNG cargo is slated to be routed through an existing facility in Jordan, the traders said.

Egypt won a $35 billion investment commitment from the United Arab Emirates in February, a major step in resolving a foreign-exchange crisis. It was followed by a $8 billion rescue program from the International Monetary Fund, $8 billion in aid, loans and grants from the European Union and $6 billion from the World Bank. 

The government is banking on the package attracting foreign investors back to the country of 105 million people, which had seen an exodus of the capital it needs to finance its huge debt. It has begun using the funds to pay arrears owed to foreign oil companies for operations in the country. The initial plan is to pay out 20% of the total amounts due to the firms.

(Update with context and quotes from the second paragraph.)

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