Egypt counts on foreign funds to buy gas as power crisis worsens

Saudi Arabia and Libya have financed the purchase of gas cargoes worth at least $200m to help Egypt ease its energy crisis this summer amid a steep decline in domestic gas output, two industry sources familiar with the matter said.

Egypt needs some $2bn worth of gas to cover summer demand through October, according to one of the two sources familiar with the government’s plan, but a hard currency crisis means it lacks funds to fully cover imports of liquefied natural gas.

“Without support from our friends in the Gulf, we won’t be able to pay for these shipments,” one of the sources said. He added officials were looking to raise more money from allies.

The two sources said Saudi Arabia had financed three of the 32 LNG cargoes Cairo has bought so far this year, which according to Reuters calculations are worth around $150m at current prices.

Libya bought one cargo in July worth around $50m with funds of the Libyan National Oil Corporation, the sources added. Egypt’s gas bill and funding from Saudi Arabia and Libya have not been previously reported.

A spokesperson for Egypt’s petroleum ministry said gas tender details were confidential. The Saudi government, Saudi Arabia’s central bank and Libya’s state energy firm NOC did not respond to Reuters’ requests for comment.

Egypt has had to resort to load-shedding in the last year to keep its grid functioning amid a lack of gas supply and rising demand. The deepening energy crisis is straining the government budget in Cairo as it grapples with a heavy subsidies bill.

President Abdel Fattah Al-Sisi’s government has boosted fuel and food subsidies this summer, but those increases do not offset a 60 per cent devaluation in the Egyptian pound since March 2024, leaving Egypt’s growing population struggling with the rising costs of living.

Egypt’s foreign debt reached $154bn in May, close to the end of 2023’s all-time high of $168bn.

“This financial burden (of the gas bill) comes at a critical time for Egypt as it faces troubles reining in its subsidy bill, which could have an impact on social security and overall stability,” said Mona Sukkarieh, political risk consultant and co-founder of Middle East Strategic Perspectives.

Plunge in Egypt’s gas output

Egypt’s domestic gas output plummeted to a six-year low in May, down around 25 per cent from its 2021 peak, and is expected to fall by a further 22.5 per cent through 2028, consultancy Energy Aspects said.

The country had planned to become a major gas exporter after Italian energy group Eni discovered the giant Zohr offshore field in 2015.

Its energy ministry at the time said that when Zohr started production in 2017, the field would produce 2.7 billion cubic feet per day until 2039. However, after rising to a peak at 3.2 bcf/d in 2019, output fell to just 1.9 bcf/d in the first half of 2024.

Four industry and diplomatic sources said Zohr’s speedy development had injected too much water into the reservoir and made gas extraction more difficult.

Eni said Zohr’s production was in line with its forecast and the agreement it had made with its partners and authorities.

The group added that plans for the field’s output had to be updated following slower development during the Covid-19 pandemic. The Italian group also said Zohr’s development has been in line with Eni’s fast-track model.

The same four sources said investments in the gas industry have also slowed because Egypt has accumulated around $6bn worth of debt for gas and fuel supplies.

Egypt’s debt to Eni alone – mainly related to gas – stood at nearly $1.27bn at the end of June, up from $1.16bn at the end of last year.

The spokesperson said Eni reduced its investments in the country in the first months of 2024 based on assessments of efficiency and field performance.

A source close to Malaysia’s Petronas said the firm has also paused investments in its West Nile Delta project as it waits to be repaid hundreds of millions of dollars of debts.

Growing power needs

The financial and power crises have become a significant challenge to President Sisi’s effort to stabilise the economy and fuel an infrastructure boom.

The outages, along with inflation and a weakening currency, have become symptoms of the worst economic crisis since Sisi took power in 2014.

Lerato Monaisa, senior analyst at Fitch group company BMI, said Egypt’s power consumption will jump by 39 per cent in the next decade due to a rising population, urbanisation, industrialisation, and air conditioning use.

“Egypt is facing significant challenges, worsened by rising power demand and declining gas output… daily power cuts had been disrupting businesses and risked fuelling public discontent,” said Mehrun Etebari, Global LNG director at S&P Global Commodity Insights.

Read: Egypt’s net foreign assets positive for third straight month in July