Egypt seeking to defer up to 25 LNG cargoes this year-trade; talks with trade houses and producers ongoing.
Egypt is holding talks with its liquefied natural gas (LNGLF)
(LNG) suppliers to defer contracted shipments this year and aims to cut back on purchases in 2018, as surging domestic gas production squeezes out demand for costly foreign imports.
Cairo's desire for gas self-sufficiency by the end of 2018 bodes ill for traders having to reshuffle LNG out of the country amid concern over the impact on global gas prices if replacement markets for the world's eighth-biggest importer of the super-cooled fuel are not found fast enough.
State-run importer EGAS aims to defer dozens of liquefied natural gas (LNG) cargoes due this year, analyst, trade and industry sources say.
It is also scaling back LNG purchase plans for 2018 from 70 to as low as 30 cargoes, one Egyptian industry source added, signalling the withdrawal of one of the fastest-growing LNG importers from the global stage.
EGAS did not respond to requests for comment.
As demand growth among the old guard of Asian gas-consuming nations such as Japan slows, new entrants - led by Egypt - has accounted for 86 percent of net growth since mid-2014, EDF's head of energy market analysis Teddy Kott said.
"That was a demand disruption that not only exceeded Fukushima in terms of scale but rivalled it in terms of pace," he said, referring to Japan's 2011 nuclear meltdown, and resulting reactor closures that lifted the LNG out of its last downturn.
A trader said: "Egypt was the biggest short going."
Global LNG output is set to jump by a third, hitting 452 million tonnes by 2020, and with Asian spot prices <LNG-AS> down by 72 percent since early 2014, adding new markets to soak up the glut is key to stemming the rout.
At the heart of Egypt's revival is a stunning run of discoveries, a potential boon for the government as it embarks on politically sensitive economic reforms and struggles to rein in inflation running at a three-decade high.
"Test flows from (BP (BP)
's) West Nile Delta have started ahead of schedule and Eni's giant Zohr find is progressing quickly on track for first gas later this year, but it's output from the Nooros field that has surprised everyone this year," said Adam Pollard, senior North Africa oil and gas analyst at Wood Mackenzie.
Eni's Nooros is churning out 900 million cubic feet of gas daily, Pollard said, becoming Egypt's biggest producing field since it came on stream late in 2015.
Production from two BP fields in the West Nile Delta development, Taurus and Libra, just started eight months ahead of schedule. Its North Alexandria gas fields are set to boost output as well.
"Talks with Egypt on deferring cargoes are ongoing," a LNG trader said. "And there are also talks between the traders and producers on where to divert these supplies to," he added. Once a top-10 LNG exporter, the Arab country of 92 million people and has so far consumed around 12.5 million tonnes since it started importing in 2015, according to Reuters data.
Benefiting from several multi-billion-dollar LNG buying sprees, commodity traders from Trafigura to Glencore (GLCNF)
carved out a niche for themselves by shouldering credit risks for producers, including Qatar, averse to supplying Egypt directly.
Any deferments therefore will disproportionately hit trade houses who must wrangle approvals from producers before diverting the cargoes into other markets.
Already this year EGAS has deferred about ten shipments, with about 10-15 shipments left to go, trade sources said.
The scale and speed of Egypt's turnaround suggests the government may yet wean itself off foreign gas but how sustainable that turns to be will depend on domestic pent-up demand.
"Natural gas demand in Egypt has been constrained from power generation to fertilizer production so gas demand could potentially rebound much more than initially anticipated," Anne-Sophie Corbeau, research fellow at the King Abdullah Petroleum Studies and Research Centre said.
"The appetite for LNG in that region is going to be challenged but will not disappear."
By Oleg Vukmanovic