Egypt on the Lookout for Natural Gas Suppliers
Höegh LNG Holdings Ltd. (provider of floating LNG infrastructure services, offering regasification, transportation and production services) has announced the signing of a contract with EGAS of Egypt for a floating storage and regasification unit (FSRU), according to a company press release.
The contract is for a period of five years and is expected to generate an average annual EBITDA of about $40 million. The FSRU Höegh Gallant, which is expected to be delivered from the yard later this week, will service the contract, which is set to start by the end of first-quarter 2015, the release said. The company will evaluate interim employment for the FSRU before start of operations in Egypt.
President and Chief Executive Officer Sveinung J.S. Støhle says: "We are delighted to have signed a firm contract with EGAS and been entrusted through this contract to provide strategic important infrastructure that will give EGAS added capacity to serve the Egyptian gas market. This project clearly demonstrates the advantage of FSRUs as the fast-track solution for LNG imports to any market and we look forward to a long term relationship with Egas. The Höegh Gallant will be offered to Höegh LNG Partners L.P. in due time".
The agreement follows a letter of intent signed between Höegh LNG Holdings Ltd. and the Egyptian Natural Gas Holding Company (Egas) for the use of one of its Floating Storage and Regasification Units (FSRUs) under construction at Hyundai Heavy Industries as an LNG import terminal in the port of Ain Sokhna, located on the Red Sea's Gulf of Suez.
The contract signals once again Egypt’s efforts to find new sources of supply. Suffering from major natural gas shortages at home causing frequent power outages due to a declining production, a growing consumption and ongoing export obligations, Egypt has been looking for relief. The delivery of the import terminal for LNG would allow Egypt to import liquefied natural gas to fight its energy crisis. Egypt has been forced to divert gas originally allocated for exports (namely to neighbouring Jordan) to domestic consumption.
Egypt is also in advanced discussions to import gas from Israel. Recent discoveries of substantial amounts of natural gas in Israeli waters have allowed the previously natural gas-dependent country to free itself from its reliance on Egyptian gas. Israel is in fact now in a position to export some of its natural gas since exports were permitted via a decision of the Netanyahu cabinet dated June 2013 ratified by the country’s Supreme Court in October 2013. Israel’s Leviathan and Tamar fields are believed to hold as much as 21 and 10 Tcf of natural gas respectively, enough to satisfy Israel’s domestic consumption for decades and secure its entry in the export market.
Israel has been looking to develop an export strategy. Selling its natural gas in global markets is the goal. However, export routes have proved tricky due to the complicated geopolitical landscape of the region. Egypt is a likely customer, but not just. Using existing infrastructure, natural gas will first flow in the opposite direction as it traditionally did, from Israel to Egypt. Egypt's unused export terminals could also be used for Israeli gas en route to international markets.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat