Egypt’s surprise edict to freeze new gas export deals until at least 2010 highlights a wider debate in the region about the most suitable way to allocate gas supplies.
For Cairo, the trigger for the ban was the start of gas supplies to Israel on 1 May through a 100-kilometre-long sub-sea pipeline.
Egyptian Oil Minister Sameh Fahmy was accused by his critics of selling gas to Israeli customers at about a third of the market rate, prompting the government to issue the ban.
Existing long-term buyers are now being pressured to pay a higher price for liquefied natural gas (LNG) supplied from Egypt’s Idku and Damietta LNG plants, while fresh investment is being delayed on the second-phase expansion of Damietta through the Segas consortium.
Egypt is not alone in its conundrum. Qatar, albeit it for different reasons, has also chosen to halt new supplies from its massive North field to better gauge its reservoir.
The latest indications from Doha are that it may be 2013 before any decision is taken on the world’s largest non-associated gas field.
Like Egypt, when supplies are restarted, Qatar has indicated that it will devote production to local industries rather than export deals. Both countries need to be careful they do not alienate international investors.
For Egypt, natural gas exports have helped entice more than $14bn worth of exploration investment, while Qatar has also benefited from having top oil majors set up shop in the country. While their preference for prioritising domestic needs is understandable, few other countries in the Gulf can help to bridge the supply shortfall.
Securing fresh gas supplies is vital for regional growth, yet countries with large reserves including Iran, Iraq and Saudi Arabia continue to operate far below their potential capacity. Qatar and Egypt must continue to work closely with oil majors for the health of the entire region’s gas industry.