News | North Africa - West Asia - Socio-ecological Transformation An Explosive Three-Way Deal

The EU plans to purchase LNG from Egypt, although the country is struggling to meet its own rising demand


An engineer works at the Beni Suef gas regulator station in Beni Suef, Egypt, 10 July 2017. Photo: IMAGO / Xinhua

The climate conference that took place in the seaside resort town of Sharm el-Sheikh in November 2022 was a success for Egypt in many respects. Despite continued protests around the human rights situation in the country, President Abdel Fattah el-Sisi was ultimately able to play the role of host at a conference where negotiations were — yet again — brought back from the brink at the eleventh hour and steered towards a “happy” conclusion.

Juliane Schumacher is a Berlin-based researcher, freelance journalist, and author.

Most importantly, however, the conference provided a lucrative marketplace for business of all kinds. Egypt had gone to great lengths to greenwash its numerous construction and infrastructure projects in the lead-up to the conference, in an attempt to foster an image as an appealing place for green investments.

In the months that preceded the conference, numerous energy and environment ministers were already busy making the rounds in Cairo, and Germany was no exception: in May 2022, the Egyptian government signed a contract with Siemens to construct an 8.1-billion-euro high-speed rail network — the single biggest deal in the company’s history — and in November, Egypt signed a contract with Deutsche Bahn, whose international subsidiary will be responsible for operating the network.

On 3 November 2022, mere days before the climate conference was to begin, Minister for Economics Affairs and Climate Action Robert Habeck signed two declarations of intent with Egypt. This deal was concerned both with establishing infrastructure that would have the capacity to supply green hydrogen from Egypt to Germany in the long term, and with supplying more liquefied natural gas (LNG).

The EU — and above all Germany — has been on the hunt for new gas sources for months. Ever since the bulk of gas supplies from Russia were suspended, the EU has been forced to find substitutes for this shortfall in order to ensure it has amassed sufficient gas reserves before the next winter, the time of year when consumption is at its highest. But new pipelines cannot be constructed quite so swiftly. As such, for the intervening period the supply will largely be secured using LNG, which can be transported in a cooled and compressed state on ships, before being rendered gaseous once again in re-gasification terminals.

However, the market for LNG is a tight one, with major suppliers like Qatar beholden to their Asian customers on the basis of long-term contracts, and therefore unable to deliver gas until 2026 at the very earliest. While loading terminals for importing LNG can be built relatively quickly, export terminals — where the gas is liquefied in a very energy-intensive manner — are time-consuming, expensive projects that require several years of construction. This is why, both in the lead-up to and in the midst of the climate conference, the EU was so acutely concerned with gas — and in particular with the question of where it might be able to secure supplies of LNG from in the months to come.

Egypt in Crisis

The EU has struck it lucky in Egypt, the only country in the Eastern Mediterranean that has two LNG terminals. Egypt also sells gas, and unlike the Gulf States, primarily handles in short-term deals.

But more than anything else, Egypt is in urgent need of foreign currency: the country has been mired in a grave economic crisis for years, with the situation severely worsening in recent times. The COVID-19 pandemic and the war in Ukraine have caused prices for both energy and grain to soar, hitting the country — which is dependent on imports in both cases — hard.

These rising prices, combined with el-Sisi’s policies, which for years have primarily used loans from international creditors to finance large projects like the country’s new administrative capital in the desert, have tripled the national debt since he took office in 2013. This has caused a slew of investors, fearing Egypt’s impending national bankruptcy, to jump ship. Foreign currency reserves are dwindling, and the repeated devaluation of the Egyptian pound — which is one of the International Monetary Fund’s (IMF) conditions for disbursing further loans — have meant that the currency has depreciated by almost half in the past year.

A number of commodities are now more difficult to obtain, and high inflation — which officially rose to over 40 percent in February — is making it difficult for poor Egyptians in particular to survive. In January, the Egyptian online newspaper Mada Masr reported that in Cairo, butcher shops are closing because barely anyone can afford to buy meat. The country’s receipt of further credits and loans — including from the IMF and the Gulf States — can hardly be expected to alleviate the situation, as a considerable portion of the money received is channelled straight into servicing its debt.

It is therefore no surprise that Egypt is keen to secure itself a share of the lucrative profits currently possible from the sale of LNG, at any cost — and is even prepared to sell gas that it does not have. In fact, the gas that it plans to export to Europe on a large scale as LNG in the future will to a large extent be sourced from Israel. This constitutes another part of the deal — in contrast to Egypt, Israel has gas that it would like to export, but no terminals with which to liquefy it.

A Tumultuous History

Israel, Egypt, and gas: all three form part of a long and tumultuous history. In the beginning, Egypt exported gas to Israel, with the latter long dependent on imports because it lacked its own resources; its energy production was predominantly reliant on coal and oil until the end of the 1990s, when the government opted to make the change to the more environmentally friendly and less noxious natural gas.

In 2005, the Israeli government struck a deal with Hosni Mubarak, the Egyptian president at the time, in which Egypt, endowed with ample oil and gas reserves, agreed to provide Israel with 1.7 billion cubic metres of gas every year for the next 20 years. Constructed for this very purpose, the Arish–Ashkelon pipeline became operational in 2008, and in the years that followed, Israel used it to procure 40 percent of its gas supply — until 2011.

The gas deal with Israel was a hot topic during the Egyptian revolution that began in January 2011 and that ultimately resulted in Mubarak’s overthrow. Not only was the founder of the private company East Mediterranean Gas (EMG), which carried out the exports, a close associate of President Mubarak, and the deal found to have been brokered under corrupt conditions, but the fact that (according to reports published in the wake of the revolution) Israel had been paying only a fraction of the global market price for the gas they received was a cause of great resentment among the protesters.

Although the thirst for gas constitutes a step towards peace in the aforementioned instance, in other parts of the world it threatens to incite new conflicts.

The pipeline was attacked several times in the months that followed, repeatedly disrupting gas supplies to Israel, and in 2012, Egypt’s transitional government opted to terminate the deal. Within a few months, the Texas-based company Excelerate Energy had constructed a floating LNG terminal off the Israeli coast, allowing Israel to make up for the shortfall in gas supplies using LNG.

Meanwhile, in Egypt, revenue generated by the production of natural gas plummeted in the years that followed, both due to the politically turbulent situation and lack of investment, but also because the continued exploitation of the gas deposits off the Israeli coast was leading to their exhaustion. A number of observers viewed the recurring energy and supply crises as one of the factors that led to the rapid downfall of the Muslim Brotherhood member Mohamed Morsi, who was elected to the presidency in 2012. In an essay penned in 2022, journalist and author Omar Robert Hamilton writes that El-Sisi understood this and consequently did everything in his power to prevent the same fate from befalling him.

In the wake of a severe power outage in 2015 that paralysed large sections of Cairo, including the city’s metro system, he declared energy provision a matter of utmost priority: Egypt’s energy supply would be safeguarded at all costs. The 2015 discovery of the Zohr gas field — the largest gas field to have been discovered in the Mediterranean at the time — off the Egyptian coast by the Italian energy company ENI only provided a limited degree of relief. Since then, the volume of gas produced has once again increased — but demand has risen even more rapidly thanks to Egypt’s ongoing explosive population growth and the concomitant increase in energy consumption.

Renewable energies still do not play a significant role in the country’s energy infrastructure, despite the existence of several flagship projects: in 2021, solar power constituted only 2.4 percent of all energy production, wind power for 2 percent, and over 70 percent of all energy was produced using gas. Imports have therefore been essential — and these largely come from Israel.

In the intervening period, ever more gas fields have been discovered off the Israeli coast. By 2013, Israel was able to meet its own demand for natural gas and subsequently began to export gas in ever-increasing quantities. In 2018, Egypt signed a contract to be supplied gas, with deliveries commencing in 2020. The Arish–Ashkelon pipeline, which was constructed in order to deliver gas from Egypt to Israel, has since returned to operation, and now supplies gas from Israel to Egypt.

LNG from Imported Gas

The demand for gas in Europe rose sharply in the wake of Russia’s attack on Ukraine, upending energy relations in the Eastern Mediterranean region — and generating a very real hype surrounding gas. In it, Egypt identified an opportunity to acquire an additional source of foreign currency.

In June 2022, Ursula von der Leyen, president of the European Commission, met with Egyptian president el-Sisi to sign an agreement pertaining to an energy partnership which was subsequently confirmed at COP27 in November. On its face, the agreement is concerned with a sustainable energy transition and long-term green hydrogen, but what lies at its core is something else entirely: Egypt will be providing Europe with the LNG it so desperately needs. Israel is also involved in the partnership and will supply gas via the pipeline.

In 2022, Egyptian LNG exports increased by 14 percent to 8 billion cubic metres, the majority of which was sent to Europe. Egypt is also doing everything in its power to be able to further increase these export volumes — despite concerns that even at the current export level, gas reserves will not be sufficient to meet domestic demand, and that further increasing the country’s export volume could lead to another energy crises.

At a ministerial meeting held in August 2022, two months after he signing the agreement with the EU, Egyptian prime minister Mostafa Madbouly announced a plan to rationalize electricity consumption in the country in both the public and private sectors in order to be able to prioritize the use of gas for export in future. As a result, an increasing number of power plants in Egypt are now being run on oil instead of gas, because higher prices can be obtained for gas exports than for oil — something that makes economic sense, but is disastrous in terms of being able to meet climate targets.

In addition to this, Egypt is also desperately searching for new gas fields. In December, it announced that it would be granting new licences for the exploration of gas and oil deposits; by January, the companies in question — the US energy giant Chevron, the Italian group ENI, and the German company Wintershall Dea — had already reported that they had discovered further gas fields off the coast of Egypt.

Gas Hype in the Mediterranean

The question of whether Egypt will actually be able to supply LNG in the volume Europe requires will therefore also depend on Israel — a country where the EU’s gas crisis has also prompted something of a political U-turn.

In December 2021, Karine Elharrar, the energy minister at the time, declared that Israel would not be issuing any new licences for gas exploration, and that the country instead planned to concentrate its efforts on expanding its renewable energy programme. Shortly after Russia launched its attack on Ukraine, the government reversed its position, and after signing the agreement with the EU, the very same minister boasted that Israel had now become a “significant player in the global energy market”. Now, instead of investment in renewable energies, huge sums of money are once again being channelled into the gas sector — a sector that had seen minimal investment in the preceding years due to the low prices.

Like all the other incendiary gas production projects in the Eastern Mediterranean region, EastMed would also constitute a disastrous move for climate protection efforts.

Since the change in government position, large energy companies have been drilling to find further gas deposits off the Israeli coast. The operators of Israel’s Leviathan gas field — the largest in the country —, including NewMed, Chevron, and Ratio Energies, have announced plans to invest a further $US100 million into expanding production, which may well involve the construction of a floating LNG terminal that could begin to deliver liquefied natural gas in approximately three years’ time.

High gas prices, combined with the urgency with which the EU is attempting to source potential suppliers, have rendered the search for new gas deposits so appealing that it has even facilitated the immediate resolution of decades-old conflicts. In October 2022, following 12 years of negotiations, Israel and Lebanon made a surprise announcement pertaining to an historic agreement about a maritime border, given that the two countries have effectively been at war with one another since 1948.

But gas reserves are located underneath the disputed coastal strip, and the two countries will only be able to access these once the border has been properly determined. Before the agreement had even been officially confirmed, Lebanon’s interim president Najib Mikati was already urging the French company Total Energies, to whom the country awarded an exploration license in 2018, to launch gas exploration and production in the field as soon as possible.

Conflict-Ridden Plans

Although the thirst for gas constitutes a step towards peace in the aforementioned instance, in other parts of the world it threatens to incite new conflicts.

The gas crisis in the EU has imbued the EastMed project with renewed impetus — a project that had previously been written off and that involves the construction of an undersea pipeline that would deliver gas from offshore fields in Israeli waters via Cyprus and Greece to the EU over a distance of 2,000 kilometres and at a maximum depth of 3,000 metres. Israel, Cyprus, and Greece had signed an agreement to build the pipeline back in 2020. But following the withdrawal of US support for the project at the end of 2021 — a move most likely made in order not to jeopardize rapprochement with Turkey, which is strongly opposed to the project — it was widely assumed to be defunct.

The EU had been critical of the project from the outset due to its estimated construction cost of 7 billion euro and the lengthy construction period that was projected to last up to ten years. In spite of this, however, it is now back on the European Commission’s proposed list of strategically significant infrastructure projects (Projects of Common Interest, PCI). This is certainly not a positive omen for peace in the Mediterranean. The project is hotly disputed in the region and would pass through waters that are simultaneously claimed by Turkey, Greece, and Cyprus, with the conflict over who has sovereignty in these regions very nearly coming to a head in 2020.

Like all the other incendiary gas production projects in the Eastern Mediterranean region, EastMed would also constitute a disastrous move for climate protection efforts: instead of fostering — under the guise of energy partnerships — the development of long-term infrastructure in its neighbouring countries for the purpose of exporting fossil fuels, the EU urgently needs to instigate a proper transformation of its own energy systems — and support its neighbours to do the same.