AnalysisWar in Gaza highlights Egypt's energy dependence on Israel
War in Gaza highlights Egypt's energy dependence on Israel
The suspension of activity at the Tamar Gas Field due to the war led to an 80% drop in gas exports to Egypt, which needs it both for energy production and for the foreign exchange it earns from its liquefaction and sale. Even if it appears that the war damaged relations between the countries, Egypt still needs Israel
Despite the publicized crisis between Jerusalem and Cairo created by the war in Gaza, under the surface, Israel is an important economic partner for Egypt in one of its most difficult periods. A severe shortage of dollars that has led to a drop in the value of the Egyptian pound and rapid inflation are some of the signs of this crisis.
Earlier this week, an Egyptian government official was quoted as saying that the quantities of natural gas supplied from Israel these days exceed the quantities that flowed from Israel before October 7th. The official noted that since the beginning of the month there has been a 15% increase in the quantities supplied from Israel compared to December 2023. According to the same Egyptian source, Israel currently supplies the Egyptian market with approximately 1.15 billion cubic feet of natural gas per day. This amount helps Egypt to obtain income in hard currency since Cairo directs part of the Israeli gas to the local market and exports part to Europe after liquefaction.
The war that broke out between Israel and Hamas on October 7 directly affected the Egyptian gas economy, which depends on Israel. This dependence has intensified in the last year partly due to the decrease in the local production of gas from the Egyptian fields, including the giant Zohr Field.
Gas imports fell sharply in October due to the suspension of gas production from the Tamar Field and reached about 150 million cubic feet per day according to sources in Cairo. From November, there has been a gradual increase in exports from Israel. At the beginning of November it was reported that Israel exports to Egypt about 350 million cubic feet per day, when towards the end of that month the amount increased to 850 million cubic feet per day. It should be noted that before the war, Egypt imported an average of 900 million cubic feet of Israeli gas per day.
Along with foreign exchange income from the tourism sector and the Suez Canal, natural gas exports from Egypt have become a significant source of foreign exchange. The export of liquefied gas, which is directed mainly to European countries, amounted to about 3 million tons during the first half of 2023, according to data provided by the Egyptian Minister of Oil, Tarek El-Molla, during October 2023. He estimated that the exported quantities will not decrease in the first half of this year and for his prediction to come true Egypt will have to rely on Israel.
2022 was a record year in terms of Egypt's natural gas exports, both quantitatively and financially, since it benefited from the increase in gas prices in global markets following the war in Ukraine. In 2022, the export amounted to 8 million tons, which brought in $8.4 billion for Egypt.
Things started to go wrong for Egypt last summer, when it was forced to announce the cessation of gas exports due to a crisis in the supply of electricity in the local market. According to some claims, the authorities in Egypt preferred to export gas to Europe in order to increase revenues than to direct it to the local market, and when the summer season arrived and the demand for electricity in Egypt increased due to the heat waves, the Egyptian electricity sector struggled with shortages. The government was forced to announce self-imposed power outages for hours, infuriating millions of Egyptians.
The close relationship between Israel and Egypt even during the war in Gaza is reflected in another aspect related to the energy sector: in 2019, Egypt reached an agreement with Israel according to which it would compensate the Electric Company in the amount of $500 million due to the collapse of the gas supply agreement from Egypt to Israel in 2011. About a week ago it was reported that Israel temporarily waived Egypt’s payment of a debt of $30 million as part of the agreement. The war in Gaza resulted in severe damage to Egypt's income generated from both tourism and the Suez Canal. In view of the difficulties and in view of the coordination between Israel and Egypt in these challenging days, Israel made a gesture towards Cairo and allowed it to postpone the payment until the conditions improve.