Egypt has clear potential to become an energy trading and export hub, notably for natural gas, according to a report by BNP Paribas (pdf) that suggests Egypt’s bid to transform itself into a hub will depend on the country’s capacity to mitigate geopolitical, financial, and regulatory risks.

BNP Paribas says “Egypt’s bid to become a regional energy hub is built on three pillars: strategic location on key trade routes, proximity to resource-rich countries with relatively saturated domestic markets, and advanced export infrastructure. This last factor, in our view, is the defining pillar of Egypt’s regional hub strategy.”

The hub would include trading and export activities: “The trading dimension positions Egypt as a deep and open gas market where sellers and buyers transact freely under efficient regulatory conditions… The second dimension positions Egypt as a gas export hub not only for its own surplus domestic production, but also for the excess output of other East Med basin countries… Egypt’s existing LNG terminals on the two flanks of Nile Delta seem to be the answer to the East Med gas surplus question.”

The bank sees three constraints on the development of the Egyptian gas hub. First is the geopolitical sensitivity between Egypt and Israel on the one hand and Cyprus and Turkey on the other, which could derail development. The second constraint is the limited financial capacity to invest in a regional hub strategy, that would require changes in EGPC and regional cooperation and a willingness to pay for subsea pipelines that require large capex outlays. A third constraint to regional energy integration is regulatory uncertainty in host countries as, unlike the stable regulatory regime in Egypt, “upstream regulation has proved to be cumbersome in Israel and, at least, untested in Cyprus.”