UFG, Egypt revive talks to reopen Damietta LNG facility
Could we finally be approaching the end of the Damietta LNG saga? Talks have resumed between Union Fenosa Gas (UFG) and the Madbouly government that could potentially see the Damietta LNG plant reopen after eight years of inactivity, S&P Global reports, citing an Eni spokesperson. After a collapse in negotiations earlier this year, unnamed sources now say that the government has been pushing for “accelerated talks” to bring the facility back online following a five-year legal battle between the government and UFG — the joint venture between Eni and Spanish Naturgy — and a hiatus dating back to 2012 when the gas supply was shut off during political turbulence following the 2011 revolution.
What happened this year? The collapse in what was expected to lead to a breakthrough resolution between Naturgy, Eni, and the Egyptian General Petroleum Corporation (EGPC) came after a number of unspecified conditions outlined in a preliminary agreement in February were unmet. Covid-19 is likely a complicating factor. The agreement would have seen Naturgy exit its joint venture with Eni and pocket USD 600 mn for most of UFG’s assets outside Egypt. Naturgy’s equity in the facility would have seen the remaining three shareholders increase their stakes: Eni would own 50%, state-owned Egyptian Natural Gas Holding Company (EGAS) would take 40%, and EGPC would hold the remaining 10%. The agreement would have also resolved the USD 2 bn arbitration case brought by Naturgy against the government for cutting the gas supply, but the Spanish company U-turned following the collapse of the agreement, saying that it would continue to seek its 50% share of compensation.
The Damietta facility is a key component of our plan to become a regional natural gas hub: Liquefaction facilities at Idku and Damietta are both at the core of the government’s strategy to export LNG to Europe. Their continued closure presents a roadblock to exporting our natural gas bonanza, let alone to maximizing the potential of Israeli natural gas imports and the arrival of Cypriot natural gas from the Aphrodite field in the coming years.
LNG exports have collapsed through the pandemic: Egypt has only completed one LNG shipment since the onset of the pandemic as global spot prices collapsed to record lows of just 1.825/mmbtu in April — well below Egypt’s breakeven cost of just under USD 5/mmBtu. The situation may be finally beginning to abate: LNG price had risen above the breakeven price to 5.39/mmbtu as of 8 October, marking a potential opening for resumed exports. Shell and Total just last week committed to exporting 30 shipments of natural gas from the Idku liquefaction plant in 2021 worth a combined 4.5 mn cbm.