Daily Energy Report
Egypt LNG exports, IEA and OPEC reports, Saudi Arabia vs. Russia, US SPR, Russian oil exports, the energy transition and more
Chart of the Day: Not all LNG exports are sustainable.
Figure (1) above compares Egypt’s LNG exports in the first half of 2013 with the same period in 2022. It shows that in 2023 exports are lower and declining.
Since the beginning of 2023, Cairo has made efforts to sustain LNG exports in its endeavor to gain foreign currency from its spot gas sales. According to ship tracking data compiled by the EOA, during the first half of 2023, LNG exports declined to 2.9 million tons from 3.9 million tons in 2022, a drop of 25% year-on-year as shown in Figure (1) above. Monthly LNG export volumes in May dropped to 350,000 tons with only six cargoes being loaded (five cargoes from the Damietta plant and one cargo from Idku plant). Meanwhile, no LNG cargoes were loaded at Damietta or Idku LNG plants in June, a sign that Egypt has failed to sustain LNG exports.
In an interview with Sky News Arabia, Egypt’s Minister of Petroleum and Mineral Resources, Tarek El Molla, attributed the fall in Egypt’s LNG exports to lower spot gas prices since the beginning of 2023 which have made fuel oil more expensive to burn in the local power sector than natural gas. Consequently, the relevant Egyptian authorities had to switch to natural gas to run the power plants and save costs. El Molla also indicated that gas export revenues jumped in 2022 when gas prices were 25-30 $/mmbtu on average, but he predicted a 50% drop in this year’s revenues due to low spot gas prices which slumped to $10 per mmbtu on average since the beginning of 2023.
EOA’s Main Takeaway
The EOA understands that the fall in Egypt’s gas output and the rise in domestic demand during the summer season are also key factors behind the dramatic drop in LNG exports. Zohr, the country’s major gas-producing field, is experiencing lower output, with an annual average of 22.7-23.7 bcm, that’s 11% below last year’s 25.3 bcm annual average, and 30% below its production capacity of 33 bcm/year. The lower gas output has affected the gas production/consumption balance leaving little volume for gas exports.
Politics and economics brought additional LNG supplies to the market in 2022 with some countries marketing themselves as an alternative to Russian gas. They proposed new LNG projects and natural gas pipelines. Many of these projects are unsustainable and others are pipedreams. Europe is not out of the wood yet—not even close. Even if it has enough gas supplies, it needs Russian gas on one hand, and gas imports will be concentrated, raising the odds of disruption.
Story of the Day: IEA and OPEC Reports
IEA: IEA’s July Report
OPEC: OPEC’s July Report
The IEA revised down its estimates of global demand growth by 220,000 b/d. Now demand growth stands at 2.2 mb/d and total demand in 2023 at to 102.1 mb/d, the highest ever. The IEA justified the revision by “persistent macroeconomic headwinds, apparent in a deepening manufacturing slump”.
The IEA expects global oil production to increase by 1.6 mb/d to 101.5 mb/d. Non-OPEC production is expected to increase by 1.9 mb/d but OPEC cuts will bring down net production to 1.6 mb/d.
The IEA reported that Russian oil exports declined by 600,000 b/d to 7.3 mb/d in June.
It also reported a substantial increase in global oil inventories in May: an increase of 19.4 mb. This was the result of a 44.2 mb build in non-OECD build-in inventories, mostly in China, while OECD inventories declined marginally and oil on water declined by 23 mb because of OPEC cuts.
While the IEA revised down its estimates, OPEC raised its estimates of the growth of global oil demand by 100,000 b/d to 2.4 mb/d. However, the estimates remain close to each other with OPEC estimates higher by only 200,000 b/d. OPEC justified the upward revision because of higher demand in China and OECD countries.
OPEC predicts non-OPEC production to grow by 1.4 mb/d in 2023. Most of the increase will come from the US (1.08 mb/d), Brazil (340 kbd), Norway (180 kbd), Canada (130 kbd), Kazakhstan (120 kbd), and Guyana (90 kbd).
As for Russia, OPEC expects a decline of 750,000 b/d in 2023.
OPEC reported an increase in OECD commercial inventories by 20.2 mb in May from the previous months to 2,815 mb, but it remains 101 mb lower than the 5-year average.
OPEC reported an increase in its June crude production by 91,000 b/d to 28.189 mb/d. Most of the increase came from Iran (+56 kb/d) and Iraq (54 kb/d). Angola’s production declined by 46,000 b/d.
EOA’s Main Takeaway
We believe demand growth estimates are high. Our estimate of growth in global oil demand is lower than both organizations. OPEC is not as bullish on Chinese oil demand as the IEA, but too much optimism given the production cuts by Saudi Arabia and some of its allies.