How is Egypt Seeking to Become the Energy Hub in the Middle East?

The Middle East Institute (MEI) published an article by Karim Elgendy, an urban sustainability and climate consultant, in which he tried to highlight how Egypt became an energy hub in the eastern Mediterranean.

At the beginning of his article, the author notes that on June 17, the EU signed a memorandum of understanding with Egypt and "Israel," allowing the latter to expand its natural gas exports to Europe via Egypt.

The European Union agreed with Egypt to increase cooperation in the areas of renewable energy and hydrogen, energy efficiency, and the development of electricity conductors across the Mediterranean. Ursula von der Leyen, president of the European Commission, described the agreement as an important step forward "for Egypt to become a regional energy hub."

 

Gas Hub

The writer explains that Egypt's energy wealth change began in 2015 when the Italian oil company Eni discovered the Zohr natural gas field in Egypt's exclusive economic zone.

Zohr is the largest gas field in the eastern Mediterranean region, with reserves estimated at 850 billion cubic meters of gas, equivalent to 15 years of domestic consumption in Egypt at the 2020 consumption rate.

This development was a game changer for regional countries, which discovered gas in their exclusive economic zones. Without gas export infrastructure, "Israel" and Cyprus have begun to consider using Egyptian coast liquefaction facilities and pipeline infrastructure to transport their LNG production abroad.

Egypt established a natural gas liquefaction infrastructure nearly two decades ago in anticipation of its long-term exports. Still, when production declined, these facilities remained unused for years.

Cairo took the opportunity to become a gas hub in the region by signing a bilateral agreement in 2019 to import 85 billion cubic meters of Israeli gas over 15 years through a pipeline established in 2008 dedicated to exporting Egyptian gas to "Israel."

Israeli gas began to flow in 2020, with Egypt's liquefied natural gas (LNG) exports reaching their highest level in 10 years.

Egypt has overtaken regional competitors by exploiting geopolitical fault lines. It benefited from tensions between Turkiye and "Israel," Cyprus and Greece, and co-founded the Eastern Mediterranean Gas Forum with the three countries, which aimed to create a regional gas market, rationalize infrastructure costs and provide competitive prices.

The author points out that the Eastern Mediterranean Gas Forum project was initially aimed at building an underwater eastern Mediterranean pipeline, connecting Israeli and Cypriot gas fields to Cyprus, Greece, and then to the rest of Europe. But the project was halted in 2021 due to technical and commercial feasibility and the withdrawal of U.S. support.

 

Blockage Points

The author points out that production of the Zohr Field was lower than expected, and new offshore exploration is slowing down; if recent planned exploration does not prove more successful, Egyptian offshore gas consumption may continue at home.

Therefore, beyond the short term, Egypt appears ready to rely on the re-export of gas imported from its regional neighbors, allowing it to profit only from transit and liquefaction fees. Egypt reserved the right to use Israeli gas imports domestically if its demand increased.

In order to maximize its profits, Cairo has reached an agreement with Cyprus to build a new pipeline linking Cyprus gas fields to Egypt

Egypt has also proposed the construction of new pipelines linking the Israeli Leviathan field directly to Egypt, as well as linking Egypt to the Greek island of Crete across the borders of the Exclusive Economic Zone.

In the medium and long term, however, Egypt faces the challenges that parts of the world are shifting to abandoning fossil fuels.

The tripartite agreement (Europe, Egypt, and "Israel") has therefore been set at a maximum of five years, in line with EU plans to use 30% less gas by 2030.

 

Green and Blue Hydrogen

The author notes that Egypt has a number of energy export options, and its plans are not limited to gas only. Over the past years, the country has doubled its electricity generation capacity to 59 GW.

This huge reserve capacity allows Egypt to expand gas-fired electricity generation for export rapidly. Potential electricity importers include Libya, Sudan, and Jordan through existing connectivity networks, Greece via planned cables, Cyprus via European–African connectivity networks under construction, as well as the construction of a network between Egypt and Saudi Arabia.

Egypt also has the potential to expand its renewable capacity by more than 6 GW of the current modest generation capacity. Such expansion could allow green electricity to be exported to European markets through planned cables, as well as green hydrogen production for export.

Egypt has already signed a number of agreements with foreign investors to develop green hydrogen and green ammonia production facilities near the Suez Canal.

Some are expected to be operational before the end of this year by converting green electricity from existing renewable energy sources to operate over the national grid.

Imported natural gas can be used to make up for the shortage, but this means that renewable energy sources will represent a smaller share of Egypt's electricity grid.

In addition to green hydrogen, Cairo is also exploring the potential of blue hydrogen, converting natural gas into hydrogen and injecting carbon trapped in oil and gas fields for storage, the author adds.

Egypt is currently considering ways in which it can implement carbon capture and storage strategies. Egypt's geographical location has been a key factor in its emergence as an energy hub, with 12% of seaborne shipments passing through the Suez Canal, making Egypt an important hub in the growing hydrogen and ammonia markets.

"Cairo can work to mitigate the effects of climate change if it receives guaranteed, adequate and sustainable funding," said a senior Egyptian official.

Therefore, while Egypt's emergence as a regional energy hub makes it a reluctant partner in decarbonization, the Government is also aware that the transition is well underway and thus balances its bets.

At the COP 27 climate summit in Sharm el-Sheikh in November, Egypt is expected to highlight solar and wind farms, energy efficiency initiatives, and green hydrogen projects to present its green credentials and attract foreign investment to these sectors, providing an opportunity to push Egypt towards low-carbon energy sources.