Egypt Struggles to Pay for Oil, Liquefied Natural Gas Supplies Amid Currency Crisis

Shortage of foreign cash comes as Israel authorizes Tamar partners to export 5 bcm of gas over next seven years to its Mediterranean neighbor.

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A growing share of Israel's electricity is produced from natural gas from the Tamar gas field off the Mediterranean coast. Credit: Albatross Aerial Perspective

Egypt, which Israel is counting on as a major export market for its natural gas, is struggling to pay for U.S.-dollar-priced oil product and liquefied natural gas (LNG) imports, canceling purchases and asking suppliers to extend payment terms amid an acute foreign currency crisis, industry sources said.

Egypt, which depends on oil and gas imports, has faced a sharper decline in foreign currency receipts since the Russian airliner disaster last October, which has hit tourism, while low oil prices limit aid from Gulf allies, banking and trade sources said.

The sources said Egypt has asked oil and LNG suppliers to extend payment terms to 90 days after delivery earlier this month due to the currency crisis.

Weaker tourism sector

According to existing arrangements, Egypt is obliged to pay for LNG imports 15 days after a cargo unloads. “The combination of the weaker tourism sector, along with low oil prices tightening the budgets of Gulf Cooperation Council countries who have traditionally helped Egypt pay for commodities, is hitting foreign currency reserves,” a banking source said.

“These elements and the central bank’s wish not to close the year while depleting the levels of reserves triggered the request [to extend payment terms],” he said.

The cash crunch come as Israeli Energy Minister Yuval Steinitz gave the go-ahead on Tuesday to begin exporting natural gas to Egypt, authorizing the sale of five billion cubic meters of gas to Egypt over the next seven years from the Tamar offshore field.

Earlier this year, the Tamar partners signed a seven-year deal for Egypt’s Dolphinus Holdings, which represents nongovernmental, industrial and commercial consumers, to buy at least $1.2 billion of natural gas in a deal that calls for a minimum of 5 bcm of gas to be sold in the first three years.

Israel faces other obstacle to exporting gas to Egypt, among them the discovery in August of a vast reserve of natural gas in its Zohr offshore field Egypt and Cairo’s suspension of talks on or approval of gas imports with Israel.

That decision was made to protest an international arbitrator’s award of $1.8 billion to Israel Electric Corporation, after Egypt rescinded an agreement to export its gas to Israel.

Egypt’s cash crunch creates an additional new obstacle. Short of dollars, Egypt recently canceled the purchase of six gas-oil cargos scheduled for early January, oil market sources said.

“Those who can handle it will consider the extended payment,” one oil trader said.

Payment delays have created a logjam of cargo outside Egyptian ports, including at least six clean and three dirty product cargos.

A source familiar with the matter estimated that Egypt is late in paying around $350 million to LNG suppliers.

“There’s a possibility that some suppliers will not be accommodating and will walk away,” he said, although LNG suppliers surveyed by Reuters denied they had any such intention.

Major new market

Egypt imports around six to eight cargos of LNG per month, valued at around $20 million to $25 million per cargo.

Its suppliers include BP, Shell, Gas Natural, Trafigura, Vitol, EDF Trading, PetroChina and Noble Energy.

Egypt has emerged as a major new market for LNG as the government looks to ease the worst energy crunch in decades.

Falling output and rising demand have transformed the country from an oil and gas exporter to net importer.

Meanwhile, last Wednesday Egypt’s General Authority for Supply Commodities said it had changed the terms of payment for wheat purchased in its tenders.

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