Eastern Mediterranean gas market challenged by Covid-19 demand shock

GlobalData Energy 19 October 2020 (Last Updated October 20th, 2020 12:41)

Eastern Mediterranean gas market challenged by Covid-19 demand shock

The first half of 2020 has punished Eastern Mediterranean gas producers as Covid-19-related impacts have reduced domestic gas demand and crippled liquefied natural gas (LNG) spot prices. The two factors combined have forced operators to reduce gas output from the major gas fields in the region in the first half of 2020 and Covid-19 is forecast to stunt gas demand growth.

East Med gas output is on track to be driven higher in 2021 provided LNG prices recover and domestic demand improves. Growth is expected as new developments commence and producing fields fill capacity, but the lack of export capacity and weakened regional demand imply that output will need to be constrained at least in the near term. The longer-term implications of Covid-19 are expected to stifle gas demand growth for power generation. This will be compounded by accelerated growth in renewables, which will take an increasing share of the power mix.

Egyptian gas demand and production is forecast to drop in 2020 because of a particularly weak first half of the year. The major offshore gas developments Zohr and West Nile Delta were forced to reduce output as domestic demand waned and LNG prices tumbled. As a result, LNG exports out of Egypt ceased entirely throughout April, May and June.

Egyptian gas demand is estimated to fall 4% in 2020 as gas consumption for power generation declines. Over 50% of the country’s gas consumption is used for power generation and Covid-19 has stifled consumption growth projections. The impacts are further compounded as renewables continue to take a share of the Egyptian power mix.

Both Israel and Jordan are expected to see slower gas demand in 2020, just as Jordan commenced gas pipeline imports from the Israeli Leviathan field that started producing at the end of 2019. Jordan’s gas consumption for power generation is due to decline further out to 2025 as solar and wind increase their share in the power mix. On the other hand, Israel’s gas consumption is due to rise, largely thanks to the significant gas resources discovered and the country’s ambitions of more gas for power generation. Offshore Israeli fields Karish and Leviathan will bring substantial gas output growth, but production may need to be constrained due to lack of export capacity and weaker than expected regional demand. The abundance of indigenous gas production will allow Israel to move away from coal, which currently contributes approximately 30% of the country’s power generation.