Egypt’s Natural Gas Potential: How ENI’s Orion-1X Could Transform the LNG Landscape

Egypt’s LNG Future Decision Next Month, ENI’s Orion-1X Well Crucial

While European gas markets seem to be in hibernation, with even QatarEnergy deciding to halt its LNG vessels from entering the Red Sea, one of its main potential suppliers is under pressure again. Egypt is still struggling to get its gas sector in order, as local demand is still constraining much-needed LNG export revenues.

Nevertheless, there are signs that the country could be hitting back with a bang if Italian oil and gas major ENI’s offshore drilling results in the coming weeks are as positive as some expect. The Italian major is continuing drilling on the Orion-1X exploration probe, targeting a Cretaceous prospect with a potential of 10 TCF of gas. Egypt’s proven natural gas reserves (2023) are estimated to be around 58.5 TCF.

Orion-1X To Support New LNG Drive?

The Orion-1X well was spudded by Italian oilfield services giant Saipem’s drillship Santorini in 730 meters of water on October 10 in Eni’s North East Hapy Offshore block. If successful, natural gas production on the well is expected within three years. Until now, ENI has invested around $130 million in the project. A successful discovery will give Egypt a much-needed boost, as its economy is still fighting high inflation, while regional developments, such as Gaza, Houthis, or the threat of a regional war, are also affecting government revenues.

Resumption of Egypt LNG Exports Soon?

Optimism, however, is growing, as even ENI’s CEO Claudio Descalzi stated that it is expected that Egypt will restart LNG exports in January. Egypt’s winter demand for natural gas is much lower, as the country uses a lot of natural gas for air-conditioning and power in the summer period, which this year continued much longer than expected.

Egypt is also grappling with the fallout of the Gaza-Hamas conflict with Israel, which has put some pressure on Israeli natural gas deliveries to Egypt, especially after it shut its offshore Tamar field following the Hamas attacks, deterring Egypt from exporting LNG in October. Israel, however, has resumed operations offshore in the last months, while Egypt restarted some LNG deliveries to markets. In 2022, Egypt supplied 4% of Europe’s LNG imports, while 2023 is much lower, around 2%.

Regional Problems Hitting Market Options

At the same time, Egypt’s current regional problems, especially the huge impact on the Suez Canal of the Houthi attacks in the Red Sea, could have some significant repercussions for European markets. If the closure of the Red Sea-Bab El Mandab route continues, Egypt’s potential options to sell and deliver LNG volumes to markets are limited. The risks of Houthis targeting Egyptian LNG vessels going to Asian markets are too high in light of premiums being paid. Potential European buyers could be looking at a buyer’s market opportunity, forcing Egypt to lower price levels even to receive offers.

Suez Canal Revenues Down Puts Pressure On LNG

Egyptian sources have already indicated that Cairo is facing a major downturn in revenue as major shipping lines are diverting their vessels away from the Suez Canal. Looking at the deteriorating situation of the Egyptian economy and the pressure on government budgets, any source of foreign currency will be welcomed. Egypt is looking at debt repayments of around $42.26 billion.

Taking into account the fact that Suez Canal revenues have fallen by 40% in 2024, the pressure is on. In the last fiscal year 2023 (ending June 30), the Suez Canal earned Egypt a record $8.76 billion, and in the third quarter, another $2.40 billion. Additional income is needed; hence, the pressure on Egypt’s LNG exports to resume to full levels soon.

Does Cyprus Kronos’ Success Boost East Med Gas Hub?

At the same time, Cyprus, part of the East Med energy hub approach supported by Israel and Egypt, has reported success on its Kronos 2 offshore gas reservoir, block six in Cyprus’ Exclusive Economic Zone (EEZ). Flaring and lighting up of the flame has started on the field, indicating the existence of natural gas. Initial analysis indicated the potential of a 2.5 TCF reservoir.

For Cyprus, the latter is a boon, as it is the fourth natural gas reservoir to be discovered in block six, after Glafkos, Zeus, and Calypso. Italian major ENI already has described the Calypso reservoir as a “promising discovery” that “shares characteristics” with the 3,765 square kilometer Egyptian Zohr gas field. The field is being shared by ENI and French major Total Energies, both holding 50%.