An existing high dependency on gas for power and export wealth combines with the producers’ neighbours’ long term historic power issues, growing energy demand and political tensions to form a powderkeg that could create or destroy wealth in the region. There is also an observable, significant discrepancy between the nations that are able to process their gas and those that are not, defined by political unrest.

In the Middle East, Qatar and Iran remain dominant gas producers, with Saudi Arabia in a comfortable third position with its oil by-products. All three nations are stable participants in the hydrocarbon market, though only Qatar has made investment into LNG production a priority. Iran’s recent political struggles have ensured wary eyes are kept on the country.

In northern Africa, Algeria and Egypt are both leaning on increasing domestic gas supply over the mid-term. Algeria’s wealth has been traditionally bound up in gas exports over the Mediterranean to Europe via pipeline or LNG, and the country has profited massively from higher prices caused by the war in Ukraine. Libya’s NOC may increase its gas exports after a deal with Italy’s Eni in January, but LNG remains out of reach.

Egypt, on the other hand, is desperately exploring its offshore waters in the hopes of securing energy independence. The country has the potential grow its political power in the region with its ability to supply Lebanon and Jordan, both long term energy importers, as well as increase its LNG production.

The Middle East & North Africa region remains heavily disrupted by war, with Syria, and Yemen’s conflict throughout the 2010’s crippling their hydrocarbon industries. Yemen’s civil war continues to suppress its nascent LNG industry, with little sign the conflict will end any time soon.

An economically struggling Lebanon has been offered a hand from on high with an agreement between TotalEnergies, Eni and Qatar Energy to drill in Blocks 4 and 9 in its offshore waters. While exploration will take some time, positive results from Israel, Egypt and Cyprus have all been found in recent years. QatarEnergy has been moving to increase its eastern Mediterranean footprint after taking non-operational stakes in Cyprus and Egypt’s discoveries in partnership with ExxonMobil.

Algeria’s Hydrocarbon Dependence

Algeria’s LNG exports amount to 15Mtpa in 2022, flat year-on-year. LNG’s increasing importance in Europe will keep LNG exports steady out to 2040 despite increasing Algeria’s pipeline exports to Europe generally and Italy specifically.

Like Egypt, increasing domestic demand is decreasing enthusiasm for LNG, but LNG’s high pricing and profitability has kept exports high. Hydrocarbon trade comprises 98% of Algerian exports by value and is almost singlehandedly keeping the nation’s trade balance in the black in 2022, having been over US$3bn in deficit until mid-2021.

Ongoing exploration in Algeria by state oil and gas company Sonatrach has been steady, with diligent controlled spending by the government leading to successfully expanding its already sizable reserves. In mid-2022, reserves at the newly discovered Hassi R’mel field in the Sahara were estimated at between 100-340bcm of gas and condensate, adding another 10% to Algeria’s national gas reserves of around 2.4Tcm.

Sonatrach’s production is increasingly focused on pipeline exports, particularly given the recently signed deals with Italy to put in a new subsea pipeline across the Mediterranean. The pipelines will be reducing the share of gas exports from the nation’s two LNG facilities, unless Sontrach puts in an unlikely effort into development of LNG production and exports.

Algeria is a key component of Europe’s hydrocarbon mix, supplying around 11% of the gas consumed in Europe historically. However, Algeria’s climate goals are minimal, largely stemming from a 7-22% reduction in emissions by 2030 announced in 2015.

As Europe’s Carbon Border Adjustment Mechanism (CBAM) approaches, however, there may be stronger pressure on the country to invest in decarbonising its exports, particularly from the energy-intensive LNG facilities.

Egypt’s Supply Struggle

Egypt’s LNG production for 2022 is 7.2Mt after reduced production from Damietta in the second half of the year. It is expected to grow to around 11.3Mt in 2025 as new discoveries in the eastern Mediterranean continue to improve the production outlook. There are ongoing negotiations for additional gas supplies from Israel to restore the nation’s LNG production.

Increasing domestic demand decreased LNG exports up to 2020 before new gas field discoveries in the eastern Mediterranean restored supply in the short term. The country has also been supplying its neighbours via pipeline gas through the Arab pipeline and expects to heavily support Lebanon’s energy market in 2023.

Egypt is highly invested in the gas sector as Africa’s second largest gas producer. It was also 2022’s host of the COP27 climate conference. The country is currently scaling up its fossil fuel production and use. While it has reduced use of coal-fired electricity and increased renewable investment, gas is providing the largest share of domestic power growth, which resulted in a long shutdown of one of its LNG plants due to restricted supply. Investment is likely to continue in the country due to its view of fossil gas as a ‘bridging fuel’. The fate of LNG in the country depends heavily on the ability to find gas for export and domestic uses.

With the development of the Leviathan field offshore Israel and the calming of tensions over the Qana and Karish gas fields, Israel is entering the local gas market as a supplier. The increased availability of gas has enabled Egypt’s Idku plant to begin exports as LNG, with a trilateral memorandum signed between Israel, Egypt and the European Commission to secure additional supply from the middle of 2022.

Short vessel transit times and an increasing availability of LNG regasification terminals in the Mediterranean are improving the profitability of the plants and both Idku and Damietta are expected to have a long future.

Gulf Dominance Continues

Qatar’s position as local king of the LNG hill is secure as it competes with the US over the next five to ten years for title of largest LNG producer. The development of the 48Mtpa North Field expansions is supported by a networked equity of majors, securely controlled by Qatar Energy.

Gas production in the country will need to expand slightly to support the growth, but the already large capacity means minimal impacts from a supply perspective. The additional LNG is expected to help supply Europe and southern Asia in the medium to long term.

Likewise, Iran and Saudi Arabia continue to dominate their respective hydrocarbon production markets, with energy turbulence over 2022 leaving the major producers production rates largely unmoved, despite ineffectual shifts in OPEC+ production targets.

Iran’s political turbulence at the end of 2022 and early 2023 has not yet begun to impact their industry, but a significant political shift later in the year could eventually see Iran entering the market as an exporter in the long term.

The partly built Iran LNG has been in limbo since 2012, and a new surge of interest in small LNG facilities has been spurred by high prices. With Iran sharing access to the gigantic South Pars/North Field with Qatar, rapid development into the LNG space is not out of the question if government changes hands.