(The opinions expressed here are those of the author, a

columnist for Reuters)

*

Israel halted gas exports to Egypt after start of war with

Iran

*

Exports were resumed on June 23, but highlight Egypt's gas

supply challenges

*

Egypt gas production declined sharply in recent years,

unlikely

to recover soon

By Ron Bousso

LONDON, June 30 - Egypt was one of the biggest economic

losers of the Middle East's 12-day war after Israel shut down

vital natural gas exports to its neighbour.

The gas pipeline linking the two countries was turned back

on after Israel and Iran agreed to U.S. President Donald Trump's

ceasefire on June 23, but the episode highlights Egypt's

vulnerability and fading hopes that the Eastern Mediterranean

could become a major gas exporting region.

The discovery and development of enormous offshore gas

resources near Egypt, Israel and Cyprus in the 2000s has

radically transformed the region's energy landscape, turning the

region into a major production hub and attracting international

energy companies.

The surge in production was a huge boon for Egypt in

particular. The discovery in 2015 of the Zohr field, the biggest

gas deposit in the eastern Mediterranean, and its rapid

development by 2017 offered Egypt critical energy for its

domestic market as well as vital income from exports of

liquefied natural gas (LNG), which reached 7 million tons in

2022, nearly 2% of global supply, according to data from

analytics firm Kpler.

But things started to go awry for Egypt early this decade

when production began declining rapidly, particularly in the

flagship Zohr field. The country's output dropped from a peak of

over 6 billion cubic feet per day (bcf/d) in early 2021 to 3.5

bcf/d by April 2025, according to JODI data.

Production is expected to average 4.4 to 4.6 bcf/d this

year, according to Martin Sherriff, an analyst at consultancy

Welligence Energy Analytics. It is, however, unlikely to

increase significantly in the coming years given the country's

limited offshore gas exploration success in recent years, he

added.

Egypt's energy woes were compounded by the rapid growth in

its population from 100 million in 2015 to 115 million by 2023.

With domestic production insufficient to meet the population's

needs, Egypt in 2020 started to import gas from Israel, which

had also saw a surge in gas production last decade following the

discovery of a number of big offshore resources. Israel's

production rose by over 70% in the decade to 2024 to 2.5 bcf/d,

with around half of the volume exported to neighbouring Egypt

and Jordan, according to government data.

The sharp production decline also led Egypt to resume LNG

imports in 2024 for the first time since 2018. Egypt is expected

to import up to 160 LNG cargoes this year and next at far higher

prices than what it can produce domestically or import from

Israel, where export pipelines are already at full capacity.

WAR CASUALTY

The recent war between Israel and Iran put a harsh spotlight

on Egypt's energy vulnerability.

Israel and Egypt, neighbouring countries who signed a peace

agreement in 1979 after decades of intermittent conflict, saw

their inter-dependency tighten significantly as the gas trade

between them developed.

These gas flows were largely uninterrupted following the

outbreak of violence in the region on October 7, 2023. But that

changed on June 13 when Israel halted operations at two of its

three offshore gas fields, Leviathan and Karish, hours after it

launched a surprise wave of airstrikes against Iran, leading to

the suspension of natural gas exports.

Egypt imported over 0.9 bcf/d from Israel in the first four

months of 2025, around 17% of the former's gross observed

consumption, according to Jodi data.

So the drop in Israel gas deliveries just as demand for

power was nearing its summer demand peak threatened to deal a

harsh blow to Egypt's economy.

Egyptian fertilizers producers were forced to shut down

operations as part of a government emergency plan to deal with

the drop in Israeli gas supplies. The country's power plants

ramped up the use of fuel oil to the maximum level while others

switched to diesel to protect the stability of the grid in a

country that has experienced huge blackouts in recent years.

A back of the envelope calculation suggested that for each

week of disruption to Israeli gas imports, Egypt would have

needed to buy an extra two LNG cargoes or find alternative fuel

sources.

RISING RELIANCE

Thankfully for Cairo, Israel resumed gas exports to Egypt on

June 25. But this hardly solves Egypt's underlying problems.

It is true that energy majors including BP, Exxon Mobil ( XOM ),

Shell and Chevron ( CVX ) continue to explore for new gas resources in

Egypt, which, if located, could help offset the natural decline

in its current fields.

Israeli gas exports to Egypt could increase when the

Chevron ( CVX )-operated Leviathan field expands production to 14 bcm in

2026 from 12 bcm today, although delays in the expansion of

pipeline capacity between the two countries could impede that

expansion.

But, for now, the country's natural gas production faces a

grim outlook. Meanwhile, the nation is also struggling with

sluggish growth and a significant loss of revenue from Suez

Canal transit fees, as many ship operators have diverted vessels

away from the Red Sea due to attacks by Iran-backed Houthi

rebels in Yemen since 2023.

And taking a broader regional perspective, the decline of

Egypt's gas industry is dashing hopes that the Eastern

Mediterranean will become a major LNG exporting hub in the

coming years.

Enjoying this column? Check out Reuters Open Interest (ROI),your

essential new source for global financial commentary. ROI

delivers thought-provoking, data-driven analysis. Markets are

moving faster than ever. ROI can help you keep up. Follow ROI on

LinkedIn and X.

(Writing by Ron Bousso; editing by David Evans)