Analysts warn Israel-Hezbollah war would plunge Egypt into further darkness

Israel would likely suspend production on its key offshore gas fields in the north to protect against potential attacks and would rely upon one operational gas field for domestic consumption only.

“In that case, Israel won’t export at all to Egypt,” said Elai Rettig, assistant professor in energy politics at Bar Ilan University in Israel and senior researcher at the Begin-Sadat Center for Strategic Studies.

“If war starts tomorrow, Cairo is going to be in the dark more than it is currently. Egypt will definitely feel it.”

The looming risk to Egypt shows just how reliant it has become on Israeli gas, only a few short years after a massive offshore discovery gave rise to plans of transforming Egypt into an energy powerhouse.

In the intervening years, increased consumption, poor planning and an economic crisis, along with falling output from Zohr, the field that was discovered, have left Egypt scrambling for gas.

Last July, after nearly a decade of consistent electricity supplies, scheduled two-hour daily power cuts began across Egypt to deal with the energy crisis.

Last month, Prime Minister Mostafa Madbouly announced that this summer’s blackouts would be extended by another hour and that $1.8bn worth of fuel and gas would be imported to stop the power cuts by the end of July.

He pointed blame at a 12-hour outage of a gas field in “a neighbouring country” without elaborating.

But analysts say the problem was not a brief outage in Israel in June, but rather a structural one, years in the making, that has left Israel with significant leverage over Egypt.

Khaled Fouad, an independent energy analyst and researcher, stated that relying on Israeli gas is inevitable for Egypt in the foreseeable future.

“Egypt currently heavily relies on a single source to secure gas supplies, and this source is Israel, a state with a highly complex relationship with us, no matter how much relations improve,” he added.

Rettig said it was “absurd” of Madbouly to blame Israel.

“If it wasn’t for Israel, they’d have much worse blackouts,” he continued, adding, “It’s the only thing keeping lights on in Cairo right now.”

Two decades ago, Egypt was a net gas exporter and it was Egypt that was selling gas to Israel and Jordan, amongst others – often at below market rates.

But by 2015, after years of energy sector mismanagement and political instability, Egypt had become a net importer of gas.

That same year, after the government awarded exploration licences with more attractive terms for investors, Egypt’s fortune turned with the discovery of Zohr, the largest offshore gas field in the Eastern Mediterranean.

“They got lucky in finding Zohr and thought it had solved all of their problems,” said Robin Mills, CEO of Qamar Energy, a UAE-based energy consultancy, and non-resident fellow at Columbia University’s Center on Global Energy Policy.

The field came on-stream quickly and supplied enough gas to allow Egypt to stop importing gas in 2018.

So when Egypt agreed to buy $15bn worth of Israeli gas in the same year, the deal seemed questionable to some.

But discussing the deal publicly, Sisi stressed Egypt had “scored a goal”. This was Egypt’s opportunity to be a regional energy hub.

Using two LNG liquefaction plants and terminals at Idku and Damietta, Egypt could export its own gas and re-export gas from neighbouring countries to Europe and beyond.

In 2022, after Russia invaded Ukraine and European countries were looking for alternatives to Russian gas, Egypt cashed in, exporting $8.4bn in LNG overall, a 140 percent jump from the year before.

But analysts say a combination of factors have put a dampener on Egypt’s energy hub dreams.

For one, Zohr has underperformed, largely as a result of water seepage into the field which had been producing nearly 40 percent of Egypt’s gas output.

Mills said problems with Zohr were “unlucky”. But when it became obvious two years ago that there was a problem, he said the government should have put contingencies in place, including getting prepared much sooner to import gas and pursuing renewable energy projects more aggressively.

There have also been no major gas discoveries since Zohr. Meanwhile, consumption has continued to increase rapidly.

Rettig said energy companies can find it difficult to work in Egypt, one factor which has likely slowed further discoveries.

He added the government has been slow at times to pay off debts owed to firms and also demands low prices for gas produced from its fields.

“I can’t blame them completely because they have 110 million people so they need the gas price to be as cheap as possible.”

“But it’s not always the best market for an energy company to work with. You need to give a lot of promises in advance for them to come to Egypt and make the effort.”

If more operators were “paid more and paid on time”, Mills said more gas would probably be produced.

Israeli gas now accounts for at least 10 percent of Egypt’s annual gas consumption, which includes an increase in the amount of gas exported, agreed last August, Rettig said.

It’s a significant amount considering the context, said Francesco Sassi, research fellow at Ricerche Industriali Energetiche in Bologna.

“The population of Egypt is already suffering from blackouts and the curtailment of electricity,” Sassi continued, adding, “So from this point of view, and even if the total amount of gas imported from Israel pales compared to the volumes produced domestically, Egypt is considerably dependent on Israel’s gas.”

That dependency was evident when Israel suspended production at Tamar, one of the fields producing gas exported to Egypt, after the Hamas-led 7 October attacks.

With Israeli imports cut off, Egypt was forced to import LNG in November to fill the gap in its gas supply.

If Israel and Hezbollah go to war, Rettig said Israel would suspend production at Leviathan for at least a month and would rely on Tamar for its domestic needs, again cutting off exports to Egypt.

That dependency, he stated, will have motivated Egypt – and Jordan which also relies on Israeli gas as well as water – to moderate its criticism of Israel.

“It creates an incentive to cooperative or to at least seek an end to hostilities as quickly as possible,” Rettig added.

In a May report for the Begin-Sadat Center for Strategic Studies in Israel, Rettig and former Israeli ambassador Michael Harari wrote that it was possible that Jordan had been motivated by its need for water and gas when it intercepted Iranian missiles and drones headed for Israel in April.

For Fouad, Egypt’s dependency on a single source for gas supplies brings troubling ramifications for its energy and national security.

“Can Israel cut off gas to Egypt? Yes, and we witnessed this first-hand at the beginning of the war last October when Israel shut down the Tamar field production platform,” he said.

Fouad estimated that losing Israeli gas now would result in power outages lasting up to five hours daily on top of the current three-hour outages.

“This means that, for a third of the day, Egypt, a country with regional significance, would be without electricity, disrupted by Israel without using heavy weapons,” he added.