Egypt's LNG import ambitions thrown into disarray

LONDON/CAIRO Wed Feb 19, 2014 10:15pm IST

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LONDON/CAIRO Feb 19 (Reuters) - Egypt's hope of importing liquefied natural gas to stave off an energy crunch this summer may fall through after a Norwegian firm pulled out of a deal to install an LNG import terminal, sources with knowledge of talks between Cairo and the company said.

If it fails to secure a means of importing LNG, Egypt would have no place to turn for fuel supplies as already painful shortages are set to become more acute with the approach of summer.

The latest setback came when Hoegh LNG, which was recently awarded the contract to provide a floating terminal, rejected the commercial terms offered by state-run gas company EGAS, the sources said.

The tender process to find a company to provide the terminal began around 18 months ago, well before the army toppled Islamist President Mohamed Mursi last July.

Hoegh LNG's chief concern was the lack of financial guarantees to underpin project costs, the sources said.

The cash-strapped government's financial troubles have forced Cairo to delay payment of debts to foreign oil companies.

"[Hoegh LNG] won the tender, but the conditions offered by the counterparts in terms of commercial and financial guarantees were not good enough," one source said.

Even so, the Norwegian shipper may yet clinch the deal, because the two sides are still in talks, the sources said.

"There is a process which has to be completed. Hoegh LNG are in that process," a Hoegh LNG spokesman said.

Egypt's energy ministry said the process to award a terminal provider was ongoing and declined to give further details.

Terminal providers say Egypt could have a terminal in place to receive LNG within six months of a contract award.

At the latest count, around six floating import terminals, or Floating Storage and Regasification Units (FSRUs), were available globally. Hoegh LNG owns two, and U.S. company Excelerate Energy, which was a rival bidder, has four, the sources say.

Officials in the military-backed interim government installed after Mursi's ouster blame his administration for failing to secure a floating terminal last year.

But Egypt's energy troubles predate Mursi. They are rooted in fuel subsidies that cost the government $15 billion a year, a fifth of the state budget, and which encourage consumption.

The subsidies also drain foreign currency reserves that could be used to pay off $6 billion in debts to foreign energy companies and improve payment terms to encourage investment.

It is unclear whether the government has approached any rival companies, including Excelerate, to replace Hoegh.

Oil Minister Sherif Ismail told Reuters on Feb. 9 that the government was "very close to closing the bid for the FSRU".

But he indicated that it might be too late for the terminal to be of use in importing badly needed gas supplies for the summer.

"It is our prime concern and intention to solve this problem for Egypt, if not for this year by 100 percent, then at least for the years yet to come," he said.

Ismail said Egypt would need to import an additional $1 billion worth of petroleum products to meet energy needs for the summer, on top of securing significant gas supplies.

With the latest setback, however, those additional gas supplies may be out of Egypt's reach for now. (editing by Jane Baird)

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