Egypt is on the threshold of becoming a natural gas and electricity export hub, a development which, if it materializes, carries the potential to radically reconfigure the pattern of energy connectivity between Europe, Africa, and the Middle East. Reorienting the energy architecture at the intersection of three continents, Egypt’s program to develop its energy exports has already started to reshape geopolitics from the eastern Mediterranean to the Horn of Africa.
For the Mediterranean’s most populous nation long mired in economic woes, the prospect of becoming an inter-regional energy hub is a stunning turnaround. In 2019, thanks to its large offshore natural gas deposits, Egypt achieved natural gas self-sufficiency and became a net energy exporter. Cairo’s advances in developing Egypt’s renewable energy resources have already created a marketable electricity surplus that is set to grow significantly in the near future as Egypt’s new renewable and nuclear power projects come online. Developing electricity interconnections to Europe, the Middle East, and sub-Saharan Africa, Egypt is positioned for the long-term to play a preeminent role in the emerging energy architecture of the eastern Mediterranean.
Egypt's central position in a new pattern of energy connectivity is not just a matter of geography. It is the result of the convergence of four main factors over the past five years — offshore natural gas discoveries, fiscal reform, renewable energy resources development, and the construction of electricity interconnections. The game-changing event that set the convergence of these factors into motion was the August 2015 discovery of Egypt’s massive Zohr natural gas field by the Italian energy major Eni. The largest eastern Mediterranean gas find to date with 850 billion cubic meters of gas in place, Zohr’s advent meant that Egypt could become energy self-sufficient and the eastern Mediterranean region collectively had marketable volumes of natural gas. Five years later, daily production at Zohr accounts for 40 percent of Egypt’s total gas production per day.
Eni, also the lead operator in Cyprus’s natural gas development and lead stakeholder in one of Egypt’s two liquefaction plants, began promoting a plan to pool Egyptian, Cypriot, and Israeli gas and use Egypt’s liquefaction plants to cost-effectively market the region’s gas to Europe as liquified natural gas (LNG). By 2019, Cyprus and Israel had signed supply contracts with Egypt while French energy giant Total partnered with Eni in all of its Cypriot operations. In January 2020, the Eastern Mediterranean Gas Forum (EMGF), a multi-national cooperation platform for developing the region’s natural gas, was formed. With Italy, France, Egypt, Greece, Cyprus, Israel, the Palestinian Authority, and Jordan now as members, the Cairo-headquartered EMGF is emblematic of Egypt’s central role in organizing the regional export of eastern Mediterranean gas.
In August 2016, one year after Zohr’s discovery, the International Monetary Fund (IMF) concluded a staff-level agreement with Egypt for a $12 billion financial infusion on condition that Cairo devalue its currency. Egypt’s Central Bank floated the Egyptian pound in November 2016, resulting in a 50 percent currency devaluation that severely impacted the living standards of most Egyptians. Coming at a great social cost, the bitter medicine brought Egypt’s economy out of critical condition. By 2018, Egypt’s foreign reserves reached almost $40 billion, equivalent to six months of imports of goods and services, putting the Egyptian economy on firmer footing. By the time it completed the IMF program in 2019, Egypt had experienced a revival of foreign investment in its energy sector. The June 2020 staff-level agreement between Egypt and the IMF on a $5.2 billion stand-by arrangement to offset COVID-19’s adverse economic impact will help ensure that the Egyptian energy juggernaut maintains momentum.
Egypt’s long-term prospects as an energy export hub rest with its impressive development of renewable energy sources (RES) to create a surplus power supply. Recently as 2014, preventing power blackouts in Egypt was deemed “impossible” by government officials. Between 2016 and 2018, Siemens in partnership with Cairo installed three massive combined-cycle power plants in Egypt. Collectively, the gas-fired plants have a 14.4 GW capacity that can provide over 40 million Egyptians with a reliable electricity supply. In 2018, Egypt’s total installed capacity was 42 GW, 91 percent of which was hydrocarbon-based power generation. RES then accounted for only 8.6 percent of Egypt’s power production with hydropower accounting for over three-quarters of that total. With further RES development, Egypt’s installed capacity now stands at about 50 GW with over 10 GW being surplus capacity.
Egypt’s 2035 Integrated Sustainable Energy Strategy aims to raise power production from RES to 20 percent of Egypt’s total power production by 2022 and 42 percent by 2035. Cairo’s ambitious energy policy calls for 61 GW of installed capacity from RES – 32 GW from photovoltaic (PV) solar power, 12 GW from concentrated solar power, and 18 GW from wind power.
Egypt is awash in abundant solar energy resources, with direct normal irradiation in many areas reaching or exceeding 2,300 kWh/m2. Egypt’s flagship solar project is the massive 1.8 GW Benban solar park outside of Aswan. Touted as the world’s largest operational PV solar park, the $4 billion solar complex consists of about 40 solar plants developed by over 30 foreign companies from 12 countries including Germany (Ib Vogt), France (Total Eren and EDF), Italy (Ennerray), Spain (Acciona Energía). Aligning with EU energy transition objectives, the Benban complex will prevent the annual emission of two million tonnes of carbon dioxide.
Egypt is also experiencing a wind power development boom. In November 2019, Egypt’s largest wind power generation complex, the 262.5 MW Ras Ghareb wind farm near the Gulf of Suez, came online and is expected to supply power to 500,000 households when fully operational. Exploiting the Gulf of Suez’s exceptional wind resources, the $380 million near-shore plant was constructed by a joint venture comprising France’s ENGIE, Japan’s Toyota Tsusho, and Egypt’s construction firm Orascom. In August 2020, the European Bank for Reconstruction and Development (EBRD) awarded the French-Japanese-Egyptian consortium a $50 million loan to construct a 500MW wind power project at Ras Ghareb, which the EBRD estimates will result in annual CO2 emissions avoidance of approximately 1,000,000 tonnes.
Egypt’s RES power production will be augmented with nuclear power. In 2021, Russia’s ROSATOM will begin building Egypt’s first nuclear power plant. With a $25 billion loan from Moscow to cover 85 percent of the construction costs, the 4.8 GW Dabaa nuclear power plant will consist of four 1.2 GW VVER reactors, the first of which will become operational in 2026 and the remainder in 2029. Helping to ensure baseload capacity as Egypt expands its reliance on RES, the output from Dabaa is expected to be equivalent to 10 percent of Egypt’s consumer demand. The Dabaa plant also provides Russia with a significant position in Egypt’s energy market outside of Rosneft’s share in the Zohr field.
By 2035, Egypt’s surplus capacity could reach as high as an estimated 74.4 GW. The development of electricity interconnection with Europe, the Middle East, and sub-Saharan Africa will enable Egypt to market its considerable quantity of surplus power, along with surplus power produced in the GCC countries, to Europe and Africa – potentially transforming Egypt into an electricity trading hub.
In 2019, Egypt signed an agreement to create a 2 GW electricity interconnection with Cyprus and Greece. The phase 1 development of the Euro-Africa interconnector linking Egypt to Cyprus, Crete and mainland Greece is scheduled to be operational by December 2023 with a capacity of 1 GW. By comparison, the Tunisia-Italy interconnector scheduled for completion in 2025 will have a capacity of only 0.6 GW.
Egypt and Saudi Arabia are in the process of constructing a 3 GW electricity interconnection. The first 1.5 GW of the $1.6 billion project is expected to be operational in 2023. Egypt already possesses interconnections with Libya and Jordan, whose combined capacity stands at about 800MW. Libya has a 2,500 MW deficit during peak demand. With the percentage of Libyans enjoying access to electricity having dropped to 67 percent from the pre-civil war level of 81 percent, increased Egyptian electricity exports to Libya could help ameliorate the gap and enhance Cairo’s economic cooperation with its western neighbor.
Beyond Libya, Egypt is poised to contribute to the electrification of sub-Saharan Africa where access to electricity averages under 50 percent. In December 2019, Egyptian President Abdel Fattah al-Sisi announced that Egypt was prepared to export 20 percent of its surplus electricity to African nations. Sudan, Egypt’s neighbor to the south has an access to electricity rate of 60 percent. Egypt and Sudan’s grid connection became operational in April 2020, and will reach 300 MW upon completion. Through Libya and Sudan, Egypt could theoretically export electricity to neighboring countries such Chad whose 2018 access to electricity rate stood at only12 percent.
Egypt’s rise as an energy clearing-house for Europe and Africa runs afoul of its two main geopolitical rivals Turkey and Ethiopia. For Turkey, the Egypt-based LNG marketing scheme leaves no role for Turkey’s pipeline infrastructure to transport eastern Mediterranean gas to Europe. Turkey’s exclusion deals a major setback for Ankara’s own previously developed plans to become a regional energy hub. The Euro-Africa interconnector, especially in combination with its ”cousin” the Israel-Cyprus-Crete-Greece Euro-Asia interconnector, furthers the marginalization of Turkey in the emerging eastern Mediterranean energy architecture.
The energy rivalry between Egypt and Turkey exacerbates the wider systemic competition that pits Egypt and its GCC partners against Turkey and Qatar for political and economic influence in the Middle East and Africa. The inclusion of Turkey in the EMGF along with some arrangement for Turkey to participate in the marketing of eastern Mediterranean energy could bridge the region’s geopolitical fault-lines and serve as a foundation for further cooperation.
Egypt’s conflict with Ethiopia is more local and centers on Ethiopia’s massive hydro-electric project the Grand Ethiopian Renaissance Dam (GERD) on the Blue Nile whose downstream effects will impact 90 percent of Egypt’s water supply derived from the Nile river. Across the border from Sudan, the GERD project will also impact Sudan’s own segment of the Blue Nile. Ethiopia is looking toward the added hydro-electric power to spur desperately needed economic development. A trilateral agreement among Egypt, Ethiopia, and Sudan over protocols to ensure downstream water security could be incentivized by incorporating cooperation mechanisms for joint development power capacity and the trilateral marketing of electricity in East Africa.
Egypt’s emergence as natural gas and power export hub is already shaping the geopolitical contours of the larger strategic architecture of Europe’s extended ”eastern neighborhood” – from the eastern Mediterranean to East Africa. With France, Italy, Greece, and Cyprus each having deep economic and political stakes in Egypt’s progress, the orientation of Egypt’s energy diplomacy is now a matter of vital importance for the European Union’s foreign policy. From its position of partnership in Egypt’s emerging energy connectivity, Europe can encourage regional economic cooperation across the lines of conflict in the eastern Mediterranean, Libya, and the Horn of Africa.