UPDATE 1-Damietta LNG plant idled as Egypt keeps its gas at home

Thu Feb 7, 2013 1:23pm EST

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By Paul Day and Oleg Vukmanovic

MADRID/LONDON Feb 7 (Reuters) - The Damietta liquefied natural gas facility in Egypt is not operating due to a lack of feed gas as the country diverts export supplies to its domestic market, operator Union Fenosa Gas (UFG) said on Thursday

UFG, a stakeholder company shared equally between Gas Natural of Spain and Eni SpA of Italy, said the plant was idle because Egypt was restricting supplies.

"We expect the plant to come back on stream ... but it depends on the Egyptian authorities to resume the supply to Damietta," the company said on Thursday.

A UFG spokesman, asked by Reuters whether the company was considering selling out of the project, denied that it was.

One analyst said the plant was unlikely to restart this year.

"The deficit of gas means restoration of Damietta LNG production in 2013 is unlikely in our view," Arctic Securities LNG analyst Erik Stavseth said.

Egypt has two LNG plants, Damietta and Idku, for converting gas into liquid so it can be exported by ship, and a gas export pipeline.

But the government has decided to keep gas for the domestic market, which faced fuel shortages and power cuts in the summer.

The country faces simmering political unrest, with opposition protests and calls for the overthrow of President Mohamed Mursi.

Rising energy demand combined with falling output from domestic gas fields saw Egyptian LNG exports in 2012 decline to 4.7 million tonnes, compared with a combined export capacity at Damietta and Idku of 12.2 million tonnes.

The loss of more Egyptian export capacity threatens another year of constrained LNG supplies globally, potentially pushing spot prices towards record highs this year.

One major contributing factor to high LNG prices is the continuous plant outages driven by maintenance and reduced gas supplies to export terminals. Egypt accounted for a significant part of the overall global decline in LNG output.

Output from Egypt's other LNG plant at Idku also dropped this year, operator BG Group said in its annual financial results this week.

Unlike Damietta, gas supplies to Idku have not been completely cut off, but the plant is struggling to secure feed gas from BG's offshore gas field, which is not expected to see an increase in output before 2014, BG said.

Approximately 60 percent of Egyptian LNG exports in 2012 headed for Asia. (Writing by Sonya Dowsett; Editing by Anthony Barker)

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