Cyprus gas could fuel Egypt’s LNG comeback

Egypt’s gas sector is running short of domestic supplies just as Cyprus prepares to become a producer, with the recently approved Kronos project offering benefits to both countries and Europe, according to an OilPrice report. Natalia Katona said that the project offers a three-way bargain, with up to 2.8 million tonnes of liquefied natural gas (LNG) a year expected from 2028. Cyprus gains an export route it cannot economically build alone, Egypt secures feedstock for infrastructure increasingly constrained by falling domestic production, and Europe gains another non-Russian source. However, the report cautions that technical, commercial and geopolitical risks could still derail the emerging corridor. Egypt’s need for new gas sources is becoming urgent. Natural gas production fell 7 per cent year on year to 109.3m cubic metres a day in the second quarter of 2026, extending a decline that began after national output peaked in 2021. The deterioration remains concentrated in the offshore Mediterranean, while stronger production in the onshore Western Desert has been insufficient to reverse the trend. At the same time, domestic demand has continued to rise. Consumption reached 190m cubic metres a day in June, the highest recorded level for that month, while power generation alone consumed 113m cubic metres a day, almost as much as Egypt’s entire domestic output. The report puts the resulting shortfall at more than 75m cubic metres a day, before pipeline and LNG imports are counted. Cairo has so far responded by rebuilding its import system. Egypt resumed LNG imports in mid-2024, with four floating storage and regasification units, known as FSRUs, providing combined annual capacity of about 20.2m tonnes. However, the report says only three remained operational after the US-owned Energos Winter at Damietta was struck by a drone on July 29, reducing annual regasification capacity to 16.9m tonnes. At the time of publication, Egypt had received 18 US LNG cargoes and one Mexican cargo during August, totalling about 1.2m tonnes. That compared with a record 24 cargoes over the whole of July. Although a new exploration round opened in August may eventually slow the production decline and reduce reliance on LNG imports, future discoveries will not close the immediate deficit, the analysis argues. Moreover, it suggests that the smaller discoveries made since the giant Zohr find in 2015 point to dwindling untapped resources. This worsening imbalance makes Cyprus increasingly valuable. The island has recorded six significant offshore discoveries but has yet to produce commercial gas. Its domestic market is small, its power sector remains overwhelmingly dependent on imported petroleum, and it has no operating gas-processing or LNG-export plants. As a result, building a standalone export chain would require considerably more capital, committed resources and time. Kronos offers the first viable alternative. Eni and TotalEnergies approved the development in Block 6 on July 28, targeting first gas in 2028. Four subsea wells are expected to produce up to 14.2m cubic metres a day, with the gas transported by pipeline to Egypt, processed at the existing Zohr facilities and sent to Damietta for liquefaction and export, primarily to Europe. According to the report, this model changes the economics of Cypriot gas. By accepting transport, processing and liquefaction charges, Cyprus retains less value from each unit but gains lower capital expenditure, reduced execution risk and a faster route to revenue. For Egypt, meanwhile, the benefit is more nuanced than simply securing another source of domestic supply. Kronos is designed principally for LNG exports, so its output should not be treated as 14.2m cubic metres a day guaranteed to Egyptian consumers. Instead, it would provide feedstock, infrastructure revenue and commercial flexibility while restoring throughput at Zohr and Damietta. Even if the entire stream stayed in Egypt, however, it would cover only a fraction of the current deficit. Beyond its own production, Kronos could become the first step towards infrastructure supporting further offshore gas development in Cyprus. This could provide a route for additional Block 6 resources, including Calypso and Zeus, neither of which currently has an approved development plan. Aphrodite, meanwhile, is following a separate path. Its partners began an approximately $106m engineering programme in December 2025, targeting an investment decision in 2027 and production around 2031, subject to binding arrangements for transmission and sales to Egypt. ExxonMobil and QatarEnergy have also declared Glaucus and Pegasus commercially viable but are still evaluating development options, including floating LNG. As Katona says, “Cyprus’s emerging gas industry is a collection of projects, not a single integrated scheme”. For Europe, the volumes are modest but strategically useful, potentially helping diversify an LNG supply mix increasingly concentrated on US cargoes. The 2022 memorandum between the EU, Egypt and Israel envisages gas from Egypt, Israel and other eastern Mediterranean sources reaching Europe through Egyptian LNG infrastructure. Although Cyprus was not a signatory, its production fits the agreement’s logic. Nevertheless, several constraints remain, beginning with the technical risks. The report points to Egypt’s Zohr development as an example of how quickly a flagship project can move from rapid growth to reservoir-management problems. Production began in 2017, but water breakthrough and natural decline later contributed to lower output. Eni subsequently carried out work to restrict water inflows and expanded the field’s treatment capacity. That does not mean Kronos will behave in the same way, since it is a separate reservoir that must be assessed on its own data. Rather, the report argues, an accelerated schedule and nearby infrastructure cannot eliminate subsurface risk. Dependence on Zohr and Damietta also exposes Cypriot output to Egyptian outages, capacity constraints and gas-treatment requirements. Cyprus’ troubled Vasiliko terminal illustrates a different technical challenge. The unfinished €542m LNG project highlights the country’s difficulties in delivering major domestic energy infrastructure. The European public prosecutor’s Office is investigating suspected procurement fraud and misuse of EU funds, while Cyprus is challenging the European Climate, Infrastructure and Environment Executive Agency’s (CINEA) effort to recover about €67.2m before the EU’s General Court. Alongside these technical challenges, geopolitical uncertainty remains a major constraint. According to the report, Turkey disputes parts of Cyprus’ claimed maritime jurisdiction and maintains that Turkish Cypriots have equal rights to the island’s offshore resources. In 2018, Turkish vessels prevented an Eni drillship from reaching its drilling target. The EU has since extended its restrictive-measures framework for unauthorised drilling until November 30, 2026, although the current sanctions list is empty. The report interprets this as a sign of lower short-term tension rather than a full settlement, warning that renewed confrontation could increase security, financing and insurance costs or delay drilling. Despite those risks, Kronos marks a significant shift, giving Cyprus an approved gas project, a defined route to market and a target production date. However, as Katona cautions, “one field does not make a regional hub”. The real test, the report concludes, is whether Kronos reaches first gas on schedule and becomes a repeatable commercial model for other discoveries. If it does, Egypt’s declining production and Cyprus’ lack of export infrastructure could become complementary weaknesses, forming the foundation of a lasting eastern Mediterranean gas corridor.