S&P Warns of Longterm Shortage in Egypt's Gas Supply

The Tamar gas platform off the coast of Israel. (Chevron)
The Tamar gas platform off the coast of Israel. (Chevron)
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S&P Warns of Longterm Shortage in Egypt's Gas Supply

The Tamar gas platform off the coast of Israel. (Chevron)
The Tamar gas platform off the coast of Israel. (Chevron)

Standard & Poor's warned that the escalation of Israel's war in Gaza may leave Egypt facing a long-term shortage in gas supplies.

In a report seen by Asharq Al-Awsat on Monday, the agency said that "the war will largely be contained to Israel and Gaza and last no more than three to six months."

However, further escalation, also spreading beyond Israel's borders, could involve damage to pipelines or obstruction of shipping in the Strait of Hormuz.

"We believe if that were to happen, Israel's gas exports could stop completely. And we don't think many producers in the Gulf Cooperation Council (GCC) could fill that gap since most of their gas production is already under contract," read the report.

"We assume the war will remain centered in Gaza and have a low impact on Israel's neighbors, but if it spreads to important delivery channels, Egypt – which is already rationing gas – might struggle in the medium term, in our view."

Standard & Poor's indicated that this situation could eventually "hurt credit quality in the region if it escalates further."

In its latest report on Egypt on Oct. 20, the agency lowered its long-term foreign and local currency sovereign credit ratings on Egypt to "B-" from "B." The outlook is stable. We also affirmed our short-term sovereign credit ratings at "B."

It has also announced that it was lowering Israel's credit outlook from stable to negative. The credit rating itself remains unchanged at AA-.

Since the start of the war, Israel has shut down the Tamar gas platform, which produces about 10 billion cubic meters of gas, about 85 percent of which is used for the Israeli domestic market, and about 15 percent of the remaining is exported to Jordan to generate electricity, and Egypt to liquefy and export to Europe.

Since 2020, Israel has provided almost all of Jordan's natural gas supply and 5 percent to 10 percent of Egypt's, according to S&P Commodity Insights data.

"Yet we believe Egypt's gas supply is more exposed than Jordan's because Jordan has an unused LNG plant and an offtake agreement with Israel," said the report.

Gas production in Israel is down almost 50 percent due to the repercussions of the war.

Israel produced about 22 billion cubic meters (bcm) of natural gas in 2022, about one percent of the global total.

It exported a combined nine bcm to Egypt and Jordan, according to S&P Global Commodity Insights data. Most of Israel's gas production comes from offshore fields in the Mediterranean Sea.

Since 2019, Egypt has achieved self-sufficiency in gas production to meet domestic demand, and about 60-65 percent of it is consumed as fuel for power generation, and 20-25 percent goes for industrial use.

Egypt imported about six billion cubic meters of gas in 2022 from Israel, converting some of it into liquefied natural gas and then exporting it to Europe.

It contributes less than five percent of Europe's natural gas needs.

Europe imports most of the LNG it needs from the US and Qatar. The EU has also exceeded its 95 percent target inventory level and, barring an unusually cold winter, has sufficient gas supply without LNG from Egypt.

However, even before the recent escalation in Israel, increased demand for energy led to blackouts in Egypt. It came amid lower gas production in Egypt and a greater need for gas to fuel cooling units during this year's unseasonably hot summer.



US Consumers to Bargain Hunt in Annual ‘Black Friday’ Spree

 A family eats lunch near a store advertising a Black Friday sale at the Pentagon City Mall in Arlington, Virginia, on November 22, 2023. (AFP)
A family eats lunch near a store advertising a Black Friday sale at the Pentagon City Mall in Arlington, Virginia, on November 22, 2023. (AFP)
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US Consumers to Bargain Hunt in Annual ‘Black Friday’ Spree

 A family eats lunch near a store advertising a Black Friday sale at the Pentagon City Mall in Arlington, Virginia, on November 22, 2023. (AFP)
A family eats lunch near a store advertising a Black Friday sale at the Pentagon City Mall in Arlington, Virginia, on November 22, 2023. (AFP)

US shoppers are coming out in force this holiday season, but the festiveness is being tempered by inflationary pressures that have abated but not completely faded.

After the sticker shock during the latter stages of the pandemic, a familiar frustration has settled in towards consumer prices that remain broadly elevated even if they have stopped rising rapidly.

Americans are "ready to open their wallets this holiday season," said the Conference Board ahead of Black Friday -- the day after Thanksgiving, which this year, falls on November 28 -- that traditionally sees US stores kick off the Christmas shopping season with steep discounts.

"US consumers plan to spend more than last year, but inflation reduces how far their dollars can go."

In this environment, nobody expects to pay the full price for items.

"Holiday shoppers are likely to increase their budgets this year versus last year but remain selective and are looking for discounts," said a note from Morgan Stanley.

The investment bank's survey found that 35 percent planned to spend more this holiday season. But nearly two-thirds would skip a purchase if an item is not adequately discounted, meaning a price cut of more than 20 percent.

"It's gonna be a good year, but I don't think that growth is going to be spectacular because consumers are still under pressure," predicted Neil Saunders of GlobalData.

Inflation remains above the Federal Reserve's two percent long-term target, rising in October to 2.6 percent on an annual basis from 2.4 percent in September. But that's significantly below the peak level of 9.1 percent in June 2022.

Other recent economic data has been solid. Unemployment remains low at 4.1 percent, while a preliminary GDP reading for the third quarter came in at 2.8 percent.

But Joe Biden's presidency coincided with about a 20 percent rise in consumer prices as Covid-19 pandemic lockdowns gave way to supply chain bottlenecks.

That inflation played a central role in the 2024 US presidential election, with Republican Donald Trump defeating Biden's appointed Democratic successor, Vice President Kamala Harris.

"There is still a perception among consumers that things are quite difficult," Saunders said. "So people are being quite cautious and careful in their spending."

- Tariff hit? -

How Trump's looming presidency will affect inflation remains to be seen. Industry groups have warned that tariffs favored by the Republican could reignite pricing pressures.

The National Retail Federation projected that a Trump tariff proposal floated during the campaign would dent US consumer budgets by as much as $78 billion annually.

But while tough potential trade actions are already preoccupying Washington trade groups, tariffs are not on consumer radars for the 2024 season, according to Saunders.

One challenge this year will be the shortness of the season.

Black Friday falls at the latest possible date on November 29, shortening the stretch between Turkey Day and Christmas on December 25.

But the impact of that dynamic on 2024 sales should not be overstated. Retailers in recent years have pulled the holiday shopping season ahead, with some vendors launching online "Black Friday" promotions as early as October.

Among the companies that have already begun discounts: the big-box chains Walmart and Target, electronics giant Best Buy and home-improvement retailer Home Depot.

Amazon officially launched "Black Friday Week" on Thursday.

NRF has projected holiday spending growth of between 2.5 and 3.5 percent in the 2024 season compared with the year-ago period, to as much as $989 billion over the two-month period.

Economists with the trade group have pointed to an easing of gasoline prices as a supportive factor.

Online sales are projected to grow as much as nine percent this season, extending a long-term trend. Black Friday itself has become a big occasion for online shopping, along with "Cyber Monday" three days later.

"Over time, we've moved from a period where it was just Black Friday, and maybe a little of the weekend, to it being a period of discounting that starts very early," said Saunders. "It's seasonal discounts."

There has been a diminishment of "doorbuster" sales that are known to draw hordes of waiting crowds, sometimes resulting in injury or worse.

Instead, increasing numbers of consumers are spreading out their purchases or opting to click through Black Friday promotions at home.