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.



Revenue Growth, Improved Operational Efficiency Boost Profitability of Saudi Telecom Companies

A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
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Revenue Growth, Improved Operational Efficiency Boost Profitability of Saudi Telecom Companies

A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)

Telecommunications companies listed on the Saudi Stock Exchange (Tadawul) achieved a 12.46 percent growth in their net profits, which reached SAR 4.07 billion ($1.09 billion) during the second quarter of 2024, compared to SAR 3.62 billion ($965 million) during the same period last year.

They also recorded a 4.76 percent growth in revenues during the same quarter, after achieving sales worth more than SAR 26.18 billion ($7 billion), compared to SAR 24.99 billion ($6.66 billion) in the same quarter of 2023.

The growth in the revenues and net profitability is the result of several factors, including the increase in sales volume and revenues, especially in the business sector and fifth generation services, as well as the decrease in operating expenses and the focus on improving operational efficiency, controlling costs, and moving towards investment in infrastructure.

The sector comprises four companies, three of which conclude their fiscal year in December: Saudi Telecom Company (STC), Mobily, and Zain Saudi Arabia. The fiscal year of Etihad Atheeb Telecommunications Company (GO) ends on March 31.

According to its financial results announced on Tadawul, Etihad Etisalat Company (Mobily) achieved a 33 percent growth rate of profits, bringing its profits to SAR 661 million by the end of the second quarter of 2024, compared to SAR 497 million during the same period in 2023. The company also achieved a 4.59 percent growth in revenues to reach SAR 4.47 billion, compared to SAR 4.27 billion in the same quarter of last year.

The Saudi Telecom Company achieved the highest net profits among the sector’s companies, at about SAR 3.304 billion in the second quarter of 2024, compared to SAR 3.008 billion in the same quarter of 2023. The company registered a growth of 4.52 percent in revenues.

On the other hand, the revenues of the Saudi Mobile Telecommunications Company (Zain Saudi Arabia) increased by about 6.69 percent, as it recorded SAR 2.55 billion during the second quarter of 2024, compared to SAR 2.39 billion in the same period last year.

Commenting on the quarterly results of the sector’s companies, and the varying net profits, the head of asset management at Rassanah Capital, Thamer Al-Saeed, told Asharq Al-Awsat that the Saudi Telecom Company remains the sector leader in terms of customer base expansion.

He also noted the continued efforts of Mobily and Zain to offer many diverse products and other services.

Financial advisor at the Arab Trader Mohammed Al-Maymouni said the financial results of telecom sector companies have maintained a steady growth, up to 12 percent, adding that Mobily witnessed strong progress compared to the rest of the companies, despite the great competition which affected its revenues.

He added that Zain was moving at a good pace and its revenues have improved during the second quarter of 2024. However, its profits were affected by an increase in the financing cost by SAR 26.5 million riyals and a rise in interest, while net income declined significantly compared to the previous year, during which the company made exceptional returns.