Egypt Ordered To Pay $2 Billion To Spanish-Italian JV Over Natural Gas Row

A joint venture between Spain’s Naturgy and Italy’s Eni has been awarded a $2bn settlement from Egypt over gas supplies by a World Bank arbitration body, in a move that could accelerate the resumption of the country’s liquefied natural gas exports.

The ruling by the International Centre for Settlement of Investment Disputes comes after Egypt stopped supplying gas to Unión Fenosa Gas joint venture’s Damietta LNG plant as the country faced internal energy shortages in the wake of the political turmoil unleashed by the Arab Spring.

Unión Fenosa Gas took its case to the ICSID in 2014. The arbitration body on Monday found that in stopping the gas supply Egypt had failed to grant Unión Fenosa Gas “fair and equitable treatment”, contravening the country’s bilateral investment protection treaty with Spain, Naturgy said in a statement.

The $2bn is likely to be paid in the form of renewed gas supplies to Damietta rather than in cash, according to people familiar with the matter.  Naturgy, formerly known as Gas Natural Fenosa, said the award would allow it to reach a “comprehensive agreement” with Egypt to resume gas supplies to the plant, which were halted four years ago.

Egypt has been a major importer of LNG in recent years, but it is expected to resume exports in the future following a number of significant natural gas discoveries in the country, including Eni’s giant Zohr field in the Egyptian sector of the Mediterranean.

LNG has become a more competitive industry since Egypt went offline, with the start of exports from the US and rising flows from Australia transforming the super-chilled fuel into a truly global market.

Supplies are expected to grow almost 50 per cent between 2015 and 2020, but fast-rising demand from China and other emerging markets have lowered the prospects of a prolonged glut emerging.

Egypt’s role as a LNG supplier is expected to surge in coming years, with Zohr set to add considerable volume to the market.

The site began production in December and has reserves estimated at 30tn cubic feet, making it one of the largest discoveries of the last two decades. Production is expected to rise to 2.7 bcf/day by 2019.

It is owned by Eni — the other JV partner in Unión Fenosa Gas — which is the largest gas producer in Egypt, with a current output of 320,000 barrels of oil equivalent per day. Shares in Naturgy hit their highest level since 2014 on Monday, closing up 2.5 per cent at €23.70. Eni’s shares rose 0.6 per cent to €16.08.