LNG pressures drive FX liquidity concerns

Market focus has shifted from tourism, Suez Canal revenues to declining FX proceeds from LNG exports. Hydrocarbon exports fell by 60% y/y in FY24; we estimate foregone revenue at USD 1bn a month. We revise our C/A deficit forecasts as the hydrocarbon trade balance has swung to a deficit, Standard Chartered economists Carla Slim and Bader Al Sarraf note.

FX liquidity concerns persist, notwithstanding improvement

“Egypt went from being a net hydrocarbon importer to a net hydrocarbon exporter in 2020-23. This was driven by a sharp rise in LNG exports (largely to Europe) on expanded domestic LNG output from its Al Zohr field on the East Mediterranean. Still, Egypt relies on hydrocarbon imports, including from Israel, for domestic consumption, and exports any remainder after meeting domestic demand.”

“We estimate foregone LNG export revenue at USD 1bn per month this year, as the regional conflict exacerbates the pressure on Egypt’s LNG trade, via more volatile pipeline imports from Israel. LNG exports began declining in early 2023 (see Figure 2) and have come under further pressure in 2024. Hydrocarbon exports were down by 60% y/y to USD 5.7bn in FY24 (year ending June 2024), turning the hydrocarbon trade balance to a USD 7.6bn deficit from a USD 0.4bn surplus a year earlier. Lower LNG exports and a recovery in imports on improved FX availability led to a widening of the current account (C/A) deficit to USD 20.8bn in FY24 from USD 4.7bn in FY23. As such, we raise our FY24 and FY25 C/A deficit forecasts to 7.0% (-3.0%) and 4.5% of GDP (-3.0%), respectively.”

“Market concerns related to Egypt’s FX liquidity have turned to its widening hydrocarbon trade deficit, in addition to losses in Suez Canal revenues (-24.3% y/y in FY24), although tourism revenue has held up (+5.5% y/y). Tourism revenues reached USD 14.4bn in FY24, from the prior peak of USD 13.6bn; however, the widening of the conflict in the Middle East in recent days could still pose downside risk to tourism. Suez Canal revenues are also likely to decline further (down to USD 6.6bn in FY24 from a peak of USD 8.7bn in FY23); President Sisi recently stated Egypt faces Suez Canal losses of up to USD 6bn YTD.”