Egypt’s LNG Comeback Is Set to Start in Cyprus

Egypt’s gas sector is running short of domestic gas just as Cyprus prepares to become a producer. The recently approved Cronos project offshore Cyprus (expected to deliver up to 2.8 million tonnes per year of LNG from 2028) offers a three-way bargain. 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. The logic is compelling, but 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% from a year earlier to 109.3 million m3/d in the second quarter of 2026, extending a decline that began after output peaked in 2021. The deterioration remains concentrated in the offshore Mediterranean, while stronger Western Desert production (onshore) has been insufficient to reverse the national trend. Meanwhile, domestic demand has been steadily increasing. Domestic consumption reached 190 million m3/d in June, the highest recorded level for that month, while power generation alone burned 113 million m3/d (almost as much as Egypt’s entire current domestic output). That leaves a shortfall of more than 75 million m3/d before pipeline and LNG imports are counted.

Cairo has so far responded by rebuilding its import system. Egypt started importing LNG in mid-2024, and four FSRUs have provided about 20.2 million tonnes of LNG per year capacity. That said, currently only three FSRUs are operational, as one of them – the US-owned Energos Winter FSRU at Damietta – was struck by a drone July 29, bringing down Egypt’s total regasification capacity to 16.9 million tonnes per year. In August, Egypt has so far received 18 US LNG cargoes and 1 Mexican cargo ( a total of 1.2 million tonnes of LNG), slightly down from July’s record 24 cargoes. A new Egyptian exploration round that was opened up this month may eventually slow the production decline and reliance on the LNG imports, but discoveries that will be made soon will not close the near-term deficit. Moreover, if the size of discoveries since the giant 2015 Zohr find is to be considered, Egypt’s untapped resources keep on dwindling.

Related: Energean in Exclusive Talks for $1 Billion BP Egypt Gas Deal

The worsening imbalance between Egypt’s needs and capabilities is what makes Cyprus increasingly valuable. The island nation 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. Building a standalone export chain would require considerably more capital, committed resources and time.

The Cronos discovery provides the first viable alternative. Eni and TotalEnergies sanctioned the Block 6 development on July 28, targeting first gas in 2028. Four subsea wells are expected to produce as much as 14.2 million m3/d. The gas is planned to be transported by pipeline to Egypt, use the existing Zohr facilities for processing and move to Damietta plant for liquefaction and export, primarily to Europe.

The model transforms Cypriot gas economics. Cyprus accepts transport, processing and liquefaction charges (and therefore retains less value from each unit) in exchange for lower capital expenditure, reduced execution risk and a faster route to revenue. For Egypt, the benefit is more nuanced than simply obtaining another source of domestic supply. Cronos is designed principally for LNG export, so its output should not be treated as 14.2 million m3/d guaranteed to Egyptian consumers. It will instead provide feedstock, infrastructure revenue and commercial flexibility while restoring throughput at Zohr and Damietta. However, even if the entire stream stayed in Egypt, it would cover only a fraction of the present deficit.

Cronos’ development is important because it can become the first step in the formation of infrastructure important for further gas exploration offshore Cyprus. It would provide infrastructure for additional Block 6 resources, including Calypso and Zeus, neither of which has a sanctioned development plan, as of now.

The Aphrodite discovery is on a separate track: its stakeholders began a roughly $106 million engineering program in December 2025 and target an investment decision in 2027 and production around 2031, subject to binding arrangements for transmission and sales to Egypt. ExxonMobil and QatarEnergy have meanwhile declared Glaucus and Pegasus to be commercial discoveries but are still evaluating development options, including floating LNG. This way, Cyprus’s emerging gas industry is a collection of projects, not a single integrated scheme.

For Europe, the volumes are modest but strategically useful. The 2022 memorandum between the EU, Egypt and Israel explicitly envisages gas from Egypt, Israel and other Eastern Mediterranean sources reaching Europe through Egyptian LNG infrastructure. Cyprus was not a signatory, but its production fits the agreement’s logic.

But there are a few constraints, and the first one is technical. Egypt’s Zohr development showed how quickly a local flagship project can move from rapid growth to reservoir-management problems. Production began in 2017 and peaked in 2021 before water breakthrough and natural decline contributed to lower output. Eni later implemented water-shutoff work and expanded the field’s treatment capacity. This does not mean Cronos will behave identically: it is a separate reservoir that must be judged on its own data. The lesson is that an accelerated schedule and nearby infrastructure cannot remove subsurface risk. Reliance on Zohr and Damietta also exposes Cypriot output to Egyptian outages, capacity constraints and gas-treatment requirements.

Cyprus’s troubled Vasilikos LNG terminal illustrates a different technical risk. The incomplete €542 million project exposes the country’s difficulty 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 CINEA’s effort to recover about €67.2 million in the EU’s General Court.

The other major constraint is geopolitical. Turkey disputes parts of Cyprus’s claimed maritime jurisdiction and maintains that Turkish Cypriots have equal rights to the island’s offshore resources. Turkish vessels prevented an Eni drillship from reaching its target in 2018. The EU has extended its restrictive-measures framework for unauthorized drilling until November 30, 2026, although the current sanctions list is empty. But that indicates lower short-term tension, not a full settlement. Renewed confrontation could increase security, financing and insurance costs or delay drilling.

Cronos nevertheless marks a decisive shift: Cyprus now has a sanctioned gas project, a defined route to market and a production date. But one field does not make a regional hub. The real test is whether Cronos reaches first gas on schedule and becomes a repeatable commercial template for other discoveries. If it does, Egypt’s declining production and Cyprus’s infrastructure deficit could become complementary weaknesses, and the foundation of a durable Eastern Mediterranean gas corridor.

By Natalia Katona for Oilprice.com

More Top Reads From Oilprice.com

Oilprice Intelligence brings you the signals before they become front-page news. This is the same expert analysis read by veteran traders and political advisors. Get it free, twice a week, and you’ll always know why the market is moving before everyone else.

You get the geopolitical intelligence, the hidden inventory data, and the market whispers that move billions – and we’ll send you $389 in premium energy intelligence, on us, just for subscribing. Join 400,000+ readers today. Get access immediately by clicking here.