LNG Trade In Egypt: Legal And Contractual Perspective

Introduction

Liquefied Natural Gas (LNG) in Egypt plays a dual role in Egypt's energy landscape, serving both as a key source of foreign currency and a safeguard for domestic energy supply. Egypt's two major export terminals at Idku and Damietta position it as a leading Mediterranean LNG exporter, while its growing use of floating storage and regasification units (FSRUs) provides the flexibility to import LNG when domestic demand surges. As Egypt continues to balance the role of LNG exporter and importer, understanding the legal and contractual framework has become essential. This article explores how these frameworks support Egypt's evolving LNG strategy.

Policy and Regulatory Framework

• Balancing Short-Term Measures with Long Term Vision

Egypt's LNG policy operates on two tracks driven by short-term urgency and long-term strategy. To manage short-term fluctuations in domestic demand, Egypt has expanded the use of FSRUs at ports such as Ain Sokhna and Damietta. Infrastructure at Damietta Port was upgraded to accommodate regasification operations and LNG transfer, enhancing Egypt's ability to handle imported LNG safely and efficiently. These measures reflect Egypt's broader strategy to ensure a stable energy supply across sectors and Egypt's efforts to diversify its energy sources in response to regional shifts and rising consumption.

In the long term, Egypt is positioning itself as a regional LNG exporter and transit hub. Through its liquefaction facilities at Idku and Damietta, Egypt continues to process both domestic and regional gas for export. The ongoing cooperation with Cyprus and Greece reflects this direction, as gas from the Cronos and Aphrodite fields is expected to be processed through Egyptian infrastructure for export to European markets. These initiatives underline Egypt's objective to maintain a balanced position, ensuring reliable domestic supply while reinforcing its role as a regional energy hub.

• Legal Framework

The Gas Market Activities Law No. 196 of 2017 (the "Gas Market Law") governs the main midstream and downstream gas-related activities in Egypt from liquefaction and regasification to transmission, distribution, storage, and supply. It aims to regulate this market, while ensuring access to gas facilities and infrastructure.

The Gas Market Law established the Gas Regulatory Authority ("GasReg"), a public authority affiliated with the Minister of Petroleum and Mineral Resources, to regulate, oversee, and supervise such activities and gas market participants. GasReg is responsible for granting and revoking licenses, approving network and facility codes, setting and monitoring usage tariffs.

• Licensing Framework

While the Gas Market Law identifies several midstream and downstream activities to be licensable by GasReg, GasReg has so far implemented only a first phase of market regulation covering transmission, distribution, shipping, and supply activities. Projects involving liquefaction, storage, or regasification facilities are reviewed through the relevant governmental stakeholders (e.g., EGAS and EGPC); however, formal licenses for the operation of such facilities have not yet been issued by GasReg. Once formalized, operators of these facilities will be required to regularize their status within a prescribed timeframe.

The shipping license covers both domestic and international commercial shipping of gas through arrangements with operators of gas networks and facilities, such as FSRUs and transnational pipelines. Shippers must also confirm that the facilities through which gas is shipped to the transmission network comply with EGPC safety standards and operate within approved safety limits.

Key Stakeholders in Egypt's LNG Sector

• Ministry of Petroleum and Mineral Resources: the Ministry sets Egypt's national policy in the fields of petroleum, natural gas, and mineral resources and sets national strategy for LNG exports and imports. The Ministry oversees EGPC and EGAS, both which are directly involved in LNG liquefaction and regasification ventures.
• GasReg: The regulator responsible for licensing and supervising Egypt's liquefaction and regasification facilities and activities.
• Egyptian Natural Gas Holding Company (EGAS): EGAS is a company owned by EGPC and operating under the supervision of Ministry of Petroleum, EGAS is primarily responsible for promoting gas investments, executing gas processing and liquefaction projects. Today, EGAS acts as a key player in LNG liquefaction and regasification projects.
• Egyptian General Petroleum Corporation (EGPC): EGPC is a public authority with legal personality and financial autonomy, operating under the supervision of the Ministry of Petroleum and Mineral Resources. EGPC participates, alongside EGAS and international partners, in Egypt's LNG liquefaction ventures at Idku and Damietta.
• The Egyptian Natural Gas Company (GASCO): GASCO is a state-owned company, 70% owned by EGAS, responsible for operating and managing Egypt's national gas transmission network, which connects production fields to LNG liquefaction terminals such as Idku and Damietta, as well as to entry points connected to LNG regasification units that deliver imported gas into the national system.
• International Energy Companies: act as equity partners, technology providers in Egypt's LNG liquefaction ventures at Idku and Damietta, in partnership with EGPC and EGAS.
• FSRU Operators: Companies providing regasification services through their FSRUs under charter arrangements with EGAS, enabling the import of LNG through terminals located at Ain Sokhna and Mediterranean coasts.

Contractual Framework for LNG Trade in Egypt

• Contractual Overview

LNG trade in Egypt relies on two main instruments, LNG Sale and Purchase Agreements (SPAs) and FSRU Service Agreements. SPAs are used in exports from Idku and Damietta, and imports for regasification through chartered FSRUs. FSRU Service Agreements, on the other hand, govern the operation of the FSRU that stores and regasifies importer LNG in return for a charter or service fee.

Together, SPAs and FSRU Service Agreements ensure the continuity of both export and import operations in Egypt as dictated by market needs. Both SPAs and FSRU Service Agreements contain a number of commercial and legal provisions that determine the risks and obligations are allocated between relevant parties. The following section outlines the key contractual elements commonly addressed under SPAs, followed by those specific to FSRU Service Agreements.

• SPAs: Key Contractual Elements

Scope of Commitment

SPAs set the commercial backbone of the relationship between the seller and the buyer, defining how long the arrangement will last, the quantities to be delivered, and how much flexibility each party has. Under the general principles of the Egyptian Civil Code (the "ECC"), and in particular Article 147(1) which provides that "the contract is the law of the parties," the parties are free to define the scope and duration of their obligations as they see fit. While some SPAs are structured as long-term commitments to secure supply and investment, others adopt shorter or more flexible terms that reflect changing market conditions. Quantity provisions usually specify annual delivery volumes with limited room for adjustment, allowing the parties to manage operational variations without disrupting the overall balance of the contract.

Delivery and Risk Allocation

Delivery terms in LNG SPAs define when and where title and risk in the cargo transfer from seller to buyer. The choice between delivery methods, most commonly Free On Board (FOB) or Delivered Ex Ship (DES), determines which party bears responsibility for shipping, insurance, and related costs and logistics. These delivery methods are typically governed by the incoterms rules issued by the International Chamber of Commerce. The parties need to agree on these terms early in the negotiation as they directly affect the price structure, transfer of title, and shipping schedule.

Force Majeure

Force majeure clauses in SPAs identify the circumstances under which a party is excused from performing its obligations due to events beyond its control. The scope of these events often depends on the location of the Parties and where the export terminal and the delivery point are located. SPAs usually require prompt notice and efforts to mitigate the impact of the event. Common exclusions include failure to pay, mechanical breakdowns, or events resulting from a party's own negligence. The clause therefore functions as a risk-sharing mechanism, linking the legal definition of force majeure to the physical location and operational responsibilities of each party.

Under Articles 165, 215, 217, and 373 of the ECC, a party is relieved from liability where non-performance results from an external, unforeseeable, and unavoidable event such as force majeure, provided that the event is not caused by that party. Articles 215 and 217 set out this rule within the context of contractual liability. While Article 215 provides for exemption of liability for non-performance when the cause is external, Article 217 allows the parties to agree in advance on how force majeure events will be treated, including whether liability will still apply. Also, Article 373 addresses the legal effect of impossibility of performance, providing the obligation is extinguished if performance becomes objectively impossible for reasons beyond the parties' control. Collectively, these provisions form the statutory basis for force majeure under Egyptian law and allow parties to tailor its application in commercial agreements such as LNG SPAs.

In contrast, Article 147(2) introduces the concept of hardship, which applies when unforeseen events make performance excessively burdensome but not impossible. In such cases, the affected party remains bound to perform, but the court may, upon request, adjust the obligation to restore contractual balance. This distinction reinforces the importance of drafting clear force majeure and hardship provisions, ensuring alignment with Egyptian law and predictability in the performance of long-term SPAs subject to Egyptian Law.

Applicable Law and Dispute Resolution

The choice of governing law and dispute resolution mechanism in an SPA should be determined by mutual agreement between the contracting parties. The parties mainly aim for a choice of law that offers neutrality and predictability. In relation to dispute resolution, when a party to the agreement is a state-owned company or a government-affiliated entity, additional steps are required under Egyptian law. Prime Ministerial Decree No. 1062 of 2019 (as amended by Decree No. 2592 of 2020) established a Supreme Committee to review arbitration clauses and other material provisions such as force majeure, change in law, and termination to ensure contractual balance. The Committee's approval should either be included as a condition precedent to the SPA's effectiveness or confirmed through a representation that the necessary clearance has been obtained before execution.

When drafting a dispute resolution clause; however, the parties should avoid ambiguous terms that may lead to prolonging the dispute and escalating cost, potentially pressuring a party to settle.

• FSRU Service Agreement: Key Contractual Elements

Many of the legal provisions found in LNG SPAs, such as those on force majeure, applicable law, and dispute resolution, apply equally to FSRU Service Agreements. However, given the operational nature of FSRUs, these agreements introduce additional considerations relating to service scope, performance standards, regulatory compliance, and risk allocation between the unit operator and the charterer. Consistent with the contractual principles previously noted under ECC, the parties retain broad discretion to define their respective obligations, subject to good faith performance as required under Article 148(1) of the ECC and compliance with mandatory legal requirements.

Scope and Term of Service

The agreement defines the duration and operational scope of the service, setting out when the FSRU becomes available, the capacity it must provide, and the conditions under which the unit is deemed on-hire or off-hire.

Service Fees and Availability

Payment is usually structured as a daily hire or service fee linked to the FSRU's availability. Periods of maintenance or dry-docking are typically treated as off-hire, during which payment is suspended. These periods should be planned outside high-demand months to minimize supply disruption.

Operational Responsibilities and Risk Allocation

The agreement allocates responsibility between the owner or operator, who manages and maintains the FSRU, and the charterer, who ensures the necessary port access, permits, and grid connection. The allocation of risk for events such as system failure, berth unavailability, or non-conforming gas must be clearly set out to avoid operational disputes.

Regulatory and Permitting Obligations

Because the FSRU operates within Egypt's territorial waters and connects to the national grid, the parties must coordinate to obtain all necessary permits and approvals from the competent authorities. Since Regasification and Storage licenses are not currently formalized by GasReg, these obligations are often divided based on which party is better positioned to manage the relevant risk or process.

Termination and Remedies

Termination events typically include prolonged off-hire, failure to pay, or extended force majeure. The agreement may also allow early termination by mutual consent or for regulatory reasons, particularly where continued operation becomes impracticable due to market or policy changes.

Investment Incentives

On a related note, pursuant to Article 10 of the Investment Law No. 72 of 2017, which providesgeneral incentives for energy infrastructure projects, including those related to liquefaction and regasification of natural gas. Thesegeneralincentives may take the form of tax incentives, financial incentives, regulatory incentives, andinfrastructuredevelopment measures. The main objective of these incentives is to foster anencouraging and enabling environment for energy sector participants includingLNG developers and regasification terminal operators, attract investment, and accelerate the transition to a sustainable and diversified energy future.

Conclusion

Egypt's LNG strategy ultimately reflects the balance between short-term responsiveness and long-term positioning. While recent use of FSRUs and LNG imports underscores a pragmatic approach to domestic energy demand, the broader goal remains maintaining Egypt's role as a regional gas hub linking Africa, the Mediterranean, and Europe. Achieving this balance depends on maintaining a stable legal and regulatory environment that continues to attract investment, expand infrastructure, and strengthen Egypt's adaptability in an evolving global energy market.

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