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    Egypt draws the majors [NGW Magazine]

Summary

Putting the past behind it with prompter payments and the restart of LNG exports, Egypt is looking to a gassier and more prosperous future.

[NGW Magazine Voluma 4, Issue 4]

by: Charles Ellinas

Posted in:

NGW News Alert, Top Stories, Africa, Premium, NGW Magazine Articles, Volume 4, Issue 4, Renewables, Import/Export, Political, Supply/Demand, Liquefied Natural Gas (LNG), Egypt

Egypt draws the majors [NGW Magazine]

The Egyps conference in Cairo early February, with its sprinkling of senior executives from large oil companies, and some well-timed announcements of field start-ups and licence awards, drove home the importance the country attaches to its energy potential.

Following natural gas self-sufficiency in September 2018, Egypt’s next aim is to become a regional gas hub. Thriving domestic production helped by international oil companies, and liquefaction tolling agreements with nearby countries that otherwise will struggle to find a market for their offshore gas, will all help to give the economy a boost, the government hopes.

Fast rising output from the Zohr field allowed Egypt to restart gas exports to Jordan and it intends to increase these to 150mn ft³/d in 2019. This provides further support to the country’s aim to become the regional energy hub, petroleum minister Tarek El Molla told the conference February 11.

Egypt’s natural gas network has the capacity to handle as much 9bn ft³/d. In addition, the maximum liquefaction capacity of the Idku and Damietta LNG plants is 1.88bn ft³/d.

Egypt fully intends to expand LNG exports from the two plants to global markets at full plant capacity. In fact Idku is already exporting about 0.56bn ft³/d LNG, with Anglo-Dutch major Shell entitled to half the output. Speaking at its Q4 results, Maarten Wetselaar told NGW that this was one of the countries where its LNG offtake had grown. And a spokesman at the event said Shell plans to increase LNG exports from Idku this year as it ramps up production from the West Delta 9B gas-field.

In the old days when it was a BG asset, mounting arrears from the government had put further upstream investment on hold.

Referring to these exports, El Molla said he was“happy to honour contractual LNG obligations.”

The inter-governmental agreement signed last year between Egypt and Cyprus, and the approval of a gas pipeline to connect Cyprus’ Aphrodite gas-field with Idku, and possibly Damietta, is opening the way for up to 0.7bn ft³/d gas exports from Cyprus to the two LNG plants, probably by 2022-23. A commercial agreement appears to be imminent.

In addition, the Egyptian government appears to be in negotiations with Union Fenosa, operator of Damietta, to drop its arbitration case filed against Egas at the International Centre for Settlement of Investment Disputes. In exchange, Union Fenosa and its partners will be compensated through deductions over a period of time from Egas’ share of LNG. Should this be concluded successfully, it would allow Damietta to return to operation soon.

Egypt’s petroleum ministry has indicated that some of the gas from Cyprus, and possibly from Israel, will go to Damietta. In addition, Eni hopes that some of the gas from Zohr will also be exported as LNG through Damietta.

In order to encourage a further increase in investments and exploration, Egypt is releasing a new oil and gas contracts that give IOCs control of their share of production.

Dudley confirmed February 11 that the Giza and Fayoum gas-fields, the second stage of the West Nile Delta, had started production. The eight wells are producing around 400mn ft³/d and is expected to ramp up to a maximum rate of 700mn ft³/d .  He said that “during the last three years BP brought 21 new projects into production, keeping BP on track to deliver 900,000 barrels oil equivalent (boe)/day by 2021.”

During a panel discussion on the dynamics of gas and LNG, Lorenzo Simonelli, chairman and CEO Baker Hughes, a GE company, and Richard Tyrrell, board member Hoegh LNG, were very positive about the prospect of LNG exports from the region and supportive of Egypt’s plans to become the regional energy hub.

Upstream success

The big news was that a new major international oil company has entered Egypt’s E&P sector: ExxonMobil. But the big winner was Shell, winning three concessions for oil and two for gas. El Molla was particularly happy to see Shell bidding for blocks again, after three years of abstaining. Other successful IOCs were BP, Total, Petronas and DEA.

El Molla attributed this success to Egypt’s improved investment climate and political stability, and of course the Zohr experience.

Egypt is planning to launch a new bidding round this year for blocks in the Red Sea.

In a panel discussion on boosting production and achieving mutual goals, Keith Elliott, senior vice-president offshore Noble Energy, said that a lot has happened during the last year. The prospect of bringing significant gas from the region to Egypt is getting nearer, supporting Egypt’s plan to become an energy hub.

Noble’s projects have become more tangible, with the giant Leviathan field offshore Egypt progressing well. He sees the region as capable of becoming more competitive globally. Also active in Israel is Energean. CEO Mathios Rigas pointed out that the eastern Med is deep-water and pipeline developments are not cheap. This is what makes the oft-discussed East Med gas pipeline challenging.

Grady Ables, senior region vice-president Apache, said that the company is strengthening its portfolio in the Western Desert and plans to be there for a long-time to come. Renewables is coming, but it is not just oil and gas or renewables – it is both. The world will need all energy it can get, he said.

Deregulation of the gas market, improved economic conditions and improvements to oil and gas contracts are helping boost upstream investment.

Dana Gas CEO Patrick Allman Ward said that he was happy with progress on payments against arrears. He also confirmed that the company is planning to start drilling in Egypt’s block 6, with the first target, Merak, estimated to hold 4 to 6 trillion ft³ natural gas. The full potential of block 6 is estimated to be 20 tn ft³. Should these be successful, Dana estimates the total investment cost of developing block 6 would be about $5bn.

Renewables

At a panel discussion on shifting global dynamics the message was that despite energy transition, the world will still need oil and gas for a long-time to come.

Renewables alone cannot provide for the expected increase in global primary energy demand. Nick Boyle, Group CEO Lighthouse BP, said that there is a need to build a symbiotic relationship between low cost renewables with natural gas in order to be able to offer reliable electricity.

But low price remains the main driver. The cost of solar power is now a twentieth of what it was 10 years ago and it does not depend on feedstock or price fluctuations. It is a predictable source of power generation, with predictable sales and revenues. Once the plant has been built and installed, further operating costs are marginal.

With Lighthouse onboard, BP is now focusing not just on oil and gas, but also on renewables in Egypt. Its projects are already generating competitively-priced, dependable, renewable power for Egyptian businesses and communities.

Shifting price dynamics

The CEO of German producer DEA, Maria Moraeus Hanssen, said that low prices have forced the industry to plan for the future more sustainably. But even the oil and gas industry must be prepared to cope with prices shifting gradually downwards. Embracing strategies on how and when to invest, including cost efficiency, will be critical to remaining relevant while competing in a low price environment

Looking into the future Hanssen said “if I had money I would invest in petrochemicals.” That is not necessary though as it turns out that petrochemicals are investing in DEA. It is being bought by Wintershall, the upstream division of German chemicals giant BASF.

Referring to Egypt, she said it is a good place to be in and perfect to become the regional energy hub. With a huge internal energy market, extensive infrastructure, combined with increasing use of renewables, its energy future is bright.

The future

In an on-stage interview, El Molla was asked what he is looking forward to in 2020. His main ambition, he said, is to grow natural gas production further. He wants more discoveries so that Egypt can realise its full natural gas resource potential. Egypt is now planning another bid round to include blocks in the Red Sea.

On the back of these developments he is also keen to maximise exports and see Egypt’s LNG plants being fully used, fulfilling existing contractual obligations for LNG exports.

Another critical area is continuation of subsidy reforms. Removing subsidies helps avail more of Egypt’s annual budget to education, health and social welfare. It also helps rationalize energy consumption. This is now coming down to more acceptable levels.

Egypt has also embarked on an ambitious programme to connect households to the gas distribution system. The target this year is to connect another 1mn households and then connect all households over the next 3 years. He wants to eliminate the need for LPG.

Finally, El Molla wants to see the aspiration of turning Egypt into the eastern Mediterranean’s energy hub become reality. Egypt’s strength is well-developed infrastructure, strategic location and skilled expertise – all essential ingredients. Egypt’s East Med Gas Forum (EMGF) partners share this view and the first formal meeting of their energy ministers is planned to take place in March.