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    Egypt pivots from import to exports [NGW Magazine]


An investor-friendly upstream regime, abundant reserves on and offshore and proximity to the giant European gas market make Egypt a natural hub. (This article is featured in NGW Magazine Vol.3, Issue 18).

by: Mark Smedley & Charles Ellinas

Posted in:

Top Stories, Africa, Premium, NGW Magazine Articles, Volume 3, Issue 18, Egypt

Egypt pivots from import to exports [NGW Magazine]

Egypt’s gas production is forecast to reach at least 6.5bn ft³/day by the end of 2018, the equivalent of 67bn m³/yr, the petroleum minister Tarek el-Mollar said in July. Next year it is likely to surpass 80bn m³/yr – 10bn m³/yr more than domestic demand and worthwhile liquefying for export. Admittedly this quantity could be short-lived, based on known discoveries so far; but with massive yet-to-find resources, Egypt is optimistic.

Egypt has indicated its readiness to discuss the re-opening of the Damietta LNG export plant, shut for six years, and the ramp-up of the country's other such plant at Idku.

A petroleum ministry official said early in September it would seek to negotiate with Damietta’s main owner, Eni/Naturgy joint venture Union Fenosa Gas (UFG), the possible resupply of Egyptian gas to Damietta – but only after Egypt achieves full gas self-sufficiency at end-2018, according to Daily News Egypt.

It followed an olive branch from UFG which told NGW a few days earlier: "We expect Damietta to resume their operations soon. We are working hard to make it possible.”

At the start of September UFG announced it is due to receive $2.013bn compensation from the Egyptian government after tax in settlement of a case that it took to international arbitration in 2014, when it successfully argued that Egypt must compensate for its refusal to supply any feed gas to Damietta since 2012. The full amount due from Cairo – including interest and lawyers’ fees – will be nearer $2.2bn.

Egypt – the gas giant

Egypt is positioning itself as a hub for east Mediterranean gas flows, thanks in part to the foreign producers who have found so much gas

The Eni-operated Zohr supergiant, discovered just three years ago, started up phase 2 three months ahead of schedule and is now producing at 20.7bn m³/yr; targeted plateau production from phase 3 next year is 27.9bn m³/yr. Its Noor prospect offshore Egypt may lead to significant new gas discoveries. Drilling will start during the last quarter of 2018, with results expected in early 2019.

The UK BP-led Atoll field phase 1 was fast-tracked and started up in February at 3.7bn m³/yr, while another fast-track field, Eni’s Greater Nooros, was at the equivalent of 11.7bn m³/yr as of this August.

BP expects to start West Nile Delta phase 2 later this year, taking five-field WND venture to 15.5bn m³/yr; it started its first WND two fields (Taurus and Libra) eight months early in May 2017.

Another promising prospect is the North Thekah concession offshore Egypt, close to Zohr, where Edison plans to drill next year.

More gas is still to come from recent and new discoveries, such as Balteem, 9B, Raven, East Obayed and South Disouq. These are small gas-fields but could add up to 15bn m³/yr.

With exploration in full swing, Egypt is also launching new licensing rounds in the Red Sea and the Mediterranean.

In addition, Eni, Shell, BP and Edison announced recently plans to expand their existing investments and activities, demonstrating their faith in the country. BP has invested over $35 bn during the last 5 years.

It has also started up three giant new gas-fired power complexes totalling 14.4 GW, which builder Siemens says will save Egypt over $1bn/yr in fuel costs. They also saved Egypt from building coal-fired plants. The IEA says the new units increase Egypt’s generation capacity by more than 40%, and substantially improve its efficiency: the CCGT units can achieve 61% electrical efficiency.

It is a remarkable turnaround for a country just three years ago characterised by insurgency, a failure to pay debts to international gas producers, and import dependency. So it is a testimony to the technocrats who surround the president Abdel Fattah al-Sisi and maybe even the strongman himself, that these projects have been brought on stream quickly and safely, while other countries in the continent are unable to seize the opportunities their reserves represent.

Monetising east Med gas at Egypt’s LNG plants

A more positive gas balance has led to Cairo exploring options for its neighbours to monetise to their gas at idled Egyptian LNG export facilities.

Cyprus and Egypt on September 19 signed an intergovernmental agreement (IGA) to develop a gas pipeline linking Cyprus and Egypt. Cyprus energy minister Georgios Lakkotrypis said the accord paves the way for future Cypriot gas to be monetised in Egypt. A direct subsea pipeline carrying gas from the Aphrodite field – among others – to Egypt would enable it be liquefied then re-exported to Europe, he said.

A joint monitoring committee, composed of representatives of the energy ministries and regulatory authorities of both countries, would be set up within 30 days, said Lakkotrypis who signed the agreement with el Molla.

Greek E&P firm Energean, majority owner of a joint venture developing new reserves offshore Israel, told NGW in July it is seeking ways to monetise future finds there that it may be allowed to export – a third-party eastern Mediterranean pipeline project to Europe being one, but Egyptian LNG plants being another (see box below).

Energean also admitted in July that it is ready to buy and operate a 45% stake in the Gaza Marine offshore gas field, if both Israeli and Palestinian authorities approve. Shell sold a 90% stake to the Palestinian sovereign wealth fund PIF in April, which wants to on-sell half that stake to an operator. BG –now part of Shell – found 1 trillion ft3 gas in 2000 on Gaza Marine but it was never developed.

Continuing confidence

Big players continue to invest offshore Egypt and are rewarded in the form of higher gas prices for producers fixed in 2015 at much higher levels (in the $3.75-$5.88/mn Btu range) than previously. 

Egypt signed oil and gas exploration agreements with Shell and Malaysia’s Petronas, the petroleum ministry said September 15, whereby the two investors will spend $1bn drilling eight well in West Nile Delta region. Shell and Petronas together have a controlling interest in the Idku LNG export facility. They also – like Eni, BP and others – supply Egypt’s domestic market.

Egypt is moreover on good terms with rival powers, a place where western and Russian partners co-invest. Alongside Eni at Zohr (operator with 50%) are Russian giant Rosneft with 30%, BP 10% and Abu Dhabi state-owned Mubadala Petroleum 10% – Rosneft itself being 19.75%-owned by BP.

When al-Sisi met the US president Donald Trump at the UN in New York on September 24, it was the latter who effused: “It’s a great honour to be with President Al-Sisi, a friend — a great friend — of Egypt.”

East Med Pipeline risk

Business consultancy AD Little has warned that the proposed revisions to the European regulations intended to make life harder for Gazprom’s Nord Stream 2 project could also affect the planned pipeline from Israel via Cyprus to Greece (East Med), as well as older pipelines already in operation. This could however provide more gas for liquefaction in Egypt.

“The third-country suppliers or transit nations involved vary greatly in their upstream regulation, political stability, interests, attitudes towards each other, and in their general inclinations towards the liberalised EU gas market and the conditions it wishes to impose,” says AD Little in its paper, Gas Directive amendment and relations with third countries, published early September.

“The requirement for new or renegotiated IGAs is not without risk. Third-country governments may not be comfortable about having EU regulation extended to their doorsteps and may make counter demands,” it said.

An alternative to East Med for Israel, Cyprus and others, would be to build a pipeline to Egypt, liquefy the gas there at one of the existing LNG facilities, and ship it as LNG to any market offering the best netback price. Israel has already signed supply deals with Egypt and Jordan and is considering links to Turkey.

AD Little points out that this would have several potential drawbacks for the EU, including the missed opportunity to diversify and increase security of supply in southeast Europe, especially Bulgaria; and higher costs and carbon emissions owing to the need to liquefy gas in Egypt.