In addition to bringing Egypt closer to reaching self-sufficiency in natural gas, the Zohr gas field will likely be a much-needed source of funds for the wider economy, notably by helping the country repay its growing external debt, experts have said.
President Abdel-Fattah Al-Sisi inaugurated the first stage of production at the Zohr field, which lies off-shore in the Mediterranean Sea, last week in a ceremony in which he stressed the importance of the project for the country’s wider economy and to support its foreign reserves.
Egypt has been able to keep its reserves stable or growing since it started an economic reform programme in 2016 aided by loans from entities such as the International Monetary Fund (IMF). While the country’s external debt stood at $81 billion in January, according to the Ministry of Finance, Egypt’s foreign reserves increased to a record high of $38.2 billion.
The massive off-shore Zohr field, about 190km north of Port Said and 1,500m deep, contains an estimated 30 trillion cubic feet of natural gas. Production at the field is now 400 million cubic feet per day, up from 350 million in December when it started an initial phase of production.
“The production from the Zohr Field will help Egypt achieve self-sufficiency in natural gas and cut its imports bill,” Tarek Al-Molla, the minister of petroleum, said. The field will immediately save Egypt more than $60 million per month in liquefied natural gas imports, and the country will be able to save $250 million per month by the end of 2018, he said.
“Starting production at the Zohr Field is a gift from God as Egypt needs the revenue as soon as possible,” Hamed Abu Hamza, a former UN economic advisor, said.
Egypt is scheduled to repay about $12 billion in loans and interest in 2018, Abu Hamza said, and the money saved from the imports bill of natural gas will help ease the burden.
Total investment in the Zohr field is estimated to be $12 billion by the end of stage two in 2019, which will see production at full capacity. More than $5 billion has already been invested in the project, according to the Petroleum Ministry. The field started operation only 28 months after its discovery, which is unique given that similar discoveries elsewhere have taken six to eight years before production started.
According to the website of the Italian company Eni, which owns 60 per cent of the project, the story of the field dates back to 2012 when 15 exploration areas came up for tender. “Digging offshore oil wells in the Mediterranean Sea had never produced good results in the past, but Eni had to decide quickly whether to bid for the tender when a new opportunity arose,” the company said, adding that in August 2015 the field turned out to be a sensational discovery.
In 2016, stakes in the Shorouk concession at the field were sold to the oil companies British Petroleum and Rosneft, the former receiving 10 per cent of the concession and the latter 30 per cent.
Al-Molla said at the Egypt Petroleum Show 2018 on Sunday that 1.6 billion cubic feet of gas per day had been added to Egypt’s production of natural gas in 2017. The new production was added by four fields including Zohr, which began production in December 2017. Egypt’s current production of natural gas is 5.5 billion cubic feet per day.
“Production will exceed six billion cubic feet per day by the end of 2018,” the minister said, explaining that gas production from the Zohr field alone would rise to one billion cubic feet per day by the middle of 2018 and is expected to reach 1.7 billion by the end of the year.
The Zohr Field should produce 2.7 billion cubic feet of gas per day in 2019, about 50 per cent of Egypt’s total production, Al-Molla said. Egypt consumes about six billion cubic feet of natural gas per day. “The country is steadily moving towards becoming a regional hub for trade and the circulation of oil and gas,” he added.
Egypt had become a huge importer of natural gas after the country had been among exporters for a significant time, Abu Hamza said, but now it could restore its energy balance. “Egypt can start exporting natural gas again by the beginning of 2019,” he said, by which time more investment in different sectors could be carried out as a result of the stability of the energy supply.
“This means more job opportunities and the solving of supply problems to factories using natural gas that used to have to shut down at times of crisis,” Abu Hamza said.
* This story was first published in Al-Ahram Weekly