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Wednesday, 12 December 2018

Egypt stops gas imports, on its way to become self-sufficient

Thanks to the Zohr gas field which began output in December 2017, and is among the largest gas fields discovered so far in the Mediterranean

Ghada Raafat , Thursday 4 Oct 2018
Zohr gas field
Egypt's Zohr gas field (Photo: Courtesy of Eni Company Official Website)
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Petroleum Minister Tarek Al-Molla announced this week that Egypt will no longer import liquefied natural gas (LNG), saving the government the LE3 billion it earmarked annually to meet local demands.

The savings are due, in large measure, to the Zohr gas field which began output in December 2017. Zohr, with reserves of more than 30 trillion cubic feet (tcf), is among the largest gas fields discovered so far in the Mediterranean.

Its output is central to the government’s plans not only to become self-sufficient but to transform Egypt into a regional energy hub.

Three years ago Egypt imported up to 1.2 billion cubic feet per day (bcfd). Eni, the Italian multinational oil and gas company which discovered Zohr, announced in early September that the gas field is now producing two bcfd.

Zohr’s discovery in 2015 offered the Egyptian government more than a breathing space to save on imports. The field will bring in much needed hard currency when Egypt starts exporting gas, which it is slated to do by 2019 when output from other gas fields comes online.

Egypt’s daily production of gas rose in September to 6.6 bcfd from 6 bcfd in July 2017, according to Petroleum Ministry Spokesman Hamdi Abdel-Aziz.

The production increase includes the output from Atoll, a significant offshore discovery in the North Damietta Concession developed by British Petroleum, the Nooros gas field and the Northern Alexandria field.

Their contributions have seen production increase from 3.6 bcfd four years ago to last month’s high, says World Bank energy consultant Hafez Al-Salmawi.

And more discoveries are in the pipeline. Two months ago Eni announced a new gas discovery in the Western Desert. Other explorations are ongoing in the Red Sea and the Mediterranean.

The oil and gas sector is a locomotive for developing the Egyptian economy and the government is keen to attract more investment, MP Talaat Al-Sewidi, chairman of parliament’s Energy Committee, told Al-Ahram Weekly.

President Abdel-Fattah Al-Sisi’s meetings during his recent visit to the US with 66 of the largest US companies, including four leading oil exploration and production companies, highlight the important role of the oil sector in the Egyptian economy.

Egypt, says Al-Sewidi, was very effective in negotiating the Zohr field’s exploration terms and succeeded in expediting output over 28 months instead of the six to eight years needed to develop similar fields elsewhere.

Political will is essential in developing the oil and gas sector, says Gamal Al-Qalioubi, professor of petroleum and energy engineering at the American University in Cairo.

But the government is not only focusing on the gas sector. The long-term National Energy Strategy, approved by the Supreme Energy Council, targets an energy mix which includes nuclear and renewable energy sources.

An important part of the strategy, says Al-Qalioubi, is for the government to pay off its debts to foreign partners in order to encourage further explorations.

The government has succeeded in cutting its debt to foreign oil exploration companies to $1.2 billion in fiscal year 2017-2018, down from $6.3 billion in 2012, the Petroleum Ministry announced in July, and will pay the remaining sum by the end of 2019.

The debt accumulated following the January 2011 Revolution when a slowdown in the economy caused a fall in oil and gas investments. By 2014 Egypt had become a net importer, rather than exporter, of natural gas.

Egypt now aims to become a regional energy hub, receiving natural gas through underwater pipelines from countries around the Mediterranean to liquefy and then re-export.

One link connecting Israel’s grid to Egypt’s at Arish already exists. The pipeline, built and operated by East Mediterranean Gas (EMG) was previously used to transport Egyptian natural gas to Israel but will be re-engineered to reverse the flow.

It is expected to start its new operations in 2019, carrying an estimated 64 billion cubic metres of gas over a 10-year period. A $15 billion agreement was signed in February between the Egyptian private firm Dolphinus Holdings and Delek Drilling LP and Noble Energy Inc, operators of Israel’s Leviathan and Tamar gas fields.

Noble Energy and Delek have finalised agreements with an Egyptian partner to acquire a 39 per cent stake in the pipeline operator EMG, paving the way for Israeli natural gas exports to Egypt.

The agreement includes the settlement of outstanding arbitration rulings against the Egyptian government. Egypt’s failure to deliver agreed gas exports to Israel due to constant sabotage of the pipeline following the January 2011 Revolution triggered compensation rulings against Egypt.

Bloomberg reported last month that the Egyptian government has reached an agreement to reduce the $1.76 billion international arbitration ruling against the Egyptian Natural Gas Holding Company (EGAS), Egyptian General Petroleum Corporation (EGPC) and East Mediterranean Gas (EMG) to $470 million, to be amortised over 15 years.

Egypt recently signed an agreement with Cyprus for a $1 billion pipeline connecting Cyprus’ Aphrodite field to liquefaction plants to be constructed in Damietta and Edku. In the works for some time, the agreement is the result of constant back and forth diplomacy between the Egyptian and Cypriot governments.

Amira Al-Mazni, former vice chair of EGAS, urges patience. The agreement does not mean Cypriot gas will start flowing to Egypt tomorrow, she says, since much work needs to be done before the Aphrodite field is brought online.

Among the most difficult outstanding negotiations, she says, are those between Cyprus and Israel over sharing revenues. The Aphrodite field is divided between Cypriot and Israeli territorial waters.

Increased gas output is encouraging Egypt to expand the petrochemicals industry, locking in profit by adding value. A multi-site petrochemical complex with 22 factories, 11 in Ain Sokhna, while the remainder in Alamein, is being planned.

In its efforts to transform Egypt into an energy hub the government has introduced new legislation liberalising the gas market, opening the door for the private sector to acquire permits to import natural gas.

A regulatory authority has also been established to oversee the running of the national grid and other infrastructure. It will be responsible for regulating commercial activities, issuing and renewing company licences, setting regulations for the use of the national grid, facilitating the transportation of natural gas and setting mechanisms for the calculation of tariffs.

* A version of this article appears in print in the 4 October, 2018 edition of Al-Ahram Weekly under the headline: A burst of fresh energy 

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