Egypt’s gas journey: The impact of the Zohr field

Ghada Ismail , Thursday 15 Feb 2018

Ghada Ismail traces the journey of Egypt’s gas and petroleum sector from shortages and debt to a possible regional hub

Zohr Field
File Photo: Egypt's Zohr gas Field (Photo: Ahram)

The super-giant offshore Zohr gas field recently inaugurated by President Abdel-Fattah Al-Sisi is a life-saver for Egypt. Not only does it help secure the country’s domestic consumption needs, saving the budget millions of dollars in imports, but its possible exports will provide a much-needed source of hard currency income.

Moreover, it will act as a magnet for investments in the oil and gas sector, with there being expectations that it will transform Egypt into a regional energy hub. Output from the Zohr field currently saves Egypt more than $60 million monthly in natural gas imports. This sum will increase to $250 million per month by the end of 2018.

Work on the Zohr field, which has reserves of 30 trillion cubic feet of gas, was expedited over only 28 months instead of the estimated six to eight years it has been needed to develop similar fields elsewhere.

Production at the field started off at 350 million cubic feet per day when it was first operational in late December 2017, and it has now reached up to 400 million cubic feet per day. It is scheduled to increase to one billion cubic feet of gas per day by mid-2018.

The Zohr field’s output is expected to help Egypt attain self-sufficiency in natural gas by the end of this year when its output reaches 1.7 billion cubic feet of gas per day, Egyptian Minister of Petroleum Tarek Al-Molla has said.

By the end of 2019, production is scheduled to reach 2.7 billion cubic feet per day, representing 50 per cent of Egypt’s total production, Al-Molla said.

It is expected that Egypt will resume its status as self-sufficient in gas by 2019, to be followed by its resuming its role as a gas exporter after that. Egypt went from being a regional exporter of natural gas to a net importer in 2014.

The discovery and operation of the Zohr field has thus turned around the outlook for Egypt. People still remember the widescale electricity blackouts that intensified in the summer of 2014 because of gas-supply shortages.

The cause was primarily due to the accumulated debt of $6.3 billion owed to foreign oil-producing partners. The arrears prompted a lack of investment by the oil companies, causing a drop in production from six billion cubic feet per day in 2010 to 3.8 billion cubic feet per day in 2014.

To overcome such challenges, the government worked on three fronts by rescheduling the accumulated debt, importing gas to cover the gap until local production could recover, and offering new concessions for the exploration of new resources.

As far as the debt is concerned, the government started to pay regular installments in 2014. The arrears are now at $2.3 billion and down from $6.3 billion.

Meanwhile, the government has worked on infrastructure. It has leased two floating re-gasification terminals in Ain Al-Sokhna on the Gulf of Suez with a capacity to process 500 and 750 million cubic feet per day, respectively.

It has also diversified its natural gas imports from new markets such as Russia and Algeria. The moves helped stabilise the flow of natural gas to the country’s electricity stations, stabilising the electricity supply from May 2015.

Since 2014, over 22 concession agreements for the exploration of gas have been signed, leading to the discovery of substantial fields, including the Zohr, which was discovered by the Italian oil company Eni. This week another major oil field, Atoll also began production. Production started seven months ahead of scheduled according to British Petroleum (BP). The new field is now producing 350 million cubic feet of gas in addition to 10,000 barrels of condensate per day

There is strong potential for other discoveries following the Exclusive Economic Zone (EEZ) Demarcation Agreement with Cyprus and Greece. Talks were scheduled to begin to build a pipeline to deliver natural gas to Egypt from the Aphrodite Gas Field off the coast of Cyprus to be liquefied using Egypt’s liquefaction plants and re-exported.

Egypt’s investment in liquefaction and re-gasification facilities now qualifies the country to become a regional gas hub.

Between November 2013 and November 2017, 83 gas and oil exploration, discovery, and development agreements were signed with international companies for investments of around $15 billion. It is thanks to these agreements that discoveries such as the Zohr, Atoll, Libra and Noros fields were found.

Meanwhile, the petroleum sector has succeeded in maintaining Egypt’s level of production of crude oil at 700,000 barrels per day as a result of implementing projects in the Western Desert, the Gulf of Suez, the Eastern Desert and Sinai.

The projects aim to make good on the natural depletion of the production at older wells and fields. The most important projects are expanding and strengthening the existing infrastructure.

While making new findings, Egypt is also working on amending its legislation for the sector, opening the door to private participation in the natural-gas sector and moving to end the state’s monopoly.

A new law in August 2017 set up a Natural Gas Regulatory Authority charged with licensing and devising plans to open the gas market to competition. It also allows for the eventual import of natural gas by private companies.

The law allows the private sector to directly ship, transport, market, store and trade natural gas using the country’s network and pipeline infrastructure.

* This story was first published in Al-Ahram Weekly 

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