Egypt's Zohr: Towards self-sufficiency in gas?

Amany Ismail , Friday 5 Jan 2018

A look at the potential of the local gas sector in the wake of the Zohr Field starting production in December

Zohr Field
File Photo: Egypt’s Zohr Field (Photo: Ahram)

Egypt’s Zohr Field, the largest offshore natural gas field in the Mediterranean, started production on 16 December. It could prove to be a permanent remedy to Egypt’s power needs and bring it closer to the goal of self-sufficiency in the energy sector in 2018.

The supergiant field covers an area of about 100 square km, with estimated reserves of 30 trillion cubic feet and expected initial production of 350 million cubic feet per day. This is expected to rise to about one billion cubic feet by next June and then to 2.7 billion cubic feet by the end of 2019.

The field’s output would cover the gap between Egypt’s total gas consumption, standing at 4.9 billion cubic feet per day in 2016, and its total daily production of four billion cubic feet, according to data from the British Petroleum (BP) Statistical Review.

It could enable Egypt to return to exporting gas as soon as 2019. The country was a net exporter of gas for ten years before an energy crisis hit in 2013 when foreign companies stopped operations as they had not been paid their dues by the government, pushing Egypt to tap export markets.

This was followed by Egypt’s purchasing 89 cargoes of liquefied natural gas (LNG) from international suppliers in 2015/2016 at a cost of $2.2 billion, according to Egypt’s Petroleum Ministry.

Initial production from the Zohr Field is equivalent to three LNG cargoes a month at a cost of $90 million, according to the Petroleum Ministry. Meanwhile, the cost of local production does not exceed $30 million, which means that Egypt would be saving $60 million on a monthly basis.

The Zohr Field is not the only newly discovered gas field off the Egyptian coast. The North Alexandria and Nooros fields will, together with Zohr, raise Egypt’s natural gas output by 50 per cent in 2018 and 100 per cent in 2020. “The three fields together will contribute to natural gas self-sufficiency by the end of 2018,” Petroleum Minister Tarek Al-Molla said recently.

Foreign investors are keen to capitalise on the gas sector’s potential. Italian oil giant Eni, which discovered the Zohr Field, intends to pump investments of $3.5 billion into Egypt in 2018, representing half the company’s annual investments.

BP has started gas production from the Taurus and Libra Fields in the West Nile Delta Field off Egypt’s coast. These currently add 700 million cubic feet of gas a day to the Egyptian national grid.

The West Nile Delta development includes five offshore gas fields that could have a combined production of up to almost 1.5 billion cubic feet a day in 2019. This gas will also be fed into the national grid.

The government is expected to issue another tender for LNG purchases in early 2018 to cover the country’s needs for the second quarter of the year. It plans to stop importing the fuel by the end of next year because of the gas from the Zohr Field.

The government has also taken other steps to encourage energy investment in Egypt. Under Law 196 from August last year, private businesses will be allowed to transport and trade gas using the country’s pipeline network and infrastructure, moving away from a state monopoly, said Amira Al-Mazni, former vice-chairman of the National Gas Authority EGAS.

The law is part of a push by the government to spur investment in the economy. Over the past year, the government, backed by the International Monetary Fund, has enacted economic reforms that have included floating the currency, cutting subsidies and passing legislation to attract foreign investment.

Egypt has also adopted a flexible gas-pricing formula to encourage such investment. It previously paid a fixed price of $2.65 per 1,000 cubic feet. Talks are being held to price the gas at $4 per 1,000 cubic feet.

The Zohr Field’s output should satisfy the domestic market, with the nation’s two existing gas-liquefaction facilities being large enough to process the huge quantities of excess gas for export in 2019. If the Zohr and other gas fields generate more supplies, Egypt may consider adding a third LNG-exporting terminal, Al-Molla said.

Egypt can also become a gas-exporting hub as the sector has many advantageous features. In addition to abundant supply, thanks to the newly discovered fields, Egypt has 19 plants for natural gas treatment and two liquefying facilities with total capacities of 12 million tons per year.

Egypt has two floating deliquefying facilities with a total capacity of 1,300 million cubic feet per day. Osama Mobarez, head of Development of the Petroleum Sector at the Ministry of Petroleum, said Egypt’s strategic location together with its proximity to main international trade routes and the presence of Suez Canal enabled it to be a regional energy hub, being able to liquefy and store gas if necessary.

Law 196 is an important addition as it allows the private sector to directly ship, transport, store, market and trade natural gas using the pipeline and network infrastructure.

It also relieves the government from the burden of providing for the rapidly growing natural-gas consumption and turns it into a regulator, a practice common to countries that have liberalised their markets and freed them from state monopolies, said Hafez Al-Salmawi, an energy expert at the World Bank. 

*This story was first published in Al-Ahram Weekly newspaper

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