Egypt on natural gas

Aisha Ghoneimy
Wednesday 7 Feb 2018

The development of the Zohr Gas Field off Port Said will bring multiple economic benefits to Egypt

President Abdel-Fattah Al-Sisi inaugurated the first stage of the Zohr Gas Field on 31 January after two years of enormous efforts.

In spite of various obstacles and challenges in the wider political and economic environment, the government grasped the importance of the discovery of the Zohr Field in August 2015. It holds out the promise of Egypt’s becoming self-sufficient in liquefied natural gas (LNG) and retaining the country’s role as a supplier of natural gas.

The Zohr Field is recognised as the largest field in the Mediterranean and the most important discovery on the international level for years. It was discovered by the Italian energy company Eni and is located 180 km off the coast of Port Said some 1,500 m below sea level.

The importance of the field stems from its having a total potential of up to 30 trillion cubic feet of gas, which should transform Egypt from being an importer of natural gas into being a net exporter. Furthermore, it should meet the rapid increase in the demand for energy and replace oil, specifically in electricity generation.

It is anticipated that the production of natural gas from the field will increase to one billion cubic feet per day (bcfd) by the end of the first production stage in June 2018, granting Egypt self-sufficiency in its LNG supply. By the end of 2019, production should rise to 2.7 bcfd, transforming Egypt into a regional power hub.

Egypt seeks to develop into a regional energy hub for the production and export of natural gas through its privileged geographical location between the Mediterranean and Red Seas, in addition to consolidating its cooperation with the Eastern Mediterranean countries.

The energy sector is an engine for growth for many developing economies, and Egypt’s strategy for energy development is based mainly on gas discoveries and fostering investment opportunities in projects related to mining, energy efficiency, infrastructure and renewable energy. These things are necessary in order to bridge the gap between excess demand and limited supply of energy and cope with high rates of population growth.

The government has played a vital role both domestically and internationally to overcome challenges and maximise benefits from the new Zohr Field. Over the last two years, facilities have been provided to implement this super-giant project in a short period of time, and the necessary laws and regulations have been passed to promote investments and create incentives for the private sector in the shape of public-private partnerships.

Egypt has also taken steps to strengthen relations with Italy and overcome the negative consequences of the Regeni case – the killing in Cairo of Italian PhD student Giulio Regeni in 2016 – through accelerating judicial enquiries.

Another challenge has been the demarcation of maritime boundaries. Since Egypt possesses various economic resources in the Mediterranean, the government has pursued international accords for the demarcation of maritime boundaries in order to identify the country’s sovereignty rights over its economic exclusive zones (EEZs).

Among these accords has been the demarcation of maritime boundaries between Egypt and Cyprus that have allowed the relevant EEZs to be governed by the United Nations Convention on the Law of the Sea (UNCLOS). This gave Egypt the sovereign right to prospect in its EEZs until the major discovery of the Zohr Field.

On the back of this discovery, Egypt has continued its diplomatic efforts to resolve disputed boundaries with Cyprus and Greece, resulting in resumed negotiations over the demarcation of maritime boundaries between Egypt and these countries. In this context, Egyptian diplomacy has played a critical role in ensuring that a fair allocation of rights and obligations regarding economic resources in the Mediterranean can be achieved under the UNCLOS Convention.

In spite of various challenges, multiple economic gains are expected to be achieved over the coming years. The field will assist in easing the economic burdens on Egyptian society, the volume of the country’s exports will increase, and imports of LNG will decrease, improving the balance of payments and decreasing the chronic current account deficit.

It will also help to preserve Egypt’s energy balance between production, domestic consumption, and export revenues, after this having been for many years in deficit. The field is expected to save around $1 billion annually in gas imports.

Egypt’s net foreign reserves will be raised, resulting in better credit-worthiness and boosting the value of the pound. The budget deficit will decline on the back of the field covering energy demands and the rationalisation of energy consumption after the removal of subsidies.

Investment is expected to be expanded in the first and second stages of the project to around $15 billion. Around 16,000 direct job opportunities will have been provided, and further opportunities are expected.

Two other Egyptian gas fields have recently been discovered in the shape of the Nooros and North Alexandria Fields, and some $27.3 million is expected to be invested in all three in 2018. Egypt is exerting great efforts to speed up production from these recently discovered fields, with an eye to halting imports of natural gas by 2019.

Egypt’s long-term strategy for achieving economic growth and development as well as welfare focuses on the efficient use of its economic resources and their minimal waste such that the country can be self-sufficient in the long-term.

Most recent loans and investment decisions have been directed to mega-projects related to infrastructure development, energy efficiency and renewable resources. The returns on these will be seen over the long-term in the shape of a more strongly developed economy.

Egypt is going through a transitional stage towards a developed economy, and this requires patience, understanding and the struggle to alleviate the discrepancies that made the economy less productive than it should have been over previous decades.

The writer is coordinator of international relations at the Faculty of Economics and Political Science, Cairo University.

*This article was first published in Al-Ahram Weekly  

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