Natural gas industry to provide boost for Egypt’s economy

A production jump to 2.2 billion cmd is planned by mid-2020.

Gas tanks at Suez city north of Cairo. (Reuters)

2017/03/19 Issue: 98 Page: 19

The Arab Weekly
Walid Khadduri

Beirut - Egypt plans to increase natural gas production to 166 million cubic metres per day (cmd) by June 2018 from approximately 110,000 million cmd in May 2016. A production jump to 2.2 billion cmd is planned by mid-2020. The plan looks doable with Eni’s develop­ment plans for the giant Zohar field on target, as well as BP’s West Nile Delta (WND) development plans projected to be completed before target, in summer 2017.

The gas production boost has started with Eni’s Noroos field pro­ducing 25.5 million cmd of natural gas in its first year of production. At the end of 2016, production had hit 127 million cmd. The next incre­mental output increase is expected to arrive this summer from BP’s WND field, with reserves of 142 bil­lion cubic metres of gas and a de­velopment cost of $12 billion. Initial production from WND is slated at approximately 22 million cmd ris­ing to 34 million cmd by 2019.

The significant expansion into gas resurgence, after years of dol­drums, will be the Zohar field out­put. The development cost of Zo­har is around $12 billion. Reserves are estimated at 651 billion cubic metres. BP recently bought a 10% share in the field from Eni. Output of an initial rate of 5.6 million cmd for the first phase in December 2017 is to rise to 34 million cmd by spring 2018. The second phase production is targeted to start at 76 million cmd by the end of 2018.

Egypt must deal with an impor­tant challenge. Can it become gas self-sufficient by 2020? Egyptian gas fields suffer from an approxi­mately 20% annual decline. This means it is necessary to ensure the start-ups of new fields annually to maintain a balance of supply and demand.

Egypt has contracted to import 7.96 million tonnes (around 31 mil­lion cmd) of liquefied natural gas (LNG) in 2017. This has required to contract 117 LNG cargoes for this year. Around 45 loads are to be sup­plied by Russia’s state-owned Ros­neft and approximately 60 cargoes are to be imported from the trading houses Vitol, BB, Glencore, Trafigu­ra and Gunvor.

Since the shortfall in supply and rising demand in 2014, state-owned gas firm EGAS has signed scores of deals to import LNG. Egypt sus­pended its piped exports to neigh­bouring countries while retaining exports to Jordan, delivering lower volumes at a higher price formula. LNG exports to two European coun­tries have also been suspended.

Similar to other oil-producing countries, Egypt suffered a cash shortfall during the oil price col­lapse of 2014-16. Payments to oil operating firms were in arrears of $3 billion-$5 billion. Egypt’s economic problems are in a dire situation, much bigger than the cash shortfall during the recent price crash.

“We are in a bottleneck and we are on our way out, but if we want to get out, we have to take tough decisions,” said Egyptian President Abdel Fattah al-Sisi.

The government has tried to deal with the problems by instituting value-added tax (VAT), reducing subsidies — the latest to bread, the main Egyptian food staple. Last No­vember, it undervalued the curren­cy. Inflation is estimated at around 30% annually.

Last summer, Egypt experienced a series of blackouts due to power cuts. Natural gas fuels more than 90% of Egypt’s power stations. Domestic demand for natural gas increased at high rates because of subsidies and the rising population rate.

The government made more gas available to local power stations by suspending exports, reducing gas supplies to local industry (cement and petrochemicals) and suspend­ing LNG imports. These short-term measures were accompanied by long-awaited agreements with the operating oil firms — payments of arrears and modification of the pro­duction-sharing agreements to pro­vide incentives to the companies.

The life-saving measure to the gas industry was Eni’s announce­ment in August 2015 of the discov­ery of the Zohar field, the largest gas field discovered in the Mediter­ranean. Zohar has provided an op­portunity to meet Egypt’s domestic demand, at least in the short and medium terms, as well as provide the opportunity to resume exports. The projected growth of the natural gas industry is expected to provide an impetus for Egypt’s economy.

Walid Khadduri is an Iraqi writer on energy affairs based in Beirut.

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