The 2015 discovery of the El Zohr gas field nearly doubled Egypt’s proven natural gas reserves. Given the scale of the domestic find, the inking of an agreement in 2018 for the Israeli company Delek Group to sell natural gas to Egypt’s Dolphinus Holdings was met with surprise on the part of some local industry observers. According to the terms of the deal, the Egyptian company will purchase $15bn worth of gas from Israel’s Tamar and Leviathan offshore gas fields – that is, from foreign fuel sources – over a 10-year period, amounting to around 64bn cu metres. The deal will take advantage of the government’s decision in 2018 to allow private companies to import gas, which Dolphinus will use to supply power to both industrial and commercial customers.
Gas Grab
Responding to questions about the deal, the administration has stressed that the contract was entered into by a private company, and therefore constitutes a commercial decision made independent of government strategy. However, public plans to increase gas imports do not stop with the Israeli deal, as the state intends to significantly increase the supply available to the country’s generating facilities in the coming years. In 2018 Egypt reached an advanced stage in negotiations with Cyprus and companies active in offshore Cypriot fields; there were also reports of progress in talks with Lebanon that were mediated by Saudi Arabia, a mutual ally.
Observers expect geopolitical considerations to continue to play a part in these developments, as the Eastern Mediterranean’s gas resources have become a newly contentious arena of regional competition.
Egypt also has more immediately pragmatic reasons for seeking out sources of gas beyond its recently discovered, local reserves. A recent report from US consultancy McKinsey found that the output of Egypt’s existing oilfields will begin to decline in 2020. Of greater concern, while the gas derived from El Zohr in its early production years is expected to mitigate this falloff, over a longer duration it will not be sufficient to offset tapering flows from more mature fields. According to McKinsey’s forecast, total production from Egypt’s gas fields will fall below 50bn cu metres in 2030, compared to more than 60bn cu metres exploited at present.
While the report does not take into account the possibility that additional fields will be discovered in the next decade, gas supply is clearly an issue of strategic importance, particularly given the current administration’s focus on shifting from oil to gas consumption. The three gas-fired plants launched by Siemens in 2017 use cheaper and cleaner fuel than their oil-powered predecessors, but between them they consume about 15bn cu metres of gas per year, equal to roughly one-quarter of local supply.
Long-Term Strategy
Accordingly, Egypt’s search for gas beyond its borders seems like a sensible longterm strategy to secure supply for its power stations and liquefaction plants. If the country is to realise its ambition to establish itself as a regional gas hub, cooperation with its neighbours will be essential.
Some other nations in the Eastern Mediterranean have apparently reached a similar conclusion: in January 2019 the formation of the Eastern Mediterranean Gas Forum was announced in Cairo, marking the beginning of a more collaborative approach between long-time energy rivals. The new body is a joint effort between Egypt, Cyprus and Israel, and is intended to allow these states to better coordinate their exploitation of regional gas reserves.
In addition to the gains to be made in intra-regional energy provision, this development may have significant and long-term ramifications further afield, as the EU has begun to show interest in Eastern Mediterranean sources as alternatives to Russian gas. Notably absent from the agreement, however, are Turkey, Syria and Lebanon, all of which are intently exploring their own offshore territories.
Read More from OBG
