Economic Update

Heightened activity across several of Egypt’s large, new gas fields and government policy measures aimed at encouraging the sector’s development have put the country on course to reach its target of becoming a net exporter by 2019.

In March, Tarek El Molla, Egypt’s oil minister, announced that supermajor BP had commenced trial operations at its offshore North Alexandria concession and was expected to achieve commercial production levels by the end of the year. BP is eyeing production of 600m cu feet per day (cfd) at the concession, which it will process at the Bullurus gas treatment plant.

That same month, BP announced a third discovery at its North Damietta offshore concession in the East Nile Delta, which the company has described as a “world-class” area for exploration. These discoveries could help unlock more resources in the basin, the producer said. In April, contractor Subsea 7 reported that production had started early at phase one of BP’s West Nile Delta (WND) project. The $12bn WND concession is expected to produce up to 1.5bn standard cubic feet per day (scfd) of gas, around a one-third of Egypt’s current gas production.

In the same month, London-listed SDX Energy reported a new gas discovery at its onshore South Disouq project in the Nile Delta. Drilling will continue, the firm said, with production anticipated as early as the end of 2017. The discovery led analysts at Cantor Fitzgerald to upgrade the investment firm’s target price for SDX, a relative newcomer to the Egyptian market.

Supergiant field

There have also been ownership changes with the “super-giant” Zohr gas field, which holds an estimated 30trn cf of gas and is the largest field identified in the Mediterranean Sea to date. Earlier this year, President Abdel Fattah El Sisi met with the CEOs of BP, Russian energy company Rosneft, and Italy’s Eni to focus on the latest developments in the producers’ local projects, which include Zohr.

Rosneft, which has a growing presence in Egypt, expects to complete the $1.1bn acquisition of a 30% stake from Eni in Zohr field, which sits in the Shorouk concession. The sale will reduce Eni’s stake in Zohr to 60% and hedge risk, while boosting Rosneft’s capacity to supply the rapidly-growing Egyptian market. BP holds the remaining 10% of the Shorouk concession.

Sectoral heavyweight

Egypt’s 65trn cu feet (cf) of proven gas reserves are the second largest in Africa and rank 16th in the world. Investments in the exploration and production segment have helped to shore up Egypt’s vulnerable foreign exchange reserves and balance of payments, contributing an estimated two-thirds of incoming gross foreign direct investment (FDI), according to BNP Paribas.

Four oil majors rank among the country’s top 10 foreign investors, with the sector accounting for nearly half of the country’s exports. Hydrocarbons is also the largest contributor to the government’s coffers in terms of corporate taxes paid.

Rising domestic demand and declining output had pushed Egypt into a net gas deficit by 2014-15, prompting the government to begin stepping up production again. Measures implemented as part of the move included increasing the price paid for off-taken gas from new blocks by 40-120%, auctioning substantial new exploration areas at competitive terms, increasing the amount some onshore producers could export and making payments to address arrears owed to operators by state energy company, EGPC.

Risks remain

Despite its large upstream project pipeline, Egypt’s hydrocarbon sector remains exposed to a number of domestic and international risks, which include the threat of social unrest and terrorism, alongside volatile international gas prices.

However, once Egypt returns to the position of net exporter, BNP Paribas expects it to face challenges to maintain that position, given rapidly-rising domestic demand.