Economic Update

Published 29 Mar 2016

In spite of the global slowdown in capital spending by energy companies, Egypt’s upstream gas industry is attracting multi-billion-dollar investments as it looks to meet rising domestic demand.

With low production costs, well-developed infrastructure and several offshore gas fields currently under development, prospects are good for Egypt to regain self-sufficiency in the medium term.

A major discovery

In late February the Ministry of Petroleum and Mineral Resources gave the approval for state-owned Egyptian Natural Gas (EGAS) to grant Italy’s Eni the development lease for the super-giant Zohr offshore gas field, located in the Shorouk concession of Egypt’s Sohar basin in the Mediterranean.

Discovered in August, the 100-sq-km Zohr field is the largest to be discovered to date in either Egypt or the broader Mediterranean, according to Eni officials, with an estimated 850bn standard cu metres (scm) of gas.

Eni plans to start production at the field by the end of 2017, ramping up output to around 75m scm – or approximately 500,000 barrels of oil equivalent – per day by 2019.

Initial investment in the Zohr field is projected to cost around $3.5bn, with the company expecting to dedicate $6bn-10bn to overall development.

Under its agreement with EGAS, Eni will charge between $4 and $5.88 per 1m British thermal units. Some 40% of the value of gas produced will be reserved until Eni recoups its investments costs, with the remainder to be split 35:65 between Eni and the Egyptian government, according to local press reports.

Signalling the prospects for local firms to benefit from the deal, Eni has announced plans to work with several contractors, including Egypt’s Petrojet and Enppi.

Courting investment

Zohr is seen as a landmark project in terms of boosting Egypt’s gas production to meet rapidly rising domestic demand.

“Our view is that the discovery of a major gas deposit has the potential to improve Egypt’s energy position and to contribute to its economy more broadly,” William Murray, a spokesperson for the IMF, said in September.

Once a net energy exporter, Egypt now relies on imports to satisfy rising consumption against a backdrop of waning local hydrocarbons output.

Nonetheless, gas shortages have triggered electricity shortfalls and have seen export-bound gas redirected to the domestic market, causing the country to lose out on valuable foreign currency earnings.

However, renewed efforts to encourage investment in Egypt’s gas fields – a strategic priority for the government – are meeting with considerable success.

The total value of natural gas projects in Egypt, excluding Zohr, stands at around $13.8bn, Tarek El Molla, minister of petroleum and mineral resources, told media in November, with the Zohr discovery presenting significant scope for further upstream investment.

Others in the pipeline

Further capital investment is taking place across the country’s Mediterranean blocks.                                     

After signing agreements in March 2015, BP is moving ahead with development of the West Nile Delta project, located 65-85 km offshore, which boasts an estimated 5trn cu feet of potential gas reserves.

BP expects the project – which is being carried out in partnership with Germany’s DEA Deutsche Erdoel – to cost around $12bn, with production expected to begin in 2017. Output is projected to reach up to 1.2bn cu feet per day, equivalent to roughly one-fourth of Egypt’s current gas production, and will be fed into the country’s national gas grid.

Elsewhere in the Nile Delta, Eni announced the successful drilling of the onshore Nidoco North 1X gas well in late February. The well is located in the Nooros East prospect of the Abu Madi West licence area, which the company shares in a 75:25 split with BP.

With production scheduled to come on-line in March, output from the Nooros field is projected to reach 45,000 barrels of oil equivalent per day. Additional development wells are due to be drilled in mid-2016, according to Eni, taking production capacity to over 60,000.

The gas and condensates from the field are sent to the Abu Madi treatment plant before being fed into the Egyptian gas network. 

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