Charles Ellinas Egypt gives gas project development top priority

Egypt gives gas project development top priority

The recent discovery of Zohr has given Egypt a boost in its drive to prioritize gas project development. This was discussed earlier in the week at the Offshore Technology Conference (OTC) in Houston.

Egypt’s Minister of Petroleum, Tarek Elmolla, confirmed at OTC that Egypt is prioritizing gas production in response to its rapidly growing gas demand that has led to shortages and the need to import expensive LNG. He said “attracting foreign investment is one of our biggest challenges,” as well as repaying Egypt’s debt to the oil&gas companies, reforming its subsidy programs, and adjusting natural gas prices, which is already in progress.

Gas now makes up to 53% of Egypt’s total energy mix and 63% of its electricity generation due to its ever expanding population, now over 90 million. This has made Egypt the largest consumer of natural gas in Africa.

In order to encourage further exploration and production Egypt is working on ways to modernize its oil and gas operations and industry. It is introducing segregation between the Ministry of Petroleum, and the national oil companies, and it is setting up an independent regulating body. In other words it has embarked on a programme to modernize its oil&gas sector.

Measures being taken by the government have already contributed to a massive resurgence in exploration and production activities. Egypt is fast-tracking development of Zohr and expects first gas production to reach 10 bcm/y by end of 2017 and 27 bcm/y by 2019.

Presenters at OTC suggested that by 2022 Egypt will be producing an additional 85 to 130 bcm/y natural gas. My own research, published in Natural Gas World, showed that projects already in progress will add another 60 bcm/y to the gas grid by 2020. Petroleum Minister Elmolla also confirmed at OTC that Egypt plans to add over 60 bcm/y new gas production in 5 years. In accordance to data published by Wood Mackenzie the projected gas demand by 2022 is expected to be about 60 bcm/y. Production from existing fields is expected to decline down to about 20 bcm/y. With such quantities of gas Egypt not only will achieve self-sufficiency, and do away with the need of expensive LNG imports, but it should also have excess gas for export.
The Minister also said at OTC that Egypt will offer up to 28 blocks in a new licensing round in the near future. He highlighted the high hydrocarbons potential of the Nile Delta, Upper Egypt and Red Sea regions and the Mediterranean.

For Israel and Cyprus this means that the Egyptian market may no longer be available for their gas. Not only commercially it is challenging, but the opportunity may have been missed. If they wish to sell their gas they will have to consider seriously other options and markets, bearing in mind commercial realities due to the low global prices, expected to be with us well beyond 2020.

Dr Charles Ellinas @CharlesEllinas
 Nonresident Senior Fellow – Eurasian Energy Futures Initiative - Atlantic Council