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Realising Egypt’s gas potential

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By Oxford Business Group

The start of production at a concession in Egypt’s Nile Delta basin by a German firm has come as welcome news, an indication of the sizable potential offered by the country’s offshore blocks. With local consumption growing, the North African state is looking to balance the need to expand output to meet domestic gas demand while at the same time fulfilling its long-term external commitments.

A string of new discoveries

Egypt’s natural gas reserves have grown rapidly in recent years, establishing the segment as the most vibrant in the wider energy sector. In 2010 the US Geological Survey released its assessment of the Nile Delta basin, one of the two principal gas-producing areas in the country, declaring that the region’s undiscovered but technically recoverable gas resources were three times larger than the estimated reserves at that time, which stood at 77.3trn cu feet, or 1.2% of the global total, according to the “BP Statistical Review of World Energy”.

Since then a string of gas discoveries has been announced by oil and gas companies working within Egypt’s jurisdiction, including a number of finds this year alone. In May, US-based Apache Corporation released details of two significant discoveries in its North Ras Qattara and North Tarek concessions, and the most recent find in the Salamat field, announced in September by British Petroleum, has served to reinforce the optimism surrounding Egypt’s offshore gas prospects.

More importantly, the finds are proving commercially viable, as evidenced by the September launch of gas production at the Disouq concession in the Nile Delta by German firm RWE Dea. Output is expected to hit 1.4m cu metres per day during the commissioning period, rising to 4.5m cu metres per day by mid-2014, with the bulk of the output headed towards addressing local consumption.

Boosting supply to meet growing demand

While the RWE Dea project is a positive development, translating Egypt’s new finds into increasing production remains a challenge. This is a matter of particular concern given the declining trend displayed by gas producers over recent years. Data from the “BP Statistical Review of World Energy” show that aggregate natural gas production reached a peak in 2009 at 62.7bn cu metres (bcm), before declining slightly to 61.3 bcm in 2010. The following year output remained almost level, at 61.4 bcm, but by 2012 the trend dipped back into negative territory to show a 1.2% decrease to 60.9 bcm.

Moreover, the tapering of output has come at a time of increased demand in the domestic market. In 2011, natural gas consumption in the country stood at 49.6 bcm, but by 2012 this figure had grown to reach 52.6 bcm, nearly 60% of which was accounted for by electricity generation.

As these figures indicate, in domestic terms, Egypt still produces more gas than it consumes. In fact, it is also one of the world’s largest exporters of gas, shipping to markets in Europe, the US and South Korea, as well as a number of Arab countries through the Arab Gas Pipeline. In the 2011/12 financial year, gas distributed through the pipeline brought in $1.96bn in revenue, a 2.9% year-on-year rise which established gas as the most valuable good shipped abroad after crude and refined oil, according to the central bank.

However, the past year has seen the tensions between supply, demand and Egypt’s commitment to its long-term export contracts come to the fore, compelling the government to import gas from Algeria and Qatar as an expensive means by which to meet rising demand from local consumers.

Boosting domestic gas production has therefore become a national priority, and a number of the top producers are doing just that. The UK’s BG Group, for example, accounts for around a third of all gas produced in Egypt and is in the process of establishing additional infill wells, new development wells and further workover programmes at its West Delta Deep Marine concession. The upstream energy sector has been fairly well buffered from the broader turbulence that has slowed headline growth, but similar new investments from both existing producers and new entrants will be required in the longer term if the country is to wean itself off costly gas imports.

This article was initially published on the Oxford Business Group website


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