The Minister of Petroleum is really the key to this success
CAIRO: With oil prices rising sharply worldwide, energy consumers are warming to the idea of natural gas as an alternative energy source. This change in direction has created greater opportunities in the natural gas market; a situation ideal for Egypt, which in recent years has discovered an abundance of untapped natural gas, compensating for the country’s declining oil supplies.
No company has understood the significance of this better than British Gas (BG). Presently producing close to 50 percent of the overall gas production in Egypt, BG has dug a name for itself in the market.
The Daily Star Egypt sat down for an exclusive interview with BG’s President, Oscar Prieto, to discuss the company’s success and the future of natural gas in Egypt.
As the leader in the business, BG has a number of aggressive exploration programs in the works, as do Shell, Petronas, ENI, Apache, Edison and other bigwigs in the market.What sets BG apart is their agility in bringing the large amounts of gas they have discovered to the market.
“We have been so successful in Egypt because we hit big reserves, (and) we were very fast in implementing, said Prieto.
BG has taken advantage of the boom years for natural gas by investing in the development of numerous fields. Most recently, the company bought the entire output of train two of the Egyptian Liquefied Natural Gas (LNG) project under a 20-year agreement, making the company one of the major shareholders in the project.
“This project, (whose two trains were lifted three months and nine months ahead of schedule, respectively) is particularly important for Egypt because we were able to pick up the very high prices in Europe and the United States and that generates a lot of export benefits for the country, explained Prieto.
Each one of the shipments that sails out of train two in Idku is worth $25 million to $30 million – when they were budgeted, they were estimated at a price of $8 million to $9 million. By lifting the trains ahead of schedule, the company and its partners were able to deliver during winter when prices are high, amounting to a hefty sum of extra value.
The company has also taken a big bite of profit from other concession agreements.
This year, BG signed concession contracts for two large areas offshore of the Nile Delta- El-Manzala and El-Burg, with the Egyptian Holding Company for Natural Gas (EGAS),and are committed to drilling an exploration well in 2007.
The company also operates two gas-producing areas offshore of the Nile Delta – the Rosetta Concession (with Rashpetco) and West Delta Deep Marine (WDDM) Concession (with Burullus Gas Company).
An exploration program is also underway to secure access to new reserves in the WDDM Concession.
British Gas has been very successful in this area,having previously drilled 16 profitable exploration and appraisal wells in WDDM since 1997, resulting in the discovery of nine gas fields.
“We have also received the initial award letter for another area in north Sidi Krer, and are trying to farm three new concessions, said Prieto.
The company’s portfolio includes over 30 new projects in different stages of development, with current investments amounting to $4 billion and a commitment to allocate more than $850 million over the next six years toward the development of existing fields.
While the success BG enjoys can be directly attributed to their profitable exploration programs, a great deal must be said for the company’s recordbreaking tendencies.
This year alone, BG broke the record for delivering the cheapest capital cost of LNG projects, taking advantage of their experience and building the cheapest capital cost capacity faster than any country in history, including Nigeria, Qatar,Oman and Iran – some of the biggest global natural gas producers.
British Gas also broke its production records in 2005, producing 2.5 bcf (billion cubic feet) of gas a day, in comparison to 182 mcf (million cubic feet) in 2001.
“In terms of volume,that figure equates to 30 percent of the production of gas in the whole of the United Kingdom during summer, and 72 percent during winter, said Prieto. By any standard, that is a lot of gas.
“This is also a healthy indicator of how the economy is doing, said Prieto.”In our experience, the consumption of natural gas grows faster than the overall GDP percentage.
Expert estimates that the natural gas market would grow at a pace of five to seven percent per year were surpassed when the market grew by 10 percent in 2004 and 12 percent in 2005, taking the country from zero exports to the seventh largest natural gas exporter in the world-in one year.
The significance of this has not escaped the attention of the government.
“The Minister of Petroleum is really the key to this success. He had a clear idea of what he wanted to do with natural gas and he moved fast, said Prieto.
“The new cabinet has also managed to comfort investors. As our projects are big, longterm investments, you need to create a base for trade to get this kind of money, and the cabinet has done that.
Yet, while the government and private sector are doing their parts, the industry still faces many challenges.There is still a shortage of qualified human resources, as many professionals are lured to the Gulf, where salaries are higher and conditions are better.
The overall supply chain of services and products is still lacking, and the government is unsure as to how they want to export natural gas-as LNGs,or fertilizers, petrochemicals or methanol, which all sound attractive for industrialization, but may not be the best choice for the economy, reasons Prieto.
Another factor is competition from neighboring countries, such as Qatar, which Prieto describes as floating on a bubble of natural gas.
And yet, stated Prieto, these challenges have not hindered the market from growing at a furious pace.
“I can tell you that growth won’t stop here. Egypt has a bright present and a promising future, said Prieto.