A request by British Petroleum (BP) to increase natural gas prices for the North Alexandria Agreement has been rejected, according to a senior official at the Ministry of Petroleum.
The ministry’s rejection came due to BP’s projected prices being higher than the stipulated $4.10 per 1m BTUs.
In statements to Al-Borsa, the official said BP requested the gas prices for the North Alexandria project be adjusted. This was to allow the company to be able to abide by its commitments and begin production in 2017.
There have been over ten years of delays in linking production, due to objections by Idku residents against the construction of a gas processing plant and the expulsion of foreign experts from the site.
The official said BP based its request on a failure to link the project with production thus far. The official added that the was also an increase in expenditures to over EGP 10bn and the Ministry of Petroleum adjusting gas prices for several new projects with other companies.
He said that the North Alexandria agreement stipulates that the foreign partner fully provide production and Egypt will commit to paying $4.1 for every 1m BTUs. The agreement was formulated in this manner rather than a through a production-sharing framework.
The official predicted that beginning to link North Alexandria production would not take place by 2017. They added that this would form a pressure point that the foreign partner company could use as leverage against the Egyptian government to drive up the price of gas in its concession area. He stressed that the agreed upon price will not be adjusted because it is appropriate for the economics of the project.
He added that the ministry is hoping that 450m cubic feet of gas per day will be produced from the North Alexandria project during 2017 at the start of production. He predicted that production is planned to be increased to 800m cubic feet by 2018.
The North Alexandria development agreement was adopted through law 15-92 in October 2003, providing for the start of production in 2007 at a rate of 375m cubic feet of gas per day. An amendment was adopted in October 2006 modifying the production date to begin during the last quarter of 2009, with daily production rates of up to 910m cubic feet.
The North Alexandria agreement was then modified in 2008 by law 3-2008 to provide for the formation of a joint committee between EGAS and BP charged with preparing an agreement. A preliminary draft of the agreement has been prepared but a number of key points have remained contentious between EGAS and BP.
BP did not agree to the agreement until a new commercial system was presented by former minister Sameh Fahmy. The parliament adopted the modified North Alexandria agreement in July 2010 through Law 126 -2010 in accordance with a new commercial basis distinct from the production sharing framework which characterises most petroleum agreements in Egypt.