Egypt is on the path of positioning itself as a regional gas hub, halting liquefied natural gas (LNG) imports, supported by a recent surge in domestic gas production, according to a report issued by Oxford Business Group (OBG) on Monday.
The report cites Minister of Petroleum and Mineral Resources, Tarek El-Molla’s announcement, that Egypt had received its final shipment of LNG after meeting its gas self-sufficiency in September.
The decision to halt imports was largely driven by increased production at the mammoth Zohr offshore gas field in the eastern Mediterranean, which has grown six-fold since operations began in January, the minister said.
Zohr’s output jumped to 2bn standard cubic feet per day (scfd) in September, up from 350m scfd in January.
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Consequently, Egypt’s total gas production rose to 6.6bn scfd in September 2018, according to the ministry of petroleum and mineral resources. This was above last year’s average of 5.1bn scfd, which itself was a 15.9% increase on 2016’s total of 4.4bn scfd.
Ending LNG imports could lead to $3bn in annual savings
The report indicates that an LNG imports halt is expected to have a significant impact on government finances, with El-Molla estimating it could save the state as much as $250m per month, or around $3bn a year.
Meanwhile, the spike in natural gas production marks a reversal of the process that led to Egypt becoming a net gas importer in recent years.
The instability caused by the 2011 revolution saw Egypt’s natural gas production drop from 59bn standard cubic metres per day in 2010 to 40.3bn standard cubic metres per day in 2016, before rebounding to 49bn standard cubic metres last year, according to the BP’s Statistical Review of World Energy 2018. This, coupled with increasing domestic demand, saw Egypt become a net importer of gas in 2014.
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Nevertheless, the financial savings of halting LNG imports could be somewhat offset by increased oil prices: as a net importer of refined gasoline and diesel, the government had calculated its FY 2018/19 budget on $67prices; however, Brent crude prices have been consistently above this figure since April, peaking at over $85 per barrel in early October, and are currently around $77 per barrel.
Increased production, new gas law, to position Egypt as regional energy hub
OBG believes that achieving natural gas self-sufficiency aligns with plans to resume exports and position the country as a regional hub for energy trade.
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Egypt has a proven natural gas reserve of 62.8tn scf at the end of 2017, positioning the country as the third largest in Africa, according to BP.
To help unlock this potential, in August last year the government passed a new law opening up the gas market to the private sector. The legislation led to the creation of the Gas Regulatory Authority, an independent public body charged with regulating the rules that allow private companies to directly ship, transport, market, store, and trade gas using the country’s network and pipeline infrastructure.
Downstream investment solidify gas-hub aspirations
Furthermore, the report indicated that new investments in downstream infrastructure could see Egypt further develop as a key player in the processing and re-exporting of gas.
In late July, Eni announced the activation of its fourth LNG processing facility at the Zohr field’s gas treatment plant, increasing national production capacity of LNG to 1.6bn scfd.
This was followed in September by the signing of an inter-governmental agreement with Cyprus facilitating the construction a $1bn subsea gas pipeline connecting Cyprus’ Aphrodite gas field to two liquefaction units in Idku, on Egypt’s northern coast.
In addition, private company Dolphinus Holdings signed an agreement to import natural gas from Israel’s Leviathan gas field in the first quarter of next year. Under the deal, the company will purchase $15bn of gas over the next 10 years to be converted into LNG in Egypt and then re-exported elsewhere.