Egypt's oil and gas future looks very bright. The large scale concessions awarded during the EGYPS2019 conference in Cairo, 11-13 February, shows the appetite of IOCs, such as Shell, BP and ENI in this emerging energy hotspot.
After years of a major slump, partly due to continuing payment and security issues, the Pharaohs are again back in the top league. Continuing concerns about security in Egypt's Western Desert or the Sinai no longer seem to be a breaking point for investors. At the second day of EGYPS2019 the announcement of five onshore and offshore licenses by EGPC, as presented by Egypt's minister of energy Tarek El Molla, has created a very bright future for the North African oil and gas producer. The success story of the offshore deepwater gas field Zohr, operated by Italian oil major ENI, could be supported further by positive results from current exploration efforts in the offshore Noor field. If expectations are met, a new gas hub could be in the making, combining Cypriot and Israeli production with Egypt's existing LNG infrastructure.
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The long awaited results of the Egyptian natural gas holding company EGAS were announced on the 12th of February. Dutch oil major Shell was awarded 3 concessions, all crude blocks in sector 7 West Fayoum, sector 9 South East of Horus, and sector 10 South AbuSnan. Italian oil major ENI, currently in the news with regards to its major offshore gas projects Zohr and Noor, was awarded sector 11 East of Siwa, while sector 2 went to the General Petroleum Company, sector 4 to Neptune Energy, and sector 5 North Beni Suef to Merlon International.
With regards to the Egyptian gas prospects, American oil giant ExxonMobil, which hasn't been very active in Egypt for years, reentered the North African country by winning the north of Amreya Marine Company concession area. The North Sidi Gaber, as well as North El Fanar areas, went to Shell and Petronas. The North West Sherbin concession has been awarded to British oil major BP and Eni. Related: Goldman: 'Shock And Awe' OPEC Cuts To Send Oil Higher Soon
The re-emergence of major IOC interest should be not underestimated. Egypt's former rough period, especially during and after the Arabic Spring and the rule of Muslim Brotherhood president Mursi and the military coup shortly after, has had a very negative impact on upstream projects. Most IOCs and independents working in Egypt at the time, were affected by security threats and delayed payments, resulting in a major slowdown in operations. The current success of ENI, and the improving political and security situation seems to have changed the sentiment. Shell and ExxonMobil's participation could be a game changer.
Cairo's dreams about becoming an energy hub, and supplying European markets, are once again alive and kicking. Shell's Egypt Chairman Gasser Hanter reiterated this. Hanter stated at EGYPS2019 that 'Egypt's Idku and Damietta LNG export plants are likely to remain the low-cost option for East Mediterranean gas producers looking to export". He expects that, soon, it will become very clear to the other participants in the East Med that the Egyptian option has the best commercial and strategic factors. The Shell official is very optimistic with regard to the willingness of Israel and Cyprus to consider the Egyptian option. Some developments are expected around the East Mediterranean Gas Forum meeting in March in Cairo. At present, provisional agreements have been signed between Cyprus and Egypt to pipe gas from Cyprus' field Aphrodite to Egypt. Israel has already a gas export deal with Egypt. The deal was set up by Egypt's Dolphinus Holdings, which expects to import 64 Bcm/year of gas from Israel over a 10-year period. Noble Energy and Israel's Delek, two prominent producers in the Tamar and Leviathan fields, have agreed to buy a stake in the idled East Mediterranean Gas pipeline. Shell reiterated at EGYPS2019 that the economics of Egypt's export plants remained compelling, suggesting any other future liquefaction projects in the region may struggle. The underlying economics are clear, as the LNG liquefaction plants in Idku and Damietta already exist, removing the possible multibillion investments needed if choosing other options. Related: How Blockchain Is Changing The Face Of Oil Trading
In addition to the IOCs interest, Arab oil & gas company Dana Gas also stated to expect major new discoveries. Dana's CEO Patrick Allman-Ward stated at EGYPS2019 that his company will start drilling in 2019 in an area it says could become Egypt's next giant Mediterranean gas field, after seismic data pointed to reserves as large as 20 trillion cubic feet. First drilling operations will be conducted in an area that is expected to hold 406 Tcf. The targeted area is part of the North Arish field, which is located in the East Med.
The year 2019 could become the Red Sea Year, as Egyptian sources indicate that the Egyptian company Ganoub El Wadi Petroleum Company (Ganope) is expected soon to launch its delayed bid round for offshore Red Sea. The last days rumors have been floating around, especially after that Egypt's minister of energy Tarek El Molla indicated a bid round on the 12th of February at EGYPS2019. El Molla stated bluntly that 2019 will be the Red Sea Year. This was also stated by Abed Ezz El Regal, CEO of EGPC. The bid round was expected earlier, but was delayed at the end of 2018 by Ganope. The Red Sea has become a major focus area for EGPC and others, after that Cairo was able to reach a maritime demarcation agreement with Saudi Arabia. Ganope's CEO Mohamed Abdul Azim stated that his company is expected to drill nine new wells. Based on the Red Sea geophysical data, which has been acquired lately by a 2D, 10,000 square kilometer survey by Schlumberger, a bid round is expected to be announced within the next days. The prospectivity of the Red Sea is expected to be very interesting, as already shown by several projects on the other side of the sea in Saudi Arabia. A possible combined effort between Saudi Arabia and Egypt is still in the offing, as some projects could be combined. For sure, Egyptian and Saudi drilling operations could be combined, taking advantage of the growing offshore drilling JVs of bother countries. The ongoing Saudi Aramco-Rowan JV (ARO) at the International Maritime Industries (IMI) Ras Al Khair Shipyard projects, also could be combined with Egyptian parties. Some new builds or upgrades for the Red Sea arena would be feasible to be done in Egyptian shipyards too.
By Cyril Widdershoven for Oilprice.com
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Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next… More
Comments
Moreover, Egypt’s gas reserves which have doubled to 62.8 trillion cubic feet (tcf) with the discovery of the giant Zohr offshore field could be enhanced further by positive results from what could be another giant Noor offshore field and other potential discoveries in the Red Sea.
The recent concessions awarded by EGAS to Shell, ENI and ExxonMobil on the 12th of February during the EGPS2019 could be a game changer for this emerging energy hotspot.
Combining Cypriot and Israeli natural gas production with Egypt’s existing LNG infrastructure for exports to the Asia-Pacific region could prove to be a better and more cost-effective option than the EastMed gas pipeline that is supposed to transport Cypriot and Israeli gas supplies under the Mediterranean to Italy and then the European Union (EU) via the Island of Crete and the Greek mainland.
The EastMed may never see the light of day. It seems that the EastMed which is to stretch over a distance of 1900 km and cost an estimated $7 bn is all but dead. Cyprus has not yet discovered any sizeable gas fields like Egypt’s Zohr (30 tcf) and Israel’s Leviathan (18.9 tcf) with the exception of two relatively small gas fields: the 6-8 tcf Calypso and the 4.5 tcf Aphrodite. If we are to judge the viability of the EastMed on the current situation, there is only Calypso and Israel to fill the pipeline. Israel has already signed a deal worth $15 bn of Israeli gas exports to be sent to Egypt for conversion to LNG and re-exporting. Cyprus on its own couldn’t muster enough gas exports to fill the EastMed throughput capacity of 20 bcm per year. Moreover, Turkey will never allow the Greek Cypriots to produce gas let alone export it without securing a share for the Turkish Cypriots. The other obstacle is that the price of shipped gas via the EastMed pipeline couldn’t compete with Russian piped gas to the EU once production costs and shipping have been added.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London