They're Desperate For Natgas Here--and Raising Prices

Sometimes a ho-hum resource destination can go to a superstar overnight.

Often driven by changes in local prices.

That may be the case in one of the world's important petroleum production regimes: Egypt.

Reports emerged last week from Reuters, suggesting that the Egyptian government is considering raising prices for natural gas. The stated goal being to spur more exploration for the commodity.

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The move here is driven by need. The country recently reported that its August natgas exports were down more than 86%, as compared to the year-ago period.

The reason is a combination of falling domestic output, and rising local consumption. Production within Egypt was down 14% during the month. While gas usage by the power sector jumped to 67% of overall consumption, up from 60%.

The government didn't offer any details on how much prices could rise. But reports suggest the country will offer necessary incentives for producers to increase exploration and output.

Whatever the rise, it's likely to be an improvement on current project economics. With gas right now selling for $2.65 per Mcf-one of the lowest rates globally.

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This could be a signal of opportunities emerging for producers here. Underinvestment in the natural gas sector means that Egypt's fields haven't seen a lot of attention in recent years. Raising the possibility of major discoveries still to be had, especially in light of the country's already-proven petroleum systems.

Right now, those discoveries wouldn't mean much in terms of economics. But at higher prices they could turn into very viable projects.

The change could happen quickly. Watch for further announcements from the government on pricing details. And for companies moving to take acreage positions ahead of such changes.

Here's to raising the bar,
Dave Forest

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