Since Russia invaded Ukraine on 24 February 2022, the West has been scrambling to find reliable sources for consistent oil and gas supplies to compensate for those lost from Russia. At the same time, and cognisant of this dire need, China and Russia, have done their utmost to deny the West any such opportunities. An additional crucial factor at play in this element of the new global oil market order, as analysed in depth in my new book of that name, is that China and Russia want to expedite the creation of a pan-Arabic 'unified power grid' - in every sense of the phrase. The basic notion reflects the view on how to maintain control over people or countries espoused by former U.S. President Theodore Roosevelt: "If you've got them by the balls, their hearts and minds will follow." In this context, control over a unified Middle Eastern power grid means that China and Russia would be able to exert even more authority over countries dependent on that grid for their electricity than they otherwise might. Egypt is at the centre of these plans for a unified power grid, so the two recent announcements by Western firms of major new discoveries in that country is extremely significant.
The first of these came from one of the core companies that has been at the vanguard of the West's attempts to secure new oil and gas supplies since the Russian invasion of Ukraine - Chevron. According to the U.S. oil and gas giant, it is set to drill the first oil and natural gas exploration well in its concession area in the Red Sea in Egypt during the first half of 2024. This follows extensive seismic surveys, geological studies, and geophysical data collection by the company earlier this year. This, in turn, is part of a major strategic push by Chevron and the U.S. government to secure Egypt as a key ally in the new global oil market order, which received a vital boost in 2019 when Chevron won Egypt's first international bid round for oil and gas exploration in the Red Sea.
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Egypt is extremely important in the Arab world for several reasons, all of which are fully appreciated by the U.S., and are also analysed in depth in my new book on the new global oil market order. This is why it is figuratively pulling out all the stops to consolidate its influence there and to keep the country out of China's and Russia's sphere of influence. For decades, Egypt was seen by the Arab world as the leading proponent of the 'Pan-Arab' ideology that believes enduring strength can only be found in the political, cultural, and socioeconomic unity of Arabs across the different countries that emerged after the two World Wars. The philosophy's most powerful recent proponent was Egypt's President from 1954 to 1970, Gamal Nasser. Arguably his ideological successor was Syria's President from 1971 to 2000, Hafez al-Assad. Among the most palpable signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighbouring Israel over the period, and then the 1973/74 oil embargo.
By bringing this leader of the Arab world on side, the U.S. hopes to offset - at least in part - the negative geopolitical impact of long-term ally Saudi Arabia having been lost to the China-Russia bloc. Politically and historically, Egypt is at least as much of a leader in the Arab world as Saudi Arabia has ever been. This had not been lost on China, which through its chief ally in the Middle East, Iran, had long been seeking to draw Egypt into its unified power grid concept. Last year saw an announcement that Egypt and Jordan were increasing their cooperation in gas delivery projects inside Jordan with Egyptian expertise through specialised petroleum sector companies. Just prior to this, it was announced that Iraq had agreed to re-start the export of crude oil from Iraq's Kirkuk to the refinery at Zarqa in Jordan. Electricity supply originating from Iran was also factored into this deal, given that Iran has historically supplied Iraq with 30-40 percent of all its electricity needs, and had just signed the longest-ever single deal between it and Iraq to continue to do the same at that point. At around the same time, Iraq's then-Electricity Minister, Majid Mahdi Hantoush, announced that plans had been finalised for the completion of Iraq's electricity connection with Egypt within the next three years. This network was to be bolstered by the parallel network connections that Iran had consolidated in terms of direct electricity and gas exchanges. These, said Iran's then-Energy Minister, Reza Ardakanian in 2019, would be part of the overall project to establish a joint Arab electricity market.
Chevron, though, is now firmly ensconced in Egypt, and earlier this year discovered a potentially huge offshore gas field there, together with its European partner in the site, Italy's Eni. Chevron and Eni, which each hold a 45 percent stake in the 1,800 square kilometre Nargis offshore area concession (with Egypt's Tharwa Petroleum Co. holding the remaining 10 percent stake), announced that they had made a new gas discovery in the concession, focused on the Nargis-1 well. The state-owned Egyptian Natural Gas Holding Company (EGAS) stated that the precise quantity of reserves in the well were being evaluated but that it was working with Chevron, Eni and Tharwa to begin production as soon as possible. This should not take long as, according to data from marine intelligence firm VesselsValue, Eni has a platform in Thekah, around 40 kilometres to the south-west of the Nargis site. This discovery follows the announcement in December 2022 that Chevron had hit at least 3.5 trillion cubic feet of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula. Chevron - along with most notably the U.S.'s ConocoPhillips - also now operates the huge Leviathan and Tamar fields in Israel and the Aphrodite project offshore Cyprus. According to the president of Chevron International Exploration and Production, Clay Neff: "The East Mediterranean has abundant energy resources, and their development is driving strategic collaboration in the region."
Underscoring that Egypt is now regarded as a key new ally to the Western Alliance of the U.S. and Europe was the announcement by the British oil and gas giant Shell that it is to begin the development of the tenth phase of Egypt's Nile Delta offshore West Delta Deep Marine (WDDM) concession in the Mediterranean Sea. Shell and its partners - EGAS, the Egyptian General Petroleum Corporation, and Malaysia's Petronas - have developed the WDDM concession across nine development phases, according to company statements. The concession comprises 17 gas fields, located at water depths ranging from 300 metres to 1,200 metres and spanning approximately 90-120 kilometres from the shore. Underlining the broader energy and political implications of these recent deals, Egypt's Minister of Petroleum and Mineral Resources, Tarek El-Molla, said: "This is a significant step towards unlocking further hydrocarbon potential in Egypt's rich Nile Delta region […] We are pleased to strengthen our longstanding partnership with Shell, which plays a crucial role in developing Egypt's energy resources and supporting the country's ambition to become a regional energy hub."
By Simon Watkins for Oilprice.com
Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for… More
Comments
Egypt, has always been the trail-blazer of the Arab world militarily, economically culturally and strategically. It has the most powerful army in the Arab world and the strategic and cultural leadership.
Egypt also has a special position in the global energy market via the world’s third most important chokepoint, the Suez Cana, connecting the Red Sea with the Mediterranean and through which some 5.5 million barrels a day (mbd) of Gulf oil pass. Then there is the SUMED oil pipeline which bypasses the canal and connects the Mediterranean to the Red Sea. It can carry 2.34 mbd (mostly Saudi oil) and offers a hedge of sorts against an outage at the Suez Canal. The two routes account for roughly 9% of the world’s daily seaborne oil.
Then there is Syria which is the strategic and nationalistic heart of the Arab world. Its importance was acknowledged by one of the world’s most influential strategic thinkers, Henry Kissinger’s maxim: “The Arabs can’t make war without Egypt; and they can’t make peace without Syria.”
Having made this clarification, I find the author’s claim that China and Russia wanting to control a unified Middle Eastern power grid ludicrous and far-fetched. If their axis is already paramount in the Gulf region and their influence is surging in a region sitting on 65% of global oil reserves and 44% of global gas reserves, why would they want to control the Middle East power grid?
There already exists the Arab gas pipeline through which Egyptian gas is exported to Jordan, Syria, Lebanon, with a branch underwater pipeline to Israel and the Palestinian Authority. In September 2004, Egypt, Joran, Syria and Lebanon agreed to connect the Arab Gas Pipeline with Iraq’s gas grid to allow Iraq to export gas to Europe.
Moreover, Egypt has a long history of dealing with major Western oil and gas companies such as ENI, Shell, BP and Chevron.
And while Iran currently supplies Iraq with 40%-50% of its gas supplies for electricity generation, this will be reduced if not eliminated when TotalEnergies starts catching flared gas from Iraq’s oilfields in the next few years.
Egypt's gas and oil resources are first and foremost important to the Egyptian economy where rising population is enhancing domestic demand even at the expense of exports.
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Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert