When it was first produced, it did not have the value it has nowadays. It used to be burnt to get rid of, while now it has become a vital commodity; almost as valuable as oil. Natural gas has been targeted all over the world and Egypt, being classified as the second producer of gas in Africa, after Algeria, measures should be taken into consideration to better utilize and benefit from this gift
Driven by the necessity of increasing and maintaining the production level of natural gas in Egypt, the Egyptian Company for Natural Gas (Egas) has allocated$1.1 billion-investments to drill 23 exploration wells and implementing seven new projects for the fiscal year of 2009-2010. These wells are expected to generate approximately 800 million cubic feet of gas per day, having 3.3 trillion cubic feet reserves.
Moreover, development programs have been set to expand the national natural gas grid to reach more than 500,000 households by the end of this year. As a matter of fact, a total of 3.1 million households have been connected to the natural gas grid; this number was announced by the Ministry of Petroleum officials last February.
The wheel of natural gas development has been active for long; the Ministry has sealed approximately 23 exploration agreements, worth $1.7 billion- spending commitments. Currently, a drilling program for six exploration wells is taking place in the areas of Nile Delta and Mediterranean Sea, which is estimated to add 1.3 trillion cubic feet of gas and 13.5 million barrels of condensates to the country’s reserves.
Though the production plans sound promising, we should weigh as well the volume of local gas consumption, which averages 70 percent of total gas production and counts for 33 percent of the total gas revenues. The remaining 67 percent are fulfilled by gas exportation, which sums up to 30 percent of total gas production.
The natural gas exportation strategy does not contradict the Ministry’s calls for protecting the country’s gas reserves. Eng. Sameh Fahmy, the Minister of Petroleum declared in different occasions that exportation is not a target, but rather a mean for luring more revenues needed to reduce the bill of some imported petroleum products such as Solar and Butagas and to maintain the subsidization of all products order to be affordable to citizens. Actually, the bills of subsidies and imported products are considered as heavy financial burdens on the Ministry; that is why it refers to exportation as partial solution.
The total production of crude oil, condensates and natural gas counts for nearly 1.8 million equivalent barrels compared to only 690 thousand equivalent barrels in 1981-1982. Fahmy highlighted that the production of natural gas has tremendously increased from 2.5 to 60 billion cubic feet per year; this reflects a 24 percent increase over the last 25 years.
A member of the Energy Committee, the National Democratic Party (NDP), said that reserves should not be evaluated in terms of quantities, but rather in terms of the effective utilization and distribution of energy reserves. “The estimations of gas reserves are not accurately nor scientifically calculated. The question is not for how many years our energy reserves would be sufficient, we should instead think how efficient we use our resources to last longer,” the NDP member added.
“The plans for energy utilization should not exceed the 10 years time limit due to the continuous market changes… The rate of exploration and production, whether augmenting or declining, does not reflect the rate of usage. So, we have to plan well for our reserves.”
On the other hand, Hamdy Aboul El-Naga, petroleum expert, believes that Egypt has enough gas reserves for the coming 32 years; he added that the rate of new explored fields is unchanging as well as the volume of domestic consumption.
Abou El-Naga suggested the transformation of natural gas into liquefied fuel instead of liquefied natural gas (LNG), as the first contains several products such as solar, vehicles and jet’s fuel which are more needed in the country. “This methodology is implemented in Qatar and does not require high expensive technologies. Note that it is also cheaper as the cost of one barrel of liquefied fuel does not exceed the $30.”
Asked about the initiation of a new oil and gas association, which is still under studies, the NDP member believes that if established, this organization has to offer advantageous promotions and incentives to the private sector so that they invest in the expansion of the natural gas grid and give better services to citizens. “This is where the real task of this organization lies; manage the relationship between the public and private sectors, between consumers and producers to better serve the society.”
The member further highlighted that the Energy Committee of the NDP will present a working paper for the Policies Committee describing how to get out of the current economic crisis which struck since September last year to avoid the implications of the post-crisis which is expected to end in 2011 or 2012. “The paper will be submitted during the current month recommending specific methods to protect the national energy reserves of crude oil and petroleum products, modify the subsidization divisions and adjust the energy pricing system.”
Facts & Figures
During the fiscal year of 2007-2008, the Ministry of Petroleum had an average production plan of 461 million cubic feet of gas, 15 million barrels of liquefied natural gas (LNG) and 45 million barrels of condensate. By the end of this year, results were pretty much close to the planned production. Starting with the natural gas, a 90 percent of desired production was achieved; the total gas production amounted to 417 million cubic feet, while the LNG scored higher than expected as production exceeded the 15-million limit. As for the condensate, 96 percent of the plan was achieved through a total production worth 44 million barrels.
Comparing the production of natural gas per area, the Western Desert comes in the first place with two million cubic feet of gas per day, 44 million barrels of condensate and 16 million barrels of LNG. Followed by the area of the Mediterranean Sea in the second place, it generated 1.6 million cubic feet, 27 million barrels and six million barrels of LNG.
Moving to the third place, the platinum medal goes to the Nile Delta, off which 115 thousand cubic feet of gas per day, 1.5 million barrels of condensate and 830 thousand barrels of LNG were produced.
The last two top achievers are respectively the Gulf of Suez and Sinai; the first produced 14 thousand cubic feet of gas, 820 thousand barrels of condensate and two million barrels of LNG, while the latter scored one thousand cubic feet of gas, 390 thousand barrels of condensate and one million barrels of LNG. (See Figure 1)
Egyptian Gas crossing the borders
In September 2007, a quarto agreement to transform the Arab Gas Pipeline to an Arab Gas Network was announced by Egypt, Syria, Jordan and Lebanon, as a first step toward the plan to link it with the European one after joining Iraq.
According to Fahmy, the Arab countries approved a plan to form a joint working group to study the use of this network in an adverse exchange among the participating countries, which paves the way to “greater flexibility in gas exports and imports among them”.
Moreover, Eng. Sufian Al-Allaw, Syrian Minister of Petroleum and Mineral Resources Syria has also agreed to implement the 60-kilometer length link inside its territories till the Turkish borders in preparation for linking the two networks.
Linking the two networks paves the way for greater ambitions; to be linked to the Nabucco Pipeline and have the Arab gas exported to Europe for higher profits and more political influence.
Last February, Budapest hosted a significant summit bringing together presidents and heads of governments who represent the potential partners for the gigantic 3,300-km gas pipeline, Nabucco, worth $12 billion. Egypt, along with government officials from Austria, Azerbaijan, Bulgaria, the Czech Republic, Georgia, Iraq, Romania, Turkey, Kazakhstan, Turkmenistan and the United States, as well as representatives of the European Commission (EC), the European Investment Bank and the European Bank for Reconstruction and Development took part in the summit.
Fahmy, who headed the Egyptian delegation, stated that the mere presence of Egypt at the summit proves the strategic role the country plays in the region. “Egypt has a long history in the gas industry. Moreover, the event verifies the significance of the Arab gas pipeline which will not only secure clean energy supplies to Europe, but it is also deemed to play a key role in the Egyptian- European ties,” Fahmy highlighted.
The Minister’s statement reflected the clear intention of linking the Arab Gas Pipeline to Nabucco and expands the reach of the Egyptian gas to the European continent.
Construction of Nabucco gas pipeline is scheduled to begin in 2011. The first supplies will be carried out in 2014. Its maximum capacity will be 31 billion cubic meters per year. Nabucco shareholders are the Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE with 16.7 percent each.
The participation of Egypt in this mega project has led to controversial debates speculating how advantageous or disadvantageous this step could be. According to a report by Cambridge Energy Research Associates (CERA), Egypt has ambitious plans for increasing its gas exports, and there is interest in Egyptian gas flowing into Nabucco following the completion of the pan-Arab gas pipeline from Egypt to Turkey by 2010.
On the other side, the report’s analysts are suspicious whether Egypt can commit gas to Nabucco for a long-term period. “Egypt may have already committed its gas to other pipelines and many of Egypt’s gas exports are being dedicated to LNG,” the report said.
Such suspicions raise once again the questions asked earlier, are the Egyptian gas reserves sufficient for domestic consumption and exportation commitments at the same time? Are the calculations of reserves volume accurate or just estimations? Is there an energy abuse or misuse of reserves? Are we protecting our valuable resources for the future? Would it be economically and politically beneficial to join Nabucco?
By Tamer Abdel Aziz