Natural Gas may be a safe bet

Amid fierce competition over energy, Liquefied Natural Gas (LNG) projects entice international corporations to speed up exploration efforts in Egypt

The Egyptian government is banking on the successful march of natural and liquefied gas sector for attracting more foreign investments. The industry has managed to bring in direct investments estimated at US$3.2 billion over six years from 1999 to 2005. Official projections for investment growth in natural gas amount to US$20 billion in five years based on plans already announced by major international companies with operations in the domestic market.

Investments in the Egyptian gas sector have contributed to the initiation of the Arab Gas Pipeline Project. The government is currently in talks to extend the Arab Gas Pipeline to European countries. In addition, three LNG projects have been launched at a combined cost of over US$3 billion, leading to a remarkable increase of exports and foreign currency revenues that serve to pay the government’s overdue debts to foreign companies.

The government relies on natural gas as a major support for economic development.  It is worth mentioning that the natural gas reserves in Egypt have mounted to 73% of total reserves in North Africa over the past ten years. Natural gas production accelerated by over 10 percent/year in the period from 1999 to 2005.
Foreign and Arab investments started to flow into Egypt’s natural gas industry, according to Hany Ismail, advisor to the Egyptian Minister of Petroleum for Natural Gas Affairs, who alleged that gas was the principal motive behind the large flows of foreign investments into exploration. He pointed out that proven reserves of natural gas had doubled over the past few years to 67 trillion cubic feet. Based on geological and seismic surveys, international companies  operating in Egypt estimated potential reserves of natural gas at 100 to 125 trillion cubic feet.

Moreover, agreements sealed by the Egyptian government with international energy corporations during the 1990s have contributed to the upsurge in gas reserves. These agreements have encouraged companies to explore for gas in broad areas throughout the country.

Local and international observers view investments and contributions of international oil companies as one of the main factors behind the recurrent successes made in natural gas exploration over the past decade. “With rising natural gas reserves, stability, investment-friendly atmosphere and success in the oil sector, it is quite expected that Egyptian gas industry will experience an unprecedented development backed by strong potential gas explorations, especially in deep waters in the north Mediterranean,” Ismail said.

British Gas (BG), the Italian Eni Oil Company and Shell have launched a number of new projects for natural gas exploration and development of the present gas field discoveries with over US$20 billion of investments in five years. Exploration efforts in Egypt achieved the highest level of success, particularly in the area of the Mediterranean Sea with positive gas exploration results amounting to 60% compared with the international average of 10 to 15%.

That is the reason why Shell Egypt has developed ambitious plans to expand its activity in natural gas production and exploration in the Mediterranean Sea over the next five years. Shell will also exploit two gas discoveries in its concession area. Both discoveries were made in February 2004, but the company would confirm the discovery by digging up more experimental wells.

Zainul Rahim, Chairman of Shell Egypt, said that the company would start new drilling operations in deep waters during the third quarter of 2006. The new drilling process, he added, will include three approved wells and potentially four depending on exploration results.

Shell Egypt has signed a contract with the giant drilling company, Transocean Expedition, for deepwater drilling in its concession area and terminated its agreement with the current drilling company. The agreement included terms that linked gas prices to those of crude oil instead of fuel oil, which helped increase gas prices. In view of the government commitment to buy the share of the foreign partner and developments in deep-water drilling and exploration technology such as seismic survey, international companies had enough incentive to pay more attention to gas explorations.

Chairman of Egyptian Liquefying Natural Gas Projects Company, Roger Fox expects Egypt to play a major role in the liquefied gas markets during the coming years backed by its huge proven reserves and strong potentials for adding more reserves through intensive exploration activities.

Egypt accounts for 46% of total exploration investments in North Africa, which includes Egypt, Algeria, Tunisia, Morocco and Libya.
However, the policy of expanding natural gas exports is the target of sharp criticism from a number of energy expers. They accused this policy of draining reserves and paying no attention to future domestic consumption needs. Egypt would not be able to absorb new exportation obligations after gas exporting contracts amounted to 19 trillion cubic feet in the coming 20 years, said one oil expert on condition of anonymity. He called for self-sufficiency in gas before exporting, pointing out that the three natural gas plants had consumed huge portion of gas reserves.

In 2005, the government and foreign companies operating in Egypt started exporting LNG from three projects in Damitta and Edko. In 2006, the country has been ranked the sixth largest LNG exporter with a total capacity of 17.5 billion cubic feet per annum. Hussein Abdallah, a former official at Egyptian General Petroleum Corporation (EGPC) said that the government should reconsider the quantities of exported gas.

Egypt’s LNG production is divided into three parts: one third for local consumption, another for exporting and the last third is kept in reserve to meet future demands, said Mohamed Al-Masry, General Director of Rashid and Brulus Gas Fields. LNG reserves will cover the market needs for the coming 45 years despite the growing consumption, which has increased to 65% as an alternative to heating oil for many cars, he added.

In fact, the Egyptian LNG production has jumped from 40 trillion cubic meters to 66 trillion over the past four year following the discovery of natural gas in deep Mediterranean waters such as Brulus and Rashid zone, he explained.

Egypt gas reserves amount to 68 trillion cubic feet which could reshape the map of the Egyptian economy and push the investment wheel forward to attract US$6.2 billion over the coming five years apart from the billions already injected into Egypt over the past five years. Some experts say that investment flows in energy industry amounted to US$2 billion per annum since the discovery of natural gas in deep waters.

By Ashraf Fekry


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