Reuters reported that Egypt looks set to extend 2 year moratorium on new gas export deals to meet surging domestic demand, a move that will disappoint some majors eyeing deals to develop reserves for overseas customers.
Europe’s desire to diversify away from Russian supplies has focused attention on alternative producers like Egypt which wants to join its Arab Gas Pipeline to the Nabucco link running via Turkey to Europe.
Analysts said that a long standing ambition to bolster its trade balance and state finances by becoming a major exporter of the fuel has been disappointed for now as differences with energy companies over commercial terms stymied development.
Most additional volumes are going to satisfy Egypt’s growing appetite for natural gas, the fuel of choice as new power plants come on line to meet a government target to triple power generation capacity by 2027. The government imposed the moratorium on new export deals in 2008 to protect domestic gas supplies. It is due to review the moratorium at the end of this year.
With domestic demand seen growing at least 8% per year, higher output volumes previously allocated for export could end up being burned in Egyptian homes, factories and power plants.
Mr Femi Oso upstream research analyst at Wood MacKenzie said that if the domestic supply demand shortfall persists, one could easily see the moratorium being extended. The damp outlook for exports is hardly likely to improve after this summer’s power crisis. Blackouts across the country stirred public anger and put further pressure on the government to prioritize local needs.
Mr Samuel Ciszuk senior energy analyst for the Middle East and North Africa at IHS Energy said that there is some potential for exports a bit further down the line but with these shortages there will be renewed pressure from the Egyptian population and industry to continue with the moratorium. And as long as that continues, it adds to company reluctance to invest upstream.
Analysts have said that companies have grumbled about terms in the past saying they don’t offer enough incentives to secure returns on expensive offshore developments. The firms have also been keen on tapping reserves to supply hungry European markets.
However, they say terms of the BP RWE deal should speed work to extract the vast reserves deep below Egypt’s Mediterranean waters, a process that slowed in the past 5 years.
The agreement sets a precedent by letting the companies decide who they sell gas to in the past, Egypt got a fixed share of production from partner fields potentially allowing them to set aside more production for exports.
In a further sign of some revived interest in Egyptian deep water prospection, Norway’s Statoil said that this month it had sent a Transocean rig it had contracted for deep water drilling in the US Gulf of Mexico to Egypt. But it will be years before the redoubled exploration effort gets gas flowing and when it does, the first gas from the BP RWE deal is due to be sold to the state owned Egyptian Natural Gas Holding Company for the domestic grid.
Egypt power demand has grown at 11.5% annually and the blackouts which struck across the country, including swathes of the capital for several hours a day, turned the spotlight on Egypt’s exports.
Mr Ciszuk said that the more pressure there is domestically for more gas to be diverted for domestic power generation to rise, the harder it is for the government to allow exports.
(Sourced from Reuters)