Egypt’s oil and gas sector is rising out of dormancy and lethargy under a new leadership as the government takes on major reforms to ensure a faster development and economic recovery from a revolution that took a heavy economic toll. Under reforms led by Egyptian President Abdel Fattah el-Sisi, the North-African country in recent months floated its currency, freeing it from artificial exchange rate controls, cut energy subsidies and took on other austerity measures to qualify for a US $12 billion loan from the International Monetary Fund.
The loan, approved in early November, is meant to equip the nation to restore macroeconomic stability after years of civil unrest and terrorist attacks that have bitten into Egypt’s main revenue streams of tourism and foreign direct investments. To restore its economy, the country’s reform plans include developing the oil and gas sector to meet domestic energy needs of a growing and large population of more than 80 million.
Egyptian Petroleum Minister Tarek El Molla, speaking at ADIPEC 2017 – Abu Dhabi’s oil and gas exhibition in November, said within the country’s new strategy for energy security and satisfying domestic demand, it has signed 70 new upstream and oil and gas exploration agreements, including 300 wells. So far $33.8 billion worth of investments have been carried out.
“Our downstream industry is the most developed in Africa, with more than $14 billion of investments expected. We have managed to attract new investments with a spade of expected announcements yet to come,” El Molla said, as the country looks to attract more foreign investors to develop its energy sector.
Steps are being taken to improve the foreign investment environment, which will be crucial to continue development of its new mega offshore gas discoveries. Egypt is the largest oil producer in Africa outside of the Organization of the Petroleum Exporting Countries (OPEC) and the second-largest natural gas producer on the continent, behind Algeria.
It is also the largest oil and natural gas consumer in Africa, accounting for about 20 per cent of petroleum and other liquids consumption and 40 per cent of dry natural gas consumption in Africa in 2013. Its total oil consumption in 2015 was 824,000 barrels per day, up 2.3 per cent from the year earlier, according to BP’s Statistical Review in June 2016.
The rapid growth of oil and natural gas consumption over the past few decades has been driven by increased industrial output, economic growth, energy-intensive natural gas and oil extraction projects, population growth, an increase in private and commercial vehicle sales, and energy subsidies.
Consequently, the high cost of energy subsidies in recent years has contributed to the country’s high budget deficit and the inability of the Egyptian General Petroleum Corporation (EGPC), the country’s national oil company, to pay off its debt to foreign operators. EGPC owes foreign oil and natural gas operators billions of dollars, which has led foreign operators to delay their investments in existing and new oil and natural gas projects.
Meanwhile, oil production has not grown parallel to demand; Egypt produced 723,000 bpd in 2015, up from 714,000 in bpd 2014. This leaves a shortfall of almost 100,000 bpd, which forces Egypt to import oil despite reserves measured at 3.5 billion barrels at the end of 2015, according to BP figures.
Egypt’s natural gas presents a similar picture with consumption of 47.8 billion cubic meters in 2015 outpacing a production of 45.6 billion cubic meters. Consumption has been flat from a year ago, while production declined by 6.6 per cent. The country’s natural gas reserves stood at 65.2 trillion cubic feet at the end of 2015.
REFORMS AND FDI
Backed by economic reforms and the IMF loan, Egypt is attempting to correct the energy shortfall by investing in the oil and gas sector and also making the foreign direct investment environment conducive for projects to move along at a faster pace. At centre stage of this push is the offshore Shorouq concession, which contains the massive gas field Zohr – the largest natural gas field ever discovered in the Mediterranean with an estimated 30 trillion cubic feet of gas according to Italian energy firm Eni who first found the field in August 2015. Eni, which initially owned 100 per cent of the interest in the concession has sold a 10 per cent interest to BP and a 30 per cent to Russia’s Rosneft.
The first phase of development of Zohr is now being fast-tracked with six wells successfully drilled and the first gas currently expected in late 2017. Other concessions are also under way with blocks awarded of Southwest Meleiha in the Western Desert and Karawan and North Leil in the deep water of the Egyptian Mediterranean.
Egypt has been producing natural gas since 1975 when the first natural gas field, Abu Madi, was brought on stream. These substantial gas discoveries in the deepwater Mediterranean Sea and in other areas in Egypt were undeveloped for many years but recently, activity has picked up. Egypt Natural Gas Holding Company has signed deals to pay foreign operators a higher price for the natural gas, ranging from $3.95 to $5.88 per million Btu, to attract more foreign investors.
El Molla in November said that Egypt has undergone significant changes in the past few years, which brought along challenges and opportunities. As Egypt envisions a competitive and diversified economy, the oil and gas sector is moving towards a newly adopted strategy. This encompasses energy security and satisfying domestic demand.
Currently, there is an acceleration of ongoing gas development projects with Egypt offering farm-ins and exploration opportunities, he said. “We are committed to developing a conducive environment to foster growth and develop talent. We have a clear roadmap, backed up with the necessary approvals,” el Molla said in Abu Dhabi, at the Middle East Petroleum Club during ADIPEC 2016.
“We are not trying to just keep up the current pace, we are trying to accelerate and attract more investments, partners and upstream companies to join the booming of the industry in Egypt.”