TURNING UP THE GAS WILL BOOST ENERGY SECTOR
One of the world’s top 20 energy-producers, Egypt is looking forward to exporting large quantities of natural gas to Europe and the United States

Major foreign companies are already involved in exploration and production in Egypt’s energy sector

In the 40 years since the first oil explorations were launched in Egypt, the petroleum industry has been a major contributor to the economy. It is the single largest industrial activity and, according to a recent study for the American Chamber of Commerce in Egypt, accounts for 8% of GDP, 30% of total exports, and 95% of the country’s primary energy requirements.

U.S. companies have played a major role in the development of Egypt’s energy sector. Almost half of around 300 concession agreements have been signed with American firms, and Houston-based Apache Oil is Egypt’s largest single investor in the country. Between 1988/89 and 2002/03 petroleum exports to the United States rose from $44 million to $157 million.

The U.S. Commercial Service identifies Egypt, along with Turkey, as energy hotspots where billions of dollars of procurements in oil and gas exploration, production, refining, and transportation, backed by blue-chip international oil consortia, will create major opportunities over the next six years.

Egyptian Minister of Petroleum Sameh Fahmy says, “Egypt can become a hub for energy resources to the United States.”

The current target is to maintain production of oil and condensate at 780,000 barrels per day, and the government is encouraging investment, exploration, and the use of new technology to achieve this.

SAMEH FAHMY SAMEH FAHMY Minister of Petroleum

Major discoveries are still being made. Last September, for example, the Egyptian subsidiary of the British energy firm BP announced the largest oil find in the Gulf of Suez in 14 years, with estimated reserves of 80 million barrels.
Egypt also has significant downstream oil activity, with the majority of the production refined domestically—indeed the country has one of the strongest refining industries on the African continent at Port Suez.

The government is well aware that oil will not remain a mainstay of the economy forever and, as domestic demand continues to increase and oil reserves decline, it is the development of Egypt’s natural gas industry that offers the brightest prospects for the future.

Following successful exploration in the Mediterranean and the Western Desert, proven reserves of gas have risen dramatically in recent years, and are now put at 60 trillion cubic feet (tcf). According to some estimates, a further 100-120 tcf are still awaiting discovery.

The Nile Delta has emerged as a premier natural gas basin, while BP has dubbed the offshore waters of the Mediterranean “a world-class gas region.” Mr. Fahmy points out that Egypt is the first country in the Middle East to produce gas from deep water and to implement sub-sea completion techniques.

Gas is expected to replace oil as the world’s largest energy source over the next 20 years

Egypt will gradually switch over to increased use of gas for both industrial and domestic use

In 2001, the government formed a new state-owned entity, the Egyptian Natural Gas Holding Company (EGAS), to manage the natural gas sector separately from the Egyptian General Petroleum Corporation (EGPC), the regulatory body of the petroleum sector.

Major foreign companies involved in exploration and production of gas in Egypt include BG, BP, ENI-Agip, and Shell. Last year, in a notable signal of confidence in the country’s future as a gas producer, the Asian energy giant Petronas bought its way into the West Delta Deep Marine Concession (WDDMC), which it now shares with BG.

In the longer term, Egypt’s demand for energy will be met by gradually switching over to increased use of gas in both the industrial and domestic sectors. The government has also been promoting the use of gas to free up more oil for export.

In addition to meeting domestic needs, however, the major objective is to ensure that Egypt becomes a global player in the gas and petrochemical industries. Egypt is positioning itself to become a major supplier, not only to its Middle Eastern neighbors, but also to Europe and the United States.

Mr. Fahmy predicts that investments totaling $2.3 billion will be made in the natural gas sector over the next four years. By 2006, he believes, Egypt will be ranked the sixth largest natural gas producer in the world. “Our goal is to have exported 20,000 tons of natural gas by 2010,” he says.

An important step towards that goal took place in July last year, when President Mubarak and King Abdullah II of Jordan inaugurated the first phase of the $1 billion Arab Natural Gas Pipeline Project. Phase I of the project runs from the Mediterranean, through Al-Arish to Taba, east of Sinai on the Red Sea, and on to the Jordanian port of Al-Aqaba.

Phases II and III are to be carried out simultaneously, by 2006 creating a regional network through which liquefied Egyptian gas will be transported to Jordan, Syria, Lebanon, Cyprus, and Turkey. The ultimate aim is to extend supply to central Europe.

Officials estimate that the pipeline will earn Egypt $70 million in the first year of operation, $200 million after two years, and at least $500 million after five years.

The route of the Arab Natural Gas Pipeline Project, the first phase of which (shown in blue) recently came on stream

Two major liquefied natural gas (LNG) complexes are currently under construction close to the gas-rich waters off the coast of the Nile Delta. The single-train facility near the port of Damietta, being built by the Spanish utility company Union Fenosa and ENI of Italy, is scheduled to come on stream this year. Gas from the plant will be exported to power generation plants in Spain and elsewhere in Europe.

The second plant, at Idku, is under development by Egyptian LNG, a group of joint-venture companies including BG, Petronas, EGPC, EGAS, and Gaz de France. This is a two-train development, but the site is designed to allow other gas producers in Egypt to invest in future LNG export gas trains, without having to replicate supporting infrastructure.

Production from the first train at Idku is due to start in 2005 and Gaz de France will buy the plant's entire production under a 20-year purchase contract. Deliveries from the second train are expected to begin in 2006.
Also due to start operations this year is a world-class natural gas liquids (NGL) plant currently being developed at Port Said by BP, the ENI-Agip subsidiary IEOC, and the Egyptian Natural Gas Company (GASCO), a transmission and distribution affiliate of EGAS.

The plant is designed to process 1,100 million standard cubic feet of gas per day. Most of the projected annual output of 330,000 tons of liquefied petroleum gas (LPG), 280,000 tons of propane, and 1 million barrels of condensate will be absorbed by the domestic market, some of it being used as feedstock for Egypt’s emerging petrochemical industry.