Egypt has become a major player in the international gas exporters' club, reports Sherine Abdel-Razek
It was only in 2003 that Egypt joined the gas exporters' club. It now ranks sixth largest member thanks to significant natural gas discoveries made in recent years. These have attracted an influx of foreign investments into Egypt's gas sector and made what had once appeared an ambitious dream come true. Possessing some 1.9 trillion cubic meters (TCM) of proven natural gas reserves, Egypt now accounts for more than one per cent of the world's total production and is becoming an increasingly important player in the gas market.
The country's domestic gas consumption has grown, and over 80 per cent of its thermal electricity generating plants is now operating with gas. An excess of production over consumption remains, however, enough to make the government think of utilising it to tighten the current trade deficit. The need seems to be all the more pressing since Egypt's oil reserves are also dwindling. Domestic oil production peaked more than a decade ago and has been declining since then. According to World Energy Outlook (WEO), Egypt's oil production is expected to decrease from 0.7 mbd in 2010 to 0.5 mbd in the year 2030. By then, Egypt's current position as a minor oil exporter will have become that of a net importer.
Growing world demand for gas is also playing to Egypt's advantage. Gas reserves in the North Sea, a major source of gas exports to Western Europe, has been declining. This has opened up more export opportunities to producers in the Mediterranean basin and the Gulf.
The European and US markets both present potential lucrative markets for the new exporters of gas, because of their emphasis on the importance of using natural gas as an environment--friendly fuel. The US department of energy predicts that natural gas consumption will rise to 67 per cent by the year 2025. Natural gas will then have surpassed coal as the world's second most widely used fossil fuel.
Despite favourable international circumstances, there remains still a need for sizeable foreign investment in Egypt's natural gas sector due to high exploration and production costs. Heavy- weights like British Gas (BG), Petronas of Malaysia and Union Fenosa of Spain are heavily investing in the sector. Such companies are keen to make use of the improved concession terms currently offered by the government. While the state-owned Egyptian General Petroleum Corporation (EGPC) previously used to acquire a standard 50 per cent share in gas fields, this has changed as seen in the less than 25 per cent it owns in each of the country's two liquefied natural gas (LNG) projects. EGPC has also granted BG a 70 per cent share in the Al-Borg concession signed in 2003.
Supported by the current multinational investments, Egypt now produces some 5.5 billion cubic feet (bcf) of natural gas a day. This is 80 per cent higher than the production levels reached in 2003. According to the Egyptian Ministry of Petroleum, only 30 per cent of the country's production can now be exported. The remaining two- thirds are proportionately divided between local consumption and less immediate future needs.
Egypt tapped the gas export market for the first time in 2003. This was done through the Arab gas pipeline which runs from Egypt across to Jordan over a 264-kms stretch. Plans are also underway to extend the pipeline to Syria and Lebanon, and possibly Turkey. The pipeline should eventually deliver a total of 3 bcm every year.
On another front, the politically-controversial agreement to export Egyptian gas to Israel also appears to be gaining some momentum. In June 2005, Egypt signed a memorandum of understanding with Israel by virtue of which a sub-sea gas pipeline would be extended between the two countries. Once built and operating, the Egypt- Israel pipeline is estimated to reach a capacity of around 1.7 bcm. According to the initial agreement signed between the two countries, 25 bcm of Egyptian natural gas will be provided to Israel Electric Corporation (IEC) over a 15-year period, with the option of extending the deal for a another five years, and is worth an estimated $2.5 billion.
Despite the lucrativeness of export via pipelines, the relatively more dense LNG seems to provide a better investment alternative. In 2003 a bid was offered to multinationals to build two natural gas complexes in Edku, in Upper Egypt, and Damietta on the east Mediterranean.
The Edku complex was set up as a joint-venture between the UK's British gas, and the Malaysian Petronas. Each owns a 35.5 per cent stake in the project which provides eight btc per year. Gaz de France also owns a five per cent stake in the project, with the remaining shares co-owned by the Egyptian partners, EGPC and EGAS. The first pilot shipment from the complex headed US markets May 2005 . The following June another shipment was exported to France which, through Gaz de France, signed a contract to buy production of the first train for 20 years.
The Damietta natural gas complex was established in an investment between Spain's union Fenosa and the Italian company Eni. The Damietta complex provides a production capacity of 4.8 billion tonnes of LNG every year.
If there are no interruptions in current output Egypt should be exporting a total of 17 btc of gas every year, starting in 2007.
Current expectations are that local demand for natural gas will substantially increase at an average annual growth of three per cent, until the year 2030. According to the WEO Egypt's natural gas output will outpace oil to become the dominant fuel. Natural gas will account for 48 per cent of demand by 2030, in line with government policies which encourage switching to gas for power generation and the increased use of gas in the petrochemicals, fertilisers and the cement industries.