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Egypt’s energy hub hopes receive a knock
While positive momentum in Egypt’s oil and gas sector has been knocked back by a mix of falling prices and demand in the wake of COVID-19, there is every reason for optimism long term, says Martin Clark.
RISING CONFIDENCE IN Egypt’s gas industry in recent years, fuelled by a string of major offshore discoveries offshore, has taken a hit in the wake of the COVID-19 crisis. The country was positioning itself to be the energy hub for the Eastern Mediterranean region, a key import and export centre for Europe, North Africa and the Middle East.
While that dream still lives on, it has not been the easiest of starts in 2020, not least because of the global pandemic which has cut energy demand and oil prices worldwide. There is also reduced production from Egypt’s flagship gas find of recent times, Eni’s mighty Zohr field, during the early part of this year.
Local production also now faces competition with the arrival of gas from neighbouring Israel, which commenced back in January.
Dolphinus Holdings, a private firm in Egypt, is purchasing 85 billion cubic metres (bcm) of gas, worth an estimated US$19.5bn, from Israel’s Leviathan and Tamar offshore fields over a 15-year period.
There are other choke points too. A deal to unlock export capacity at Damietta, a former LNG plant on the coast that has been dormant for years, also looks in jeopardy after a deal between Spanish gas firm Naturgy Energy Group, Eni, and the Egyptian government to resolve a series of disputes fell through in April. The 7.56 bcm capacity plant facility has been idle since the end of 2012, when a popular uprising hit gas supplies to Egypt. Exports from the nation’s other LNG site at Idku were also temporarily halted because of the fall in demand and prices arising from the pandemic.
It is fair to say it has been a tough beginning to the year for all, but on the ground, there is still every reason to be optimistic long-term about Egypt’s upstream ambitions.
Shell has seen a positive response to its plans to divest its onshore oil and gas assets, which have drawn interest from American, Egyptian, Asian and Middle East bidders, according to insiders cited by Reuters. This appetite suggests that interest in Egypt’s upstream sector remains strong overall, despite the current market volatility.
One compelling reason is because new discoveries continue to be made, and the country welcomes smaller explorers alongside the majors.
In June, Egypt’s Ministry of Petroleum announced a small oil discovery in the shallow waters of the Geisum concession, in the southern part of the Gulf of Suez, held by PetroGulf Egypt, Pico, and Kufpec Egypt.
UK-listed SDX Energy also reported that its
Interest in Egypt’s upstream sector remains strong, despite the current market volatility.
Sobhi discovery, in South Disouq, is now expected to maintain plateau production through to mid-2023, with the potential for a further extension to mid-2026. It reiterated its investment plans on 23 June with up to 10 wells planned in the West Gharib concession between 2021 and 2023, with the potential to increase gross production from around 3,200- 3,300 bpd to around 4,000 bpd by 2022.
Another UK-listed explorer, United Oil & Gas, reported in late June much stronger production from its Abu Sennan concession, which yielded 13,900 barrels oil equivalent per day (boepd) during the first half of June – 69 per cent up from average April output. "We remain highly confident that the licence has more to offer,” said Jonathan Leather, United’s chief operating officer.
The same can be said for Egypt overall, even in the face of such testing market conditions – with plenty of oil and gas in the ground, this remains a key energy hub for the future. n
