Egypt: Looking for a New Energy Independence (ABO Oil Book)

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Egypt’s biggest news in the hydrocarbon sector is called Zohr, the largest natural gas field in the Mediterranean that could push forward Egypt’s plan to become energy independent.

According to the last report by the US Energy Information Administration (Eia) from this past June, Egypt is the largest consumer of oil and natural gas in Africa, roughly 20% and 40% respectively. In the last years, the consumption of oil and gas has gone hand in hand with the economic growth of certain specific sectors: transportation, industry and automobile sales. 95% of Egyptian energy consumption is based on hydrocarbon, the remaining 5% is a residual amount split between renewable sources and coal, sectors that the government would like to strengthen but have not yet reached important market quotes (especially in the fields of wind and solar energy).

If we look to the production of electric energy, for example, we realize that natural gas plays an important role, it accounts for 70% of production. Even so, in the summer months Egypt has to deal with a gas shortage and is therefore forced to export only fuel and diesel. But the role of natural gas, which cover 53% of the primary energy consumption, could become even more important after the discovery of the supergiant gas field Zohr.

Zohr, the biggest natural gas field in the Mediterranean

At 1,450 meters in the depths of the Mediterranean Sea, north of Port Said, Egypt may have identified a source of independence in the natural gas sector at for the next several decades. With a potential of 850 billion cubic metres (5.5 billion barrels oil), Zohr’s exploration prospect in the Shorouk block is the greatest natural gas field discovery ever made in both Egypt and the Mediterranean.

Following an international bid, Eni signed a deal in 2014 over the Shorouk block with the Egyptian Oil Ministry and with the Egyptian Natural Gas Holding Company (EGAS), then discovering this new “supergiant”. Experts are already trying to see how Zohr could affect the natural gas scenario in the Mediterranean, in Italy and Europe, they all agree on one aspect: this momentous change will very much depend on the area’s stability and also on prices. For Italy’s Eni, this is, however an historical success.

According to Eni’s Managing Director Claudio Descalzi: “This discovery will transform the entire energy scenario in a country where Eni has been welcome for more than 60 years.” Descalzi also highlighted how Eni’s strategy is focused mainly on exploration activities also in Egypt: “In the past 7 years Eni discovered 10 billion barrels of resources and 300 million of those just in the past six months thus confirming Eni’s top position within this industry. This discovery is even more important since it was made in Egypt, a strategic country for Eni where key synergies can be exploited with the existing installations thus favoring a rapid production process.”

Arab Spring and Oil&Gas sector instability

Egypt is the second producer of natural gas in Africa (after Algeria) and is the number one producer of oil among the African not members of Opec. Egypt’s key role in the international energy markets is also linked to its logistics. The country offers in fact key transit routes like the Suez Canal and the oil pipeline connecting the Suez Canal with the Mediterranean. However, the Arab Spring and the 2011 revolution had an impact not only on the Oil&Gas sector, but on the whole of the Egyptian economy. In fact Egypt’s GDP recorded a slowdown in 2011 going down to 1.8% from 5.1% in 2010 and is still stuck at pre-revolutionary levels (source: IMF data).

Also, Egypt has turned into an importer of natural gas – while it was once an exporter – and this was due to both the 2011 riots, but also to an increase in domestic demand. According to the IMF, only external supplies from some Gulf countries enabled Egypt to meet the national energy needs. Gas consumption dropped from 46.67 billion cubic meters in 2012 to 45.47 billion cubic meters in 2013, while gas production decreased from 52.71 to 50.08 billion cubic meters. Oil production also dropped from 721 to 698 thousand barrels per day, while its consumption increased from 704 to 765 thousand barrels per day (World Oil&Gas review 2014).

Looking for energy independence

President Al-Sisi and Prime Minister Ibrahim Mahlab’s key target is to reduce hydrocarbon foreign exports with an adequate plan able to re-launch the energy development in the country and through upstream activities. During an interview with Abo.net, Sherif Ismail, Oil Minister, stated that: “to satisfy the local market demands for oil and natural gas products we need to work mainly on two aspects. The first one is the upstream sector by ensuring the highest number of grant, exploration and exploitation agreements, and by signing new grant agreements substituting the old ones with more favorable conditions for direct foreign investments. In this way, Egypt will be exposed to intense exploration activities that should lead to an increase in production and should stop the decreasing trend in other productive sectors. I personally believe that Egypt has great potential in terms of exploration projects in the Mediterranean, in the Western Desert, the Nile delta and the Suez Gulf. This is therefore the first strategic path that we’re now following. The second aspect is focused on improving and developing infrastructures, gas and oil distribution networks, storage and refinery systems”.

The success of Upstream activities

Egypt’s optimism has a solid basis. In July 2015, before the supergiant discovery in the Mediterranean, Eni made another important discovery with the Nooros explorative project under the Abu Madi West license on the Nile delta 120 km north-east of Alexandria. According to preliminary estimates, this field should contain 15 billion cubic meters of gas. This discovery took place through the Nidoco NW 2 Dir well drilled for 3,600 meters depth. The new field will be connected to Abu Madi gas power station located 25 km south-east, in line with Eni’s new strategy aimed at refocusing its exploration activities on “near field” activities which allow a rapid development of fields’ discovery through existing and synergetic infrastructures.

A year before the Nooros and Zohr discoveries, the first well of the Deka project (Denise South 6) was just entering production in the Nile delta area under the Temsah grant agreement. The natural gas well is located 65 km from Port Said at a depth of 100 meters. Ieoc (controlled by Eni in Egypt) owns 50% of the share in the Temsah grant agreement and operates through its joint venture Petrobel (50% Ieoc and 50% EGPC).

Eni and Egypt – collaborating since 1954

The collaboration between Eni and Egypt dates back to 1954 when Enrico Mattei met for the first time Gamal Abdel Nasser – who had become Egypt’s President that same year – to explore the possibility of creating a collaboration in the mining sector between Italy and Egypt. It was in Egypt that Mattei launched his operational strategy abroad aimed at granting Italy the widest energy independence. The internationalization strategy was based on total respect of the sovereignty of producer countries in the exploitation of their resources and on a “new system and a new form of collaboration” that could exploit oil for internal development under the pillar that “there is no

aboEgypt Energy Overview: Looking for a New Energy Independence (ABO Oil Book Egypt)
by Valerio Giardinelli – http://www.startmag.it

Original Article: http://www.abo.net/en_IT/infographics_slide/oilbook-egypt/article3.html

Have a look at the Oil Book dedicated to Egypt. A great history and a future to build. An interactive look – with information, data, analysis and relevant background detail – at Egypt, a strategic country in the complicated Middle Eastern scenario.

(Source: ABO.net & Eni S.p.A.)

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