Share

Huge gas find boosts egypt

More good news for the power sector as vast reserves discovered in the Med.

Share
ANALYSIS

The discovery last month of a vast natural gas deposit offshore Egypt is a potential game changer for the country’s ailing energy sector.

Italian oil and gas firm ENI confirmed the find of an estimated 30 trillion cubic feet (850 billion cubic metres) spread over an area of around 100 km2 under deep water.

The Zohr field is the largest ever discovery of natural gas in the Mediterranean Sea and could be sufficient to supply the Egyptian market for decades to come, ENI CEO Claudio Descalzi said after announcing the find.

Eni will immediately appraise the field with the aim of accelerating the development of the discovery through existing infrastructure.

Perfect Timing

The timing of the discovery could hardly have been better for President Abdel Fattah el-Sisi, who just months ago signed a $9bn contract with Siemens to modernise the country’s electricity infrastructure.

As part of that deal the German company will build three of the largest gas-fired power plants in the world. Each of the plants - Beni Suef, Burullus and New Capital – will use eight H class turbines to generate 4.8MW.

However it’s one thing to build gas-fired power plants, another thing entirely finding enough gas to feed them. For years Egypt has been struggling to supply sufficient volumes of natural gas to its own power plants, which has led to frequent blackouts and an unhappy population. The government has reacted by rationing gas supplies to industry in order to ensure supplies to the residential sector, less than an ideal scenario.

Though ENI has said it intends to fast-track the development of the field, experts say it could take up to two years for the new reserves to hit the domestic market, meaning Egyptian households could continue to face power shortages for some time yet.

Gas for Export?

Egypt has long been an exporter of natural gas via pipeline to neighbouring countries as well as via Liquefied Natural Gas (LNG) tankers. However, as domestic demand has risen over the years, the country has struggled to meet commitments to both domestic and foreign customers.

The government finally cut subsidies last year in an effort to put a lid on demand and promote more efficient use of energy. But the fact remains that production of natural gas is currently only around 4.3 Bcf per day while demand is 7.8 Bcf/d and the country is now a net importer of gas. If, as predicted, the Zohr field can produce as much as 3 Bcf/d, it would go some way towards meeting the shortfall.

Officials insist that the volumes discovered in the field will be prioritised for the domestic market. ENI holds a 35% share in the field while the state owns the rest. “The priority is Egypt’s internal needs; exports will come next, depending on the discoveries,” Khaled Abdel Badie, chairman of the state-run EGAS told Bloomberg. “All the gas from this field will be allocated to the internal market. ENI has agreed to that.”

There is little prospect of Egypt becoming a gas exporter again unless more fields are discovered, something that observers believe is likely to happen. The government’s decision to lift energy subsidies, pay outstanding debts to oil companies and a higher price for the gas it buys at the well head has encouraged oil companies to invest billions of dollars in exploration in the country. As a result there have been a number of other smaller discoveries in the country prior to ENI hitting the jackpot.

And that’s not to mention the huge amount of gas found further north offshore Israel and Cyprus. Oil Minister Sherif Ismail said that Zohr’s discovery will not impact deals to buy gas from those countries. The new discovery has raised concerns in Israel that Egypt may no longer need its gas but demand in the North African country is rising at such a rate that it may still need those volumes in the long run.

In the meantime, after a torrid few years for Egypt’s energy sector, things appear finally to be looking up in a big way. There is little doubt that the discovery, combined with plans to procure thousands of megawatts of renewable energy, mean the medium to longer term outlook for the Egyptian electricity market is suddenly looking far brighter than it has for many years.

Factbox

The Zohr gas find is estimated at 850 Billion cubic metres.

Located 193km off the coast of Egypt under 1,500 metres of water.

ENI is the largest foreign oil company active in the country with daily production of 200,000 barrels of oil equivalent.

Egypt plans to double installed power generation capacity to around 60,000MW by 2020.

Plans to procure 12,000MW of renewable energy capacity by 2020.

$12bn investment expected in renewables.

Egypt is forecast to become a net importer of oil and gas between 2030 and 2040.

Newsletter

Most Popular