Shift to Gas
Egypt's declining oil balanced by a sprightly gas sector.
David Townsend reports that Egypt's declining oil reserves are being balanced by a sprightly gas sector
Egypt is a significant oil producer and an increasingly important gas producer. Hydrocarbons are a vital part of the Egyptian economy with the sector a major contributor to total GDP. There are several international oil companies active in the country.
The sector is overseen by the Ministry for Petroleum and Mineral Resources and the Egyptian Mineral Resource Authority (EMRA).
The national oil company is the Egyptian General Petroleum Corporation (EGPC). There are also three further state-run holding companies managing activity in different areas: the Egyptian Natural Gas Holding Company (EGAS), the Egyptian Petrochemicals Holding Company (ECHEM) and the Ganoub El-Wadi Petroleum Holding Company (GANOPE).
International oil companies (IOCs) play a significant role in Egypt’s upstream sector on a production-sharing basis with EGPC and EGAS. Exploration tenders attract the likes of ENI and BP, National Oil Companies (NOCs) such as Petronas and Kuwait Foreign Petroleum Company (KUFPEC), and small IOCs such as Dana Gas and Burren Energy.
Egypt’s proven oil reserves are estimated at 3.7 billion barrels.
Production is centered in four main areas with around half from the Gulf of Suez, and the rest from the Western and Eastern deserts and the Sinai peninsula. Production is typically from mature, smaller fields. Production has been declining since the mid-1990s mainly in the Gulf of Suez, partially offset by increased output from the Western desert which now accounts for around 25% of total production.
Last year the Saggara field came on stream, one of the largest discoveries in the last 20 years, producing around 50 000 barrels per day. Also in 2008 the Egyptian government launched a new licensing round offering 30 blocks that will be managed by EGPC, EGAS and GANOPE but developed with IOCs.
EGPC has said oil production in 2009 is expected to total 720 000 barrels per day, up from 665 000 barrels per day produced in 2008 but still off the 1996 peak of 920 000 barrels per day. Apart from Saggara (above) there have been few significant discoveries since, and economic growth means more oil is being consumed and the country is expected to become a net importer by 2010.
The government is keen to encourage investment in the downstream sector particularly in new refining capacity. Egypt already has the largest refining sector in Africa with nine plants with a combined processing capacity of 726 000 barrels per day.
The largest refinery is the El-Nasr at Suez (145 000 barrels per day) owned by EGPC. The government wants to increase production of lighter products, petrochemicals, and higher octane gasoline by expanding and upgrading existing facilities and promoting two new projects: a 500 000 bpd plant near the Suez Canal and a 130 000 bpd refinery at Ain Sukhna, on the Red Sea coast.
The Suez project has been developed as a joint venture, including local Saudi Arabian and Kuwaiti investors, and is due to be commissioned this summer. There are also plans to jointly develop a 250 000 bpd refinery with Libya for US$6 billion.
The Ministry is currently promoting deep-water offshore oil and gas drilling and the EMRA began in 2006 a study into oil shale deposits. This has estimated shale reserves at 5700 million boe in the Red Sea and at Abu Tartour in Upper Egypt. But the reserves are costly to recover and the recent collapse in oil prices may have rendered some of the potential projects uneconomical.
While oil production is in decline, it is different story with natural gas, with several recent major discoveries, a host of new projects being developed and a strong LNG base. Natural gas production was 56 billion cubic meters in 2007 and is expected to have risen around 10% last year. Egypt has 1.9 trillion cubic meters of reserves and production is expected to reach 90 billion cubic metres by 2020, with around one half available for export.
Most current exploration and production is sourced in the Nile Delta region and in the Western desert.
The Abu Madi, Badreddin and Abu Qir fields in the Nile Delta account for approximately one-half of total gas production, and are non-associated and mature fields. Other offshore developments include Port Fuad, South Temsah, Wakah, Rosetta, the Scarab/Saffron fields and Satis discovered by BP and Eni in 2008. In the Western Desert, the Obeiyed and Khalda fields are the most important natural gas areas.
Egypt has three LNG trains: one at Damietta run by ENI, BP and Union Fenosa, production 240 billion cubic feet a year with a second train planned for 2010-11; and two 172 billion cubic feet trains at Egyptian LNG, Idku run by BG using gas from the latter’s Simian and Sienna fields offshore.
BG has said it plans to build a third plant to start from 2011. ENI has been involved in Egypt since the 1950s. Its investments in the country today are worth around US$6.5 billion and it accounts for one third of total oil and gas production. BG has been active for over 20 years in the country and invested more than US$5.5 billion.
Last year, the Ministry began re-negotiating several gas export contracts and also announced that no new ones would be signed until the end of this decade, when world oil and gas prices had stabilised. The government also wants to divert some of the increased production to supply the domestic market; foreign sales accounted for just under 30% of total production in 2007.
Egypt has said that a further 30 trillion cubic feet of reserves were expected to be proven this year, out of an expected total of 100 trillion cubic feet.
It also wants to divert more of its gas production for use as feedstock for petrochemicals and is almost half way through a 20-year master plan running to 2020 to establish a sector producing 15 million tonnes per year.
It is planning a major aromatics complex, currently at feasibility study stage, and a new styrene facility near Alexandria, while several fertilizer projects are being progressed.
A major deal was announced in January by Edison, which signed a concession agreement with EGPC for the Abu Qir offshore gas fields – to be operated by both companies. The fields have been operating since the 1970s and currently produce around 1.5 billion cubic meters of gas per year and 1.5 million barrels of oil through three platforms.
The concession has reserves estimated at approximately 70 billion cubic meters of gas equivalent. EGPC and Edison plan to increase production from existing reserves and exploit the concession’s exploration potential. Priority for the new production will be given to supplying the domestic market.
Exploration activity continues. In January, Dana Gas of the UAE announced a gas and condensate discovery at its Nile Delta concession, and is currently testing the find. This follows another gas and condensate discovery, estimated at over 130 billion cubic feet at its El Basant-2 well, announced late last year.
Also last month, Apache Corporate announced three new oil and gas fields in the Western Desert. It said that based on test drilling carried out in December 2008 these finds could yield almost 80 million cubic feet of gas and 5,000 barrels of oil per day. And Circle Oil announced it had struck oil at one of its appraisal wells near the Gulf of Suez.
The onshore well in the North West Gemsa Concession, 300km southeast of Cairo, tested at an average of 5,785 barrels of oil per day and 7.8 million cubic feet per day of natural gas.
An assessment of the reserves has yet to be completed. The find was Circle’s fifth in the last six wells drilled in the concession, in which it has a 40% stake. Operator Vegas Oil and Gas has 50% while Premier Oil holds the remaining 10%.
US independent IPR announced last year the first find in deep Jurassic layers in the Western desert at a rate of 5,300 barrels per day and 14 million cubic feet of gas per day. The Ministry also last year signed three agreements covering US$2 billion of investment for exploration at Rosetta and the offshore West Delta, and North Bardaweel.
Egypt is also shoring up its gas export infrastructure capacity announcing in 2008 plans to extend the Arab Gas Pipeline which links it to Jordan, Syria and Lebanon to the European gas grid via Turkey.
2008 saw a flurry of activity with two licensing rounds, as the government sought to profit from high international oil and gas prices.
But crude’s subsequent collapse and a lack of global capital may mean 2009 could be less positive – not least as many of the blocks offered last year included marginal fields with higher E&P costs.
Bids for the second round were due to close in early February 2009 with results due in the summer, and the level of interest in these will serve as a good indicator of how attractive the country remains given the current oil price and general financial climate. As well as the European IOCs, Egypt also relies on Middle Eastern states for oil and gas investment, and funding from this area is widely expected to slow this year.
The country is also facing rapidly growing demand for petroleum products at a time when oil production is falling, and domestic gas consumption is rising, meaning there may be less available for export while the government’s renegotiation of contracts, and decision to sign any new ones until after 2010, may deter gas investors and could delay some of the planned LNG expansion.
Egypt remains an attractive oil and gas producer with strong reserves for the latter, good export infrastructure and an ideal location to serve major consumers in Europe. Terms and conditions for exploration and production remain attractive and it is unlikely that any slow down in activity this year will translate into a long-term trend.
BP In Egypt
BP Egypt has been a significant part of the Egyptian oil and gas industry for more than 43 years. During this time, the company has been responsible for almost 40% of Egypt’s entire oil production and invested close to US$15 billion, making it the single largest foreign investor in the country. BP has said it plans to invest another $5 billion over the coming 4 years.
BP currently produces more than 1.5 billion cubic feet a day gross of gas which is more than 80,000 barrels of oil equivalent per day net into the domestic market, and this production has grown year-on-year for the past three years.
We’re aiming to create a new profit centre in the Nile Delta by supplying 50% of all new markets from concessions in which we operate.
BP has built strong relationships with the Egyptian Government and the Ministry of Petroleum. Its pioneering partnership with the Egyptian General Petroleum Corporation (EGPC) has made the joint venture, the Gulf of Suez Petroleum Company (GUPCO), an industry leader and one of the largest oil and gas operations in the entire region.
Since the 1960s, GUPCO has been at the heart of BP’s operations in the Gulf of Suez, the Western Desert and, more recently, the Nile Delta.
BP and GUPCO, have outlined a strategy, which focuses on: upgrading infrastructure, drilling to reach reservoir technical limits, and focusing on infrastructure led exploration (ILX). We’ve achieved major milestones in this area, the most important being the extension of the oil concession agreements in the Gulf of Suez for another 20 years. With Low Salinity Water-flooding technology the potential is there to double reserves.
Since 2005 the BP joint venture, the United Gas Derivatives Company (UGDC), owns and operates the largest natural gas liquids (NGL) deep cut extraction plant in Egypt. The plant processes 1.1 billion cubic feet of rich natural gas every day from the East-Nile delta concessions.
BP also owns 40% percent of the Natural Gas Vehicles Company (NGVC). NGVC operates 51 compressed natural gas (CNG) stations across Egypt, and puts us in the top 10 CNG-producing countries.
BP’s primary centre of employment is in Cairo, where it’s country head office and the office of GUPCO are located.