Skip to main content

Why one giant gas field is a big deal for Egypt

Published by
LNG Industry,

The gas imports which once helped Egypt avert power blackouts may soon be a thing of the past. Eni SpA’s massive Zohr natural gas field, the Mediterranean Sea’s largest offshore field, started production earlier this month. Its huge reserves could prove a permanent remedy to the most populous Arab nation’s power needs and bring Egypt closer to its goal of energy self-sufficiency.

1. How giant is ‘Supergiant Zohr?’
Discovered in August 2015, Zohr is often described as a ‘supergiant’ field because it has estimated reserves of about 30 trillion ft3, equal to the reserves of Israel and Oman combined, making it the largest gas discovery in the Mediterranean Sea. The field covers an area of about 100 km2. On 16 December, gas from Zohr began to flow to a facility in Port Said city, with initial production of 350 million ft3 per day. Daily output is expected to rise to about 1 billion ft3 in June, and then to 2.7 billion by the end of 2019. President Abdel-Fattah El-Sisi has vowed to tackle the energy shortage as a priority. The project could also eventually enable Egypt to return to exporting gas.

2. Why did Egypt end up short of gas? 
Previously, Egypt had sufficient supplies to export gas by pipeline to Jordan and Israel. Gas shortages began after the 2011 uprising against then president Hosni Mubarak. The ensuing political struggles scared off tourists and investors, provoking a drop in foreign currency reserves. The North African nation had to give up gas exports in 2014 to meet local demand. Sporadic sabotage of its pipeline in the Sinai Desert by Islamist militants also throttled exports. Repeated power cuts, especially during the summer months, fueled anger against Muslim Brotherhood President Mohamed Mursi, who was toppled by the army in July 2013.

3. How will Zohr help? 
Zohr’s output is enough to cover the gap between Egypt’s total gas consumption, which stood at 4.9 billion ft3 per day in 2016, and its total daily production of 4 billion ft3, according to data from the BP statistical review. Consumption outstripped production in 2015 reversing a trend of more than a decade. Egypt now imports LNG, at high costs to meet its energy needs. It first purchased the fuel in 2013. It bought a total of 89 LNG cargoes from international suppliers in fiscal year 2015/2016 at the cost of US$2.2 billion, according to the oil ministry.

4. What will happen to LNG shipments?
Egypt’s government will issue another tender for LNG purchases in early 2018 to cover needs for the second quarter. It plans to stop importing the fuel by the end of next year because of gas from Zohr, Tarek El-Molla, Egypt’s oil minister, said in a November interview. Initial production from the field has raised Egypt’s gas production to 5.5 billion ft3 a day, according to oil ministry data.

5. What’s the effect on the imports bill?
Initial production from Zohr is equivalent to three LNG import cargoes a month at the cost of US$60 million, according to a 13 December oil ministry statement. It will save the country double that amount, or US$180 million a month later on when output will exceed 1 billion ft3 a day, it said. "Zohr is a game changer for Egypt’s energy outlook," said Hany Farahat, a senior economist at Cairo-based CI Capital Holding. Zohr, along with BP Plc’s West Nile Delta field, which started earlier in 2017, will allow the cheaper locally produced gas to substitute for the much more expensive LNG, he said. "Those two fields can improve Egypt’s balance of payments by narrowing the current account by approximately US$4 billion and encourage" more foreign investment in Egypt’s energy sector.

6. Could this spur other energy investments? 
Development of Zohr shows big projects can be “brought on stream in a relatively very short period of time,” El-Molla said in the interview. Eni was joined in the field by BP and then Rosneft PJSC. Egypt is planning to seek bids for more oil and gas exploration rounds, El-Molla told an oil conference in Cairo 18 December. The government has taken other steps to encourage energy investment. Under a law signed in August, private businesses will be allowed to transport and trade gas using the country’s pipeline network and infrastructure, moving away from a state monopoly. The country has also adopted a flexible gas-pricing formula to encourage investment and boost supply.

7. Is Zohr enough to turn the tide for Egypt’s economy?
No. The government cannot rely on gas production alone and has to take more measures, including renewable energy projects and the removal of fuel subsidies, according to Mohamed Abu Basha, Cairo-based economist at investment bank EFG-Hermes. Over the past year, Egypt has enacted sweeping reforms, backed by the International Monetary Fund, that have included floating the Egyptian pound, cutting subsidies and approving legislation to attract foreign currency. Foreign-currency reserves rebounded to a record high of US$36.723 billion in November 2017 from as low as US$13.42 billion in March 2013.

8. What else is Egypt doing to provide more energy?
Earlier this month, the electricity ministry held its first competitive solar energy auction, part of Egypt’s plan to generate a fifth of its electricity from clean sources by 2022. It currently has a feed-in tariff system and is in the process of building more than 1 gigawatts of solar power, largely in the southeastern Benban region.

Read the article online at:

You might also like


Embed article link: (copy the HTML code below):


LNG Industry is not responsible for the content of external internet sites.