LeAnne Graves and Dania Saadi
Egypt plans to focus on more costly deepwater gas exploration, offering new terms to incentivise companies as it seeks to move from an importer of the fuel to an exporter after five years.
“Deepwater gas exploration is the future,” said Tarek El Molla, Egypt’s oil minister.
The country is turning its attention to this area, which costs over 15 times more than onshore drilling because of added complexities, as its huge gas find is slated to start production next year.
The Zohr gas discovery made last year is expected to begin production next year at 1 billion cubic feet (bcf) per day, ramping up annually until it reaches 2.7bcf a day at the start of 2019.
Last year, Eni of Italy announced that the Zohr discovery in the Mediterranean Sea could hold the potential of 30 trillion cubic feet, which would make it one of the largest finds in the region.
The first phase of the project that will have gas hitting the market next year will cost a third of the total US$12 billion for the first three years. Afterwards, more investment may be needed to maintain production, Mr El Molla said.
Egypt began importing liquefied natural gas last year to meet rising domestic demand, which adds another strain to the federal budget. It is seeking better terms for its oil and gas imports to offset the impact.
Mr El Molla said: “We’re meeting all producers and traders. It’s an ongoing process because we’re importing one-third of our consumption and we have to improve pricing and terms that we receive in general, because it helps reduce costs.”
Cairo took the decision to float its currency last week hoping it would increase investments, including attracting a $12bn loan from the IMF. This could signal more US dollars flowing into the country, which will help Egypt pay its more than $3.5bn in outstanding arrears to oil and gas operators.
“This will improve our dollar terms and our inflows of foreign currency, investment environment and foreign direct investment which will, at the end of the day, avail more use. And we could be in a better position in paying,” Mr El Molla said.
The fall in the value of the Egyptian pound following the removal of currency controls will make imports from any source more expensive.
“Although domestic prices increased by 30 to 47 per cent for most types of fuel, the currency effect could wipe out all of those gains,” said Richard Mallinson, a geopolitical analyst at consultancy Energy Aspects. “So the subsidy bill for the imported fuels may actually rise, although it should be reduced for products produced by Egyptian refineries.”
The oil minister said that while he hoped to see the currency situation corrected, Egypt would continue to provide a mix of US dollars, Egyptian pounds, or in kind hydrocarbon payments for services. “The [mixed] percentage will increase in favour of US dollars,” he said declining to give specific ratios.
For now, upstream contracts are currently being renegotiated. “It depends on the field itself – volumes and reserves. Each concession and field has its own economic dynamics,” Mr El Molla said. “I think this story of delays in payments for upstream partners will improve in the short-term.”
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