Egypt announces new incentives to halt oil and gas output decline

Revenue generated from higher production will be used to settle part of the dues owed to petroleum sector partners

Prime Minister Mostafa Madbouly said Egypt plans to restore oil and gas production levels with the help of international partners. Photo: Egyptian Cabinet

Egypt has announced incentives aimed at boosting oil and gas production as the Arab world’s third-largest economy faces declining output amid a domestic energy crisis.

The measures include new methods to boost production, as well as more exploratory drilling and development activities, Karim Badawi, Minister of Petroleum and Mineral Resources said, as reported by Wam on Wednesday.

The revenue generated from the higher production will be used to settle part of the dues owed to petroleum sector partners and provide additional crude to narrow the gap between local production and consumption, Mr Badawi said.

Egypt, which faced a gas shortage and rolling power cuts during the summer, achieved natural gas self-sufficiency in 2018 thanks to the discovery and operation of the Zohr field off its Mediterranean coast. This allowed the North African country to stop importing natural gas and briefly become an exporter.

However, the country began experiencing gas shortfalls in 2022, particularly due to the natural depletion of wells in the Zohr field, which contributes around 35 per cent of the country’s total gas production.

With rising local power consumption and an overreliance on gas imports, the Egyptian government has accelerated the offering of offshore exploration blocks in an effort to maintain its status as a natural gas hub.

Egypt's gas production stood at 5.7 billion cubic feet per day in July, according to official data. Production reached a high of 7.2 billion cubic feet per day in September 2019.

In a speech last week, Prime Minister Mostafa Madbouly said Egypt plans to restore oil and gas production levels from 2025 with the help of international partners.

“There is a very clear plan to bring the volume of production of oil and natural gas with foreign partners back to previous levels, and to also increase it in the coming period,” Mr Madbouly said.

In June, Mr Madbouly said the government had allocated $1.18 billion for imports of natural gas and mazut, a type of heavy fuel oil, to increase the power supply.

BMI, a unit of Fitch Group, has forecast that Egypt's gas production will continue to decrease this year, but at a slower pace than it did in 2023.

“Declines will be slowed by the drilling of new wells at the Zohr field in 2024 and 2025. Despite these efforts, the country's gas production will remain significantly below the peak levels seen in 2022,” BMI said in a June report.

“Consequently, Egypt's liquefied natural gas [LNG] exports are projected to continue trailing behind the highs of recent years.”

In 2023, Egypt's LNG exports declined to 8.9 billion cubic metres from 9.2 billion cubic metres in the previous year, according to Statista.

Egypt also imports natural gas from Israel's Leviathan and Tamar offshore gas fields. Israel exported 8.6 billion cubic metres of gas to Egypt in 2023, an increase of 39 per cent over the previous year.

Egypt was set to deliver up to 30,000 tonnes of fuel to Lebanon on Monday, providing some relief to the Middle Eastern country's continuing nationwide power blackout, which began over a week ago.

The fuel can be used immediately, Lebanon's Energy Minister Walid Fayad told The National. It was procured by state provider Electricite du Liban (EDL).

Oil discovery

Meanwhile, Khalda Petroleum Company, a joint venture between the Egyptian General Petroleum Corporation (EGPC), and US oil and gas producer Apache, announced on Tuesday an oil discovery in the Kalabsha development area of the Egyptian Western Desert.

Early tests have produced 7,165 barrels of oil per day and the well also produced 23 million cubic feet of associated natural gas.

Last year, Egypt’s Cheiron announced an oil discovery in the Geisum and Tawila West Concession in the Gulf of Suez.

Economic crisis

Egypt faces continuing difficulties in its economic recovery, as it navigates regional conflicts and attempts to meet the International Monetary Fund's stringent conditions for an $8 billion loan programme.

Although the country avoided a full lockdown during the coronavirus pandemic, its economy was significantly disrupted by Russia's 2022 invasion of Ukraine, as Egypt relies heavily on wheat exports from both nations.

More recently, the war in Gaza and its regional repercussions have been a major factor in Egypt’s sluggish growth throughout the first half of 2024, the IMF said in a report on Monday.

The war has disrupted maritime traffic in the Red Sea and resulted in a 60 per cent drop in Egypt’s Suez Canal revenue, one of the country’s main sources of foreign currency. The IMF has also advised further reductions in state subsidies, particularly in energy.

The Egyptian government raised electricity prices by up to 50 per cent this month, following an increase in fuel prices in July.