Overview
Although Egypt is estimated to hold 1.8 trillion cubic metres of gas reserves, the country is suffering from a severe shortage of the fuel. Foreign investment in new upstream projects has dwindled over the past three years as payment for production is too low and often not forthcoming at all. The cash-strapped government owes foreign oil producers around $5.9 billion in unpaid receivables. Further downstream, subsidised energy prices and a population boom mean gas and electricity demand is soaring.
Egypt’s gas production fell by 7.7% in 2013, according to BP. The Petroleum Ministry estimates demand will outstrip supply for the first time this coming fiscal year, with consumption rising to 157.7 million cubic metres (MMcm/d) and production at 152.9 MMcm/d.
As an immediate response to the supply crisis, the government has diverted gas intended for export to the domestic market. Egypt is exporting minimal – and often interrupted – volumes of pipeline gas to Jordan; BG Group’s Idku LNG plant is operating way below capacity, with only one cargo exported in the first half of 2014; and Union Fenosa Gas has been forced to idle the Damietta LNG plant. As Egypt’s domestic production outlook until 2020 looks bleak, both LNG plant operators are considering importing gas from Israel via pipeline to supply their facilities.
Cairo also intends to import LNG to meet demand in the short term, with cargoes likely to be supplied by Algeria’s Sonatrach, Russia’s Gazprom and France’s EDF. However, plans to secure and install an FSRU have faced repeated delays and first imports are not now expected until 2015.
The Petroleum Ministry has started tweaking the terms of its upstream contracts to increase investment in the exploration and development of Egypt’s gas resources – especially in expensive deepwater projects. The new contracts offer foreign producers the right to negotiate the price of gas sold to the government, rather than be forced to accept the historic price of $2.65/MMBtu, as well as the right to sell to gas directly to commercial customers and to negotiate more than two extensions for exploration concessions.
Egypt’s new government is also making moves to shake up the energy industry further downstream. President Abdel-Fattah el-Sisi announced major cuts to energy subsidies in July. Gas prices for the electricity industry have increased to $3/MMBtu and supplies to other sectors, such as steel and petrochemical producers, were raised to $7/MMBtu and $8/MMBtu respectively. The Electricity Ministry has increased power prices and announced plans to double the price of electricity to nearly EGP 0.51/kWh ($71/MWh) within the next five years.
Page updated: 24/07/2014