Egyptian gas’s second coming
Zohr is speeding ahead quickly. Does it herald a new era for the region’s energy?
Eastern Mediterranean gas prospects continue to fluctuate. The Egyptian successes of the 1990s were followed by decline. Then came the big Israeli discoveries, starting with Tamar, in 2009. Now it's Egypt's turn again. Last summer's discovery of the supergiant Zohr gasfield-a 30-trillion-cubic-foot reserve lying 4,700 feet beneath the surface in a previously undiscovered carbonate layer-suggests another spurt of upstream success could be on the way, reshaping the ever-changing energy sector in the region.
Things are moving quickly. It was only in August last year that Italy's Eni announced the discovery. By the end of 2017 it should be producing 1bn cubic feet a day of gas from six wells, rising to nearly 2.7bn cf/d by 2019 when 14 more wells have been sunk. By any standards this is a remarkably ambitious timetable.
Zohr has thrown Egypt a lifeline at a time of chronic economic crisis, with falling gas production not only halting liquefied natural gas exports, but also forcing the import of LNG to meet demand. Zohr, and the development of other projects, will counter a steady natural decline in output from Egypt's existing offshore fields. Petroleum minister Tarek el-Molla predicts that the return to self-sufficiency should be achieved by 2019, with natural gas production reaching 5.5bn-6bn cf/d. Of this total, more than 4bn cf/d could come from major new offshore developments, with the figure rising to about 5bn-6bn cf/d when other smaller projects are included.
Eni has said that output from Zohr is intended primarily for the domestic market. As a result, the company has avoided the delays and uncertainty experienced elsewhere in the East Med in securing export markets and routes. Eni is also fortunate to be operating in a country where natural gas production and delivery infrastructure is already in place. This is not the case in other East Med gas-producing states.
This is one of the factors drawing international oil companies (IOCs) back to Egypt. The other is price. The government is paying $4.00-5.88 per million British thermal units. President Abdel Fattah el-Sisi has decided that the elimination of long and frequent power cuts during summer months is a national priority to stave off more social unrest. So he has ordered the government to pay whatever is needed to bring in the big players. Part of that involves paying developers what they are owed by the government. Molla told Petroleum Economist earlier this year that the government was committed to paying off this debt, and was now meeting monthly invoices.
Either way, Egypt's willingness to keep paying relatively high prices for supply is a lure. "Nobody can get prices like Egypt's anywhere else," says Charles Ellinas, an expert in East Mediterranean energy. "Then, the country itself is a huge market for gas, so anyone finding any quantity need not worry about selling it. Even if you make a very small find, say 1 trillion cf, normally that's a problem. Not in Egypt, you simply hook it up and it flows."
Despite the array of development projects underway, Zohr is stealing the headlines. It is so attractive that major IOCs-said to include BP, ExxonMobil, Lukoil and Total-are keen to take a 20% share of this $13bn-14bn venture, and Eni is equally keen to spread the financial load.
The wheels are already turning in the Zohr programme. The first appraisal well was drilled in February. In June, Schlumberger's OneSubsea was chosen to procure and install sub-sea production systems, and a month later Saipem was awarded a "contract for the accelerated start-up of the development project" at Zohr. While the International Energy Agency believes that Eni's timetable for first production is over-optimistic, the company is sticking to its guns.
Fast-track is the theme for two other offshore development projects, BP's Atoll in the North Damietta Offshore Concession, and the company's Nooros in the Abu Mahdi West, partly in the shallow Nile Delta and partly onshore. Nooros is already producing 300m cf/d of gas, while Atoll will produce a similar volume in the first half of 2018.
If Egypt's offshore production levels were steady, then Zohr and all the other projects would herald an energy boom. But over recent years there has been a steady annual decline of around 12% in the offshore. This means there is an urgent need for new exploration and development projects, and the government will be inviting bidders for up to 10 more concessions before the end of this year.
While the focus today is on meeting domestic gas demand, Egypt is looking ahead to a time when the country will be able to export from its two LNG plants again, with shipments likely in 2021-22, possibly with gas from other Eastern Med producers in the mix. The icing on the cake for Egypt would be another discovery on the scale of Zohr-a prospect that is likely to see IOC interest in securing concessions offshore even if global gas prices continue to be low.
This article is part of a report series on the East Med. Next article: Strangled development in Gaza and Lebanon