Hold on to your seats, folks. The Egyptian gas story looks like it is going to get far more dramatic than the 30 trillion cubic feet (tcf) natural gasfield that the Italian oil company Eni this week announced it had just discovered.
The new supergiant field, in Eni’s Shorouk concession, is the largest, to date, found in the Mediterranean, and roughly equal to 40 per cent of Egypt’s previously estimated 77 tcf in total gas reserves. But it could be merely the first of a series of giant fields waiting to be uncovered in Egypt’s deep water.
The Egyptian government awarded the Shorouk block to Eni in 2013 and the final agreement was signed last year. Eni first made a seismic survey of the block before drilling its first well, whose results were announced on Sunday.
Shorouk is one of eight deepwater concessions awarded in 2013 and 2014, all close to or touching Egypt’s maritime border with Israel and Cyprus, an area brimming with massive gasfields. This year, Egypt is auctioning off yet another four blocks in the same area.
Shorouk lies in the Eastern Mediterranean Basin just south of Cyprus’s 4.5 tcf Aphrodite field, which was discovered in 2011. It is west of Israel’s 22 tcf Leviathan field, announced in 2010, and 10 tcf Tamar field, announced in 2009. A slew of other, smaller gasfields have also been uncovered in nearby Israeli deep waters.
Among the blocks to keep your eyes on are North Thekah, awarded in April 2013, and North Port Fouad, awarded in September last year, both to a joint venture between Italy’s Edison and Ireland’s Petroceltic. They contain extensive unexplored acreage smack in the middle of the massive Egyptian, Israeli and Cypriot finds.
Edison and Petroceltic are now studying the results of a 3D seismic survey in North Thekah begun in March to decide where to drill.
They plan to tender for a similar survey for North Port Fouad by the end of the year and decide if and where to drill by 2018 or 2019.
To the west of Shorouk, Eni has two other exploration blocks, North Leil and Karawan, that it won last year.
What does this potential gas bonanza mean for Egypt’s economy?
At the moment the government is borrowing huge amounts of money to import expensive liquefied natural gas. It is also spending enormous amounts on subsidies to deliver gas and other energy products to consumers at substantially below-market prices.
It is breaking the budget, depriving Egypt of money that would be far better spent on education, health and new infrastructure.
The sooner Egypt can start piping much cheaper gas straight from new fields, the sooner the pain will go away.
Eni – which has operated in Egypt since 1954, and says it is now the country’s main hydrocarbon producer – will probably need three years to start producing from the new field, including a year to finish exploring it by drilling new wells.
The Egyptian government has been trying to get the company to accelerate this to only 24 months.
Noble Energy got its Tamar gasfield in Israel into production in the first quarter of 2013 – just over four years after it was discovered. But Tamar was held back by the need to find buyers for its gas in the small market in and around Israel, and by a horribly obstructionist Israeli bureaucracy.
It has yet to start production at its Leviathan field seven years after its discovery.
Eni won't face either of these problems with its Shorouk production. The Egyptian market can absorb almost anything it can produce, and if there is overflow, the Italian group has an idle liquefaction plant on the Egyptian coast at Damietta less than 190 kilometres away that can prepare the gas for export. Far from hindering development, the Egyptian government is desperate to get the gas on-stream as quickly as possible.
The gas in the other fields in the area has been very dry – meaning with few associated condensates – making it easier to develop than other, wetter fields.
Meanwhile, as Egypt awaits its new gas, energy consumption has been continuing to swell. It has been growing at 10 to 13 per cent, while natural gas consumption has been growing at 15 per cent even while population is only growing by 2 to 2.5 per cent and the economy as a whole by about 4 per cent, says the former oil minister Osama Kamal.
This is due to a bulge of new industries and to people setting up their own households and buying cars, along with ridiculously low prices for energy.
What the government must not do is use the natural gas bonanza as an excuse not to raise domestic energy prices to levels comparable to international prices, or to postpone other needed reforms such as devaluing the currency or implementing a promised value-added tax this year.
But the government has yet to follow up a sharp increase in energy prices it implemented in July last year, and it is unlikely to do so until after a parliamentary election due to be held before the end of the year.
Mr Kamal, who is now chief strategy officer at Egyptian petrochemical developer Carbon Holdings, expects another round of price increases sometime in the first half of next year.
If the government doesn’t act soon, it risks squandering its coming natural gas bonanza.
Patrick Werr has worked as a financial writer in Egypt for 25 years for agencies including Reuters and Bloomberg.
Follow The National's Business section on Twitter
