Egypt's gas strategy faces dilemma

Oil and gas exports, irrespective of downstream revenues, earned Egypt $10bn in 2005-2006 and are on target to reach $15bn by 2010. The country's constitution allows for just one third of gas in any field to be exported, with a third set aside for domestic consumption and the remainder left untouched as a strategic reserve for future generations.

LNG production on the up

Gas production is already playing a vital role in the development of Egypt's liquefied natural gas (LNG) industry. A second 5 million tonnes per annum LNG train at Damietta is due to come on stream by 2011, which will double capacity of the export terminal owned by Spain's Union Fenosa, Italy's Eni and the Egyptian Natural Gas Holding Company.

A third train is also under discussion for the LNG complex at Idku which has two 3.6 million tonnes per annum trains owned by a joint venture of British Gas, Malaysia's Petronas, Gaz de France and the Egyptian General Petroleum Company (EGPC).

Egypt's petrochemicals sector is another emerging large-scale user with 22 plants expected to be operational in the next 15 years.

However, some argue there should less emphasis on exports and that all the country's gas should be utilised for local needs such as the development of new urban communities outside the crowded Nile Valley, as well as helping to expand the country's industrial base.

Domestic demand grew 10.8 per cent a year from 2000 to 2005 - the fastest rate in the entire region. The pace has been driven by the growing feedstock needs of power plants, expansion of the electricity grid and of the country's liquefied natural gas sector.

Seeking additional investment

The export of gas is therefore becoming problematical as others in the region also draw increasingly on Egyptian gas supplies. Confirming the country's unproven reserves and building new processing facilities is a major challenge as the government seeks to draw $20bn of foreign investment into the country's oil and gas sector by 2012.

Attracting international oil companies to the country's downstream gas sector to build up liquefied natural gas facilities, including new pipelines, is a major priority according to Petroleum Minister Sameh Fahmy.

Pricing is proving a difficult area. While gas export prices relate to international market rates, companies are only allowed at present to charge a capped rate to Egyptian users.

Modifications to future pricing arrangements are likely to attract investors. Ministry officials have already agreed a new domestic price for gas extracted for the EGPC from the North Alexandria and West Deep fields operated by BP and Germany's RWE.

This new pricing arrangement would see a rise of more than 70 per cent in domestic prices by 2013 from any new fields, a move justified by international companies who cite mounting costs of exploration and extraction, particularly offshore in deep water acreages.

See also:
Egyptian piped gas targets European market