Winds of Change: An assessment of Egypt’s Oil & Gas Modernisation Programme
Egypt has long been one of Africa’s major energy players. Its oil and gas reserves rank as some of the largest in the world 1 and it has extensive oil and gas infrastructure including major international pipelines, gas processing facilities and LNG plants 2. However, the years that followed the events of 2011 have seen a major upheaval for the country’s energy sector, so much so that notwithstanding its own huge reserves, Egypt has become a net importer of natural gas. Production of gas has fallen steadily (32% reduction between 2011 – 2016) 3 and, at the same time, the country has seen an exponential growth in national demand (10% increase in the same period) 4.
Egypt has struggled to meet commitments to international investors in the sector. It has been reported that in 2016, the Egyptian General Petroleum Corporation (EGPC) was USD 3.2 billion in arrears to international oil companies (IOCs) 5. As a result the Government has embarked upon its recently announced Modernisation Program aimed at revitalising the sector and helping the country to realise its potential as a regional energy hub. As Africa’s largest non OPEC oil producer and the continent's second-largest natural gas producer, Egypt plays a major role in global energy supply. The success of the Government’s Modernisation Programme is being closely watched by national oil companies (NOCs) and IOCs alike. NOCs keen to transform their own internal markets will look to Egypt to set the standard for successful regulation. Equally, IOCs looking for new offshore opportunities in the East Mediterranean Sea will be hoping that the initiatives aimed at streamlining the current concessionary regime achieve precisely that.
The Government’s Programme is focused on six key initiatives which will be delivered over two phases:
- Attracting Investment
- Structural reform of the sector
- Downstream Performance
- Upstream Performance
- Hub strategy
The first phase looks at diagnosing problems and identifying solutions. The second is targeted towards implementing remedies developed together with input from leaders in the oil and gas sector. The Government hopes that it can attract foreign investment by streamlining bidding rounds, developing a new fiscal model and continuing with the repayment of arrears to IOCs.
There are already some early signs of a recovery in the sector. The Ministry of Petroleum and Mineral Resources has secured over USD25 billion in new gas field investments since 2015 and IOCs are increasingly looking at Egypt as a destination for their E&P expenditure. BP recently acquired a 10% interest in the “supergiant” Zohr gas field. ENI has also announced plans to invest $10 billion in the country over the next five years. 6 It is hoped that through such investment total gas supply will in four years be boosted by some 4 billion cubic feet per day (bcf/d) by 2021 taking overall production to over 7.4 bcf/d.
In addition to large scale greenfield projects, attention is turning to revitalising Egypt’s mature assets, with enhanced oil recovery (EOR) techniques being used to rejuvenate maturing fields.
The Government has made good progress on reducing arrears owed to foreign oil companies and has pledged to clear them in their entirety by the end of June 2019 7. With the amounts owed to IOCs currently standing at $2.3 billion meeting this commitment will be critical to ensuring the success of the Modernisation Programme.
2 Suez Canal and the Suez-Mediterranean (SUMED) Pipeline. The SUMED Pipeline is the only alternative to the Suez Canal for the transportation of crude oil from the Red Sea to the Mediterranean Sea. In addition to its large number of ports which run alongside the Suez Gulf, Egypt has 29 Gas Treatment Facilities, 2 LNG Liquefaction Plants and 2 LNG Floating Storage Regasification Units. On the oil side there are 8 refineries and over 9,500 km of Crude Oil and Products pipelines.
3 BP Statistical Review 2017
4 BP Statistical Review 2017