Egypt plans more gas production

Large and increasing gas reserves have been accom-panied in recent years by a rapid rise in production. Output went up by nearly 30% between 2005 and 2006 and has risen nearly four-fold over the past dec-ade. At the same time, Egypt has been revising its reserve estimates upwards. In July 2007, the Oil Min-istry announced that proven reserves stood at 72.3 trillion cf: a rise of 9% compared with a year earlier.

Much of the recent addition to reserves has come from either the offshore Mediterranean sector or the Western Desert. Exploration in the Mediterranean has recently been moving into deeper waters. Both areas have attracted a range of foreign companies, which have made a number of important discoveries.

Much of the new gas is earmarked for export, ini-tially as LNG, but also by pipeline once new export pipelines have been built. Egypt began exporting LNG in 2005, with contracted deliveries of 670 mn cfd. Last year, the total had risen by 116% to 1,450 mn cfd.

In September 2007, the Oil Ministry announced that it was studying proposals to build a new export train at the Damietta LNG export terminal. There are also proposals for an additional train at the country’s other LNG export facility, at Idku. Pipeline exports centre on a proposal to supply gas to parts of the Le-vant.

Growing reserves

Egypt’s proven reserves of natural gas have risen steadily in recent years. BP estimated them at 32.5 trillion cf at the end of 1999. By the end of 2006, the same source gave them as 68.5 trillion cf: a

rise of 36.0 trillion cf, or 111%. Some other esti-mates give different figures (see Table A), but both the magnitude and the trend are clear. The discrepan-cies are mainly explainable in terms of the use of dif-ferent methodologies employed by the various sources in calculating proven reserves. The Oil Min-istry’s estimate of 72.3 trillion cf is more recent than those quoted either by BP or the Oil and Gas Journal and is thought by several oil companies operating in Egypt to be a reasonable figure.

Egypt’s offshore gas reserves are found princi-pally in the Mediterranean and the Gulf of Suez, while its onshore reserves are in the Nile Delta, East-ern Egypt and Sinai, and the Western Desert.

Other areas, however, are being opened-up, in-cluding the Upper Nile Valley and the Red Sea. The most prospective areas appear to be the deeper waters of the Mediterranean and the Western Desert. Some of the country’s earlier gas production came from the oilfields of the Gulf of Suez. These are now in de-cline but discoveries of non-associated gas are ex-pected to exceed the losses of gas produced in asso-ciation with oil.

Egypt is expected to go on reporting increases in reserves for some years to come. Some industry fore-casts predict proven reserve levels of around 80 trillion cf by 2010. By that time, however, many of the most prospective areas should have been ex-plored. It is therefore difficult at present to see from where additions after 2010 might come.

Rising production

Egypt’s gas production has risen by 290% over the last decade, reaching 4.3 bn cfd in 2006. Further in-creases are likely over the next five years as foreign investment continues to pour into the upstream gas sector. Amongst the companies recently announcing new projects are the UK’s BG Group, which has ear-marked $1 bn to develop and extend existing produc-tion from the Nile Delta, where BP and Shell also have acreage.

BG is also drilling offshore in the North East Mediterranean Deepwater concession, where water depths exceed 9,000 feet. Another company active in Egypt’s gas upstream is Germany’s RWE-DEA, which has recently gained a number of new interests.

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Energy in North Africa I: Egypt and Tunisia

© Blackwell Publishing Ltd, 2007

At a time when oil and gas production is declining in most areas outside the Persian Gulf, North Africa has a number of countries planning to increase their production. In this, the first part of a survey of the region, OET examines the prospects for Egypt and Tunisia. The second part of the survey will appear in next month’s OET.

Table A Egypt: Gas Reserves

Latest Estimate Date Volume Reserves Remaining*

(trillion cf) (years) BP 31.12.06 68.48 43.3 Oil & Gas Journal 1.1.07 58.50 37.0 OET 31.12.06 58.49 37.0 Ministry of Oil 30.6.07 72.30 45.8 * Based on 2006 output of 4.3 bn cfd Totals rounded Source: BP Statistical Review of World Energy 2007; Oil & Gas Journal; OET Annual Statistical Review 2007; Egyptian Oil Ministry.

Egypt has also been able to attract other large compa-nies, such as ENI, and a clutch of independents from Europe and North America.

Some foreign companies, though, have claimed that exploration is being hindered by the low prices they receive from the Egyptian General Petroleum Corporation (EGPC) for their gas. Several of them refer in particular to the rising costs of chartering drilling rigs.

The Oil Ministry has set a transfer price of $2.50-2.65 per mn BTU for more than a decade, but compa-nies operating in the Mediterranean say this is too low, particularly for the deep-water areas. Earlier in 2007, BP and RWE-DEA were able to negotiate a sliding-scale from $2.65 to $4.70 per mn BTU ac-cording to the depths of the wells drilled. Discus-sions are now being held with other foreign gas pro-ducers, but the Oil Ministry says that these only in-volve deep-water acreage. The Ministry insists that the current transfer price is economic for onshore pro-duction or that from shallower offshore waters.

The low transfer price is reflected to some extent in the low prices charged to consumers in Egypt. The government recently announced that prices would be increased for some large users, mainly in the electric-ity, cement, fertilizer and metals industries. The cur-rent price to those consumers is $1.25 per mn BTU. Under proposals agreed in August 2007, this will be increased to $2.65 per mn BTU over the next three years.

More exports

Egypt exported around 1.6 bn cfd during 2006 (see Table B). The country has two LNG export termi-nals, which it plans to expand. LNG is exported to 12 countries. The largest customers are Spain and the US. There are also plans to deliver gas to parts of the eastern Mediterranean via a new export pipeline.

In just two years, Egypt has become a major ex-porter, accounting for 7.1% of world trade. Its pro-duction amounts to only 1.6%, whilst its reserves at the beginning of 2007 were the equivalent of just 1.1% of the world total. Of the world’s 13 LNG ex-porters, Egypt rates eighth.

The country has two export terminals, with a com-bined capacity of 1.6 bn cfd. This is due to rise to 2.3 bn cfd once a second train is added to the Dami-etta terminal. The other is located at Idku (see Table C). Both are located on the Mediterranean. There are longer term plans for a further train at Idku, though the government has yet to give its approval for this. Approval for the Damietta expansion is expected to be given before the end of 2007.

Egypt is also planning to export gas to a number of places by pipeline, beginning with Israel in late-2007 or early-2008. After that, there are proposals to deliver gas to other parts of the Levant and even fur-ther afield. Exporting to Israel involves the construction of an under-sea pipeline. The scheme is being developed by an Israeli-Egyptian consortium known as East Mediterranean Gas (EMG). The Israel Electric Cor-poration has a 15-year supply agreement for

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Table B Egypt: Gas Profile, 2006 (bn cfd) Production 4.33 Consumption 2.77

France 222 South Korea 121 Great Britain 93 Japan 77 India 53 Belgium 24 Mexico 15 Taiwan 15 Italy 10 Greece 4 Total 1,448

* Contract volumes only. Actual delivery volumes may differ Totals rounded Source: BP Statistical review of World Energy 2007; Cedi-gaz

Net Exports 1.56 LNG Exports* (mn cfd)

Spain 464 US 348

Table C Egypt: LNG Export Terminals, 2007 Segas terminal

Location: Damietta Starting date: 2005 Number of trains: 1

Egyptian LNG terminal Location: Idku Starting date: Train I 2005 Train II 2006 Number of trains: 2 Capacity: Train I: 480 mn cfd Train II: 480 mn cfd Total: 960 mn cfd

Expansion plans: Third train proposed. Ap-proval not yet granted

Planned capacity: 1,440 mn cfd Source: Company reports

Capacity: Train I: 667 mn cfd Total: 667 mn cfd

Expansion plans: Approval of Train II expected by end-2007

Planned capacity: 1,334 mn cfd

165 mn cfd. The gas will fuel power stations in Is-rael.

Egypt presently supplies Jordan with about 100 mn cfd of gas via a trunkline known as the Arab Gas Pipeline (AGP). There are plans to increase this by 50 mn cfd, but AGP also has plans to export gas beyond Jordan, to Syria and Lebanon. Syria is to re-ceive 100 mn cfd and Lebanon a further 50 mn cfd. Before this can happen, however, the AGP will have to be extended to Syria.

There are long term plans to supply Turkey via the AGP, from where Egyptian gas could even be sup-plied to Western Europe via one or more of the pro-posed trunklines to Europe (see ‘Gas and Power’). From time to time, there have been proposals to sup-ply gas by pipeline to Cyprus. Whether Egypt has anything like the volume of gas to fill these new pipe-lines is another matter.

Egypt’s gas production is set to rise sharply over the next few years, but domestic consumption is in-creasing strongly as well. This year should see gas production above 5 bn cfd. By 2009, output should have surpassed 6 bn cfd and may be above 7 bn cfd by 2011. Consumption is now around 3 bn cfd and is expected to pass 4 bn cfd by 2010-11. This would limit Egyptian exports to around 3 bn cfd in 2011. Some 2.8 bn cfd of this could be exported as LNG (see Table C). The remainder could easily be ab-sorbed by Israel and Jordan leaving nothing extra for Syria, Lebanon or any other new pipeline destination.

Stemming oil’s decline

Egypt’s oil production has been in steady decline since 1993, when it was 945,000 bpd. Last year, out-put was 678,000 bpd, of which 66,000 bpd were ex-ported. The reserve base suggests there is little scope to reverse this decline, despite an increase reported for the last fiscal year. Even with the latest increase, Egypt still has a reserves:production ratio of only 16:1 (see Table D).

The Oil Ministry’s plan is to raise the production of crude oil and condensate by 100,000 bpd by next

year, of which 60,000 bpd is to come from the Gulf of Suez and the remainder from the Western Desert. The Ministry plans to achieve the increase largely by speeding-up the development of fields that have al-ready been discovered. Output may very well be in-creased in the manner described but any increase is unlikely to be more than temporary. Egypt’s oil pro-duction is in long term decline.

Tunisia plans oil growth

Tunisia, like Egypt, has seen its oil production de-cline in recent years. There has recently been a rise in output, however, thanks both to the discovery of new fields and the application of enhanced oil recov-ery (EOR) to an existing field, which may allow Tu-nisia to become a net exporter for a short time.

Oil production has declined steadily since 1992, when it was 110,000 bpd. By 2006 it had fallen to 70,000 bpd, but early in 2007, it was reported near 100,000 bpd, following the commissioning of the 20,000 bpd Oudna field in late 2006. Further in-creases were reported by the state-owned Entreprise Tunisienne d’Activités Pétrolières (ETAP) from the Adam field and from the Didon oilfield, where output was reported to have been increased by 13,000 bpd as a result of EOR. By May of this year, national output was estimated by ETAP at 110,000 bpd.

The government is continuing to offer new explo-ration acreage. Three new exploration licences were awarded in February 2007, all of them to independ-ents in association with ETAP. There are hopes of further discoveries in the Ghadames Basin in the south of the country, which contains the newly-discovered Jenein Nord field, expected on-stream in late 2007. The country’s small reserves, however, suggest that any increase in national output is likely to be temporary (see Table E).

More gas

Tunisia produces 270 mn cfd of gas and imports a further 125 mn cfd by pipeline from Algeria (see

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Table D Egypt: Oil Profile

July 2007 Reserves: 3.97 bn bbl Reserves remaining: 16 years 2006 (th bpd)

Production 678 Consumption 612 Net Exports 66

NB: Includes NGL Source: (Reserves) Oil Ministry (Other) BP Statistical Review of World Energy

2007

Table E Tunisia: Oil Profile

2007 Reserves: 400mn bbl Reserves remaining: 16 years 2006 (th bpd)

Production 70 Consumption 100 Net Exports 30

NB: Includes NGL Source: (Reserves) Oil & Gas Journal (Production) ETAP (Other) OET estimate

More oil price records were set as refiners worried about supply and inventory levels and other buyers took advantage of a falling US dollar to stock-up on oil and other commodities. October WTI briefly touched $84.10/bbl on 20th September. The US benchmark gained more than most crudes on fears of disruption to oil production in the US Gulf with the arrival of Hurricane Humberto. Some 1.3 mn bpd of production was temporarily shut-in as a precaution, though in the end there was no damage to offshore installations. North Sea crudes rose sharply the fol-lowing week, pushing IPE Brent into record territory on 28th September, when the London benchmark rose above $81.00/bbl. The new records came despite a decision by OPEC on 11th September to increase its output by 500,000 bpd between August and Novem-ber. The November target is 27.25 mn bpd, com-pared with February 2007’s level of 25.80 mn bpd. Iraq and Angola are outside the quota system, though Angola is set to join it in the near future.

Iraq’s exports of crude oil via Ceyhan hit a post-invasion record of 235,000 bpd in September. The Iraqis have recently been able to pump around 300,000 bpd through the damaged pipeline serving the Kirkuk oilfields, allowing them to accumulate 7.1 mn bbl at the Turkish port, which were sold in three tenders. The pipeline nevertheless continued to be attacked, and another pipeline serving Kirkuk–that connecting it with the Baiji refinery north of Bagh-dad–was attacked and damaged on 18th September. Despite these and other setbacks, Iraq’s total exports for the third quarter of 2007 look like being close to 1.6 mn bpd: another post-invasion record. Iraq has also resumed oil exports to Jordan for the first time since March 2003. About 10,000 bpd is to be sup-plied by road tanker to Jordan’s Zarqa refinery fol-lowing resumption of the oil trade between the two

countries in late September. The oil is supplied at preferential rates.

Supplies of oil, LPG and natural gas in Mexico were disrupted for more than a week following a se-ries of attacks on pipelines in the southern state of Veracruz on 10th September. An anti-government group known as the People’s Revolutionary Army claimed responsibility. Violence erupted in Vene-zuela after trades unions representing oil workers and the management of state oil company PDVSA failed to agree on new employment contracts. In Nigeria, unions objected to the proposed reorganization of the national oil company NNPC (see ‘The Month in Brief’, September 2007). The country’s Oil Minister, Odein Ajumogobia, said that the aim of the move was to stamp out corruption in the oil sector. In the Niger Delta, armed men killed one foreign oil worker and kidnapped three others, bringing to an end a previ-ously agreed cease-fire in the country’s main oil-producing region.

Unrest spread in Burma after the military govern-ment raised fuel prices by up to 500%. Companies in Thailand, fearing an interruption to Burmese gas sup-plies, began stocking gasoil and fuel oil for use in power stations. Malaysia has postponed plans to in-troduce cleaner petrol and diesel on 1st October fol-lowing complaints that it had not allowed enough time to prepare for the change. Ethanol production has been cut-back in Thailand because of oversupply and there are fears of a similar move in the US, where there is also an excess of biodiesel. ConocoPhillips and the agricultural company Archer Daniels Midland say they are developing a ‘biocrude’ feedstock made from biomass. The US Government Accountability Office is to investigate allegations of overcharging by US refiners.

Argentina has lifted an order requiring the closure

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More price records, Iraq’s exports rise and the US probes mogas prices

This section summarizes downstream developments of the previous month. Exploration & Production are covered in ‘Upstream Review’.

Table F). Output has grown over the last decade but appears to have reached a plateau for the time-being.

Around three-quarters of Tunisia’s gas production comes from a single field: the offshore Miskar field, which is operated by BG. Most of the remainder comes from a collection of small fields owned by ETAP, of which Franig is the largest. Much of the current exploration interest in Tunisia appears to be oil rather than gas. Production of gas is unlikely to rise by very much in future.

Table F Tunisia: Gas Profile 2007 Reserves: 2.30 trillion cf Reserves remaining: 23 years 2006 (mn cfd)

Production 270 Consumption 395 Net Exports 125

Source: (Reserves) Oil & Gas Journal (Production) ETAP (Other) OET estimate