Egypt has approved a new gas law opening its natural gas sector to private investors. It enables private companies to contribute in gas trading activities, including shipping, distribution, sale, and marketing.
It also proposes establishing a new regulatory body to supervise the liberalization of the Egyptian natural gas sector and be responsible for granting any required investment licenses.
This is a part of the Egyptian government’s strategy to liberalize the country’s economy in response to the reform program agreed with the IMF.
President al-Sisi signed the new Natural Gas Act into law on August 7.
In addition to the establishment of a regulator, key features of the law include setting up five primary roles open to industry: pipeline operators, distributors, storage providers, gas shippers and gas importers.
The law provides that future operators and owners of the gas distribution and storage infrastructure will be allowed to use the system in accordance with rules to be adopted by the Gas Market Regulatory Authority. It will also determine the stages and pace at which industry privatization will take place.
The Authority will be established as an independent public body aiming to regulate and control all gas-related activities specified in this law. The World Bank is advising Egypt’s government on the establishment of the Authority.
Liberalizing the Egyptian gas market is the first step towards transforming the sector’s efficiency and competitiveness. What is also needed is to ensure the new gas regulator is completely independent, and to assure investors of objectivity and impartiality.
Such measures would provide incentives for further investments within the gas sector.
Key requirements of the process for gas-import companies obtaining initial approval are proof of quality and specifications of gas to be imported, proof of source, a sales contract with a domestic buyer and the importing company’s financial background
The new law may also advance Egypt’s objective to achieve energy self-sufficiency by end of 2018, largely through gas from the giant Zohr and a plethora of other smaller natural gas fields currently being developed.
Egypt’s Petroleum Minister Tareq El Molla, predicts that the law will make it easier for Egypt to secure the natural gas it needs by gradually deregulating the gas market and opening it up for private investment. The government hopes to create a competitive gas market that will lead to efficient services and continuous development.
Through this law Egypt is taking a giant step towards becoming East Med’s natural gas hub. It allows private sector firms to use the state import and distribution infrastructure to trade in natural gas.
Private firms will eventually be able to import, distribute and store gas in Egypt, under the supervision of the state regulatory body.
This deregulation will greatly enhance the flexibility of the Egyptian gas market. Combined with the possibility of gas imports from Israel and Cyprus and surplus domestic gas production, it could help turn Egypt into a regional gas hub.
Israeli and Cypriot gas-finds, together with the giant Zohr field and potential reservoirs off Lebanon, could create a gas hub right on Europe’s doorstep. ENI’s Chief Executive Claudio Descalzi has long been a strong advocate of this. But trying to figure out how best to develop this gas is fraught with commercial and geopolitical challenges.
Even though liberalization of Egypt’s gas sector could open the way, overcoming these problems and developing Israeli and Cyprus gas at commercially-viable prices is not proving to be easy.
Deregulation of Egypt’s gas sector has been interpreted to open the way for gas exports from Israel and Cyprus to Egypt to return to the table. Speculation in both countries is rife.
Egypt has two LNG plants, owned by Shell and Union Fenosa, both of which are currently largely unutilised. These have a combined gas liquefaction capacity of 17.5bcm/yr.
Israel is desperate to secure export markets for its gas and the new developments in Egypt are encouraging speculation that the way is now open for such exports to Egypt.
In particular, an article in Bloomberg on August 20 excited interest by claiming, based on unconfirmed sources that Shell is in early talks to buy 5bcm/yr natural gas from Israel’s Leviathan field and combine it with gas from Cyprus’ Aphrodite field, of which it owns 35%, for liquefaction at Idku. Shell declined to comment on this.
The greatest challenge to gas exports from Israel and Cyprus to Egypt is commercial. This needs to be overcome first before other issues are addressed.
Undoubtedly, the new gas law and deregulation are going in the right direction, by liberalizing Egypt’s gas sector, with the potential of creating a freer, more flexible and more efficient gas market. This should help attract more investment in a sector that is so crucial to Egypt’s economy.