Egypt to Keep Eni’s Find for Itself


Egypt plans to keep all the natural gas produced at a giant field Eni found off its Mediterranean coast to itself, heightening competition among gas producers in the Middle East and Africa.

“The priority is Egypt’s internal needs; exports will come next, depending on the discoveries,” Khaled Abdel Badie, chairman of state-run Egyptian Natural Gas Holding Co., said Wednesday in a phone interview from Cairo. “All the gas from this field will be allocated to the internal market. Eni has agreed to that.”

Rome-based Eni said Sunday that the deep-water deposit in the Zohr Prospect in the Shorouk block may hold 30 trillion cubic feet of fuel, making it the biggest gas discovery in the Mediterranean Sea. Badie said the production sharing agreement for the field entitles Egypt’s government to “roughly” 65 percent of output, with the remainder going to Eni.

“This field is now in competition with the ones in Cyprus, Israel, Mozambique, Tanzania and Iran,” Thierry Bros, an analyst at Societe Generale in Paris, said Tuesday by e-mail. “But as we are short of growing demand, especially in Europe, and short of money, only projects that will find a win-win solution with buyers will go ahead.”

Falling Output

Gas output in Egypt has been declining since 2011 as the uprising that ended Hosni Mubarak’s rule curtailed investments in exploration and production. Local demand for electricity, most of it generated by gas, is rising by more than 7 percent a year, and the most populous Arab nation, with almost 87 million people, started buying liquefied natural gas cargoes this year from companies including Noble Group, BP Plc and Vitol.

Before the uprising, Egypt shipped gas to Jordan and Israel by pipeline and processed liquefied gas at plants in the Mediterranean ports of Idku and Damietta for sale overseas. Sabotage attacks on the pipeline network in Egypt’s northern Sinai region disrupted exports, and the country halted shipments to Israel in 2012. Egypt is Africa’s second-largest gas producer after Algeria, according to the U.S. Energy Information Administration.

Cyprus Link

“We forecast that domestic gas supply could exceed consumption by 2020 and therefore act as trigger for exports,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., said in a report on Wednesday.

A project to build a gas link to Egypt from a field discovered in waters off Cyprus will be reviewed as the two countries study data from the Zohr prospect, Cypriot Energy Minister Georgios Lakkotrypis said Monday in an interview with state-run RIK TV. The governments signed a preliminary accord in February for Egypt to import Cypriot gas from the Aphrodite field.

The Zohr field can meet Egypt’s gas needs for more than 10 years, said Hamdy Abdel Aziz, director of the Egyptian Petroleum Ministry’s information department.

Output from Zohr would save Egypt at least $2 billion in annual fuel imports once it enters production, said Ahmed Shams El Din, director of equity research at EFG-Hermes Holding, a Cairo-based financial services business. “This is a game-changer for Egypt’s energy position and the geopolitical outlook in this part of the world”.

Eni Production

Eni will achieve a “significant level” of production at Zohr in about 2018 or 2019, as the deposit lies close to fields that are already in operation and can be tied into their infrastructure, London consultant Energy Aspects said in a report published Monday. “The region will be long natural gas,” it said.

The Zohr discovery will affect Israel’s plans to export fuel from its own offshore Leviathan field, by removing the option of liquefying Israeli gas for export at existing but disused facilities in Egypt, according to Energy Aspects. Gas from Zohr could enable Egypt to restart its own LNG shipments by providing feedstock for Eni’s dormant facility at Damietta or freeing up gas for export from BG Group facility at Idku, Energy Aspects said.

“While the production is being earmarked for domestic consumption, it should be seen as being the end point for Egyptian LNG imports,” the consultant said. “This will displace a considerable volume of LNG demand.”

Ultimately, said Badie of EGAS, “Egypt will want to use all its facilities, whether LNG or pipelines, to become a gas hub.” If enough gas is found, he said, “we can open our LNG export facilities and pipelines to local producers and also to neighboring countries. Their gas can be tolled through our LNG plants and transported through the pipelines.”

Source: Bloomberg News