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Bright prospects for the Egyptian gas sector in 2010

Posted in Uncategorized by thomthumb84 on March 11, 2010
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Major oil and gas producers have been making new gas finds throughout Egypt over the last three months, promising a bright future for the country.

The proliferation of new Egyptian gas finds within the first three months of 2010 has corresponded with a number of fresh developments within the sector which could be highly profitable to the country.

Dana Petroleum, already a major player in Egypt’s oil and gas sector, has been particularly fortunate – having discovered four new finds so far this year. The FTSE 250 company scored two finds in the West Burullus concession in the offshore Nile Delta in early February, and a further two in early March in the West El Manzala concession.

The UAE-based company said the first discovery in the West El Manzala concession produced 10 million standard cubic feet per day of dry gas, with preliminary estimates of recoverable reserves at 8 to 13 billion cubic feet of gas.

The second find, also in the same concession, produced 16.3 million standard cubic feet per day of gas with condensate and preliminary recoverable reserves of 27 to 57 billion cubic feet of gas with associated condensate.

But it is not just Dana Petroleum who are enjoying some level of success. The oil and gas explorer Melrose Resources Plc have announced a new gas discovery in the South East Mansoura concession with estimated discovered reserves at 30 billion cubic feet.

These finds come at a time of increasing emphasis on the gas sector within Egypt. In mid-March the Egyptian Parliament ratified a deal officially confirming the country’s participation in The Gas Exporting Countries Forum (GECF), a “gas equivalent” of the OPEC oil cartel, comprising Qatar, Russia, Algeria, Bolivia, Venezuela, Egypt, Iran, Libya, Nigeria, Trinidad and Tobago and Equatorial Guinea.

Egyptian MPs have been quoted as saying that the country’s participation in the cartel will provide the country with the opportunity “to gain access to advanced technologies of natural gas prospecting, mining and transportation, gain access to analytical and research information and participate in international gas transportation projects.”

The state-owned Egyptian Natural Gas Holding Company (EGAS) has also awarded three offshore blocks to six companies, including Royal Dutch Shell and the BG Group. Further to these deals Egypt has begun putting out feeders to expand its gas export market despite announcing that it would not sign any new export contracts until the end of 2010, in order to meet rising local demand.

Sameh Fahmy, the Egyptian Petroleum Minister has reportedly said that his government is considering supplying Sudan with natural gas after receiving a formal request from the country to ink a gas supply deal. Even Israel could begin receiving gas from Egypt after the Supreme Court overturned an earlier ruling by a lower court that banned gas sales to the state.

Last year lawyers successfully argued for a ban on natural gas exports to Israel, claiming the price was below the international market level. However, the Supreme Court has now said that the lower court which made that ruling has no jurisdiction in cases of this kind because they involved state sovereignty.

These announcements, in combination with the latest finds, may well anticipate a general thaw in the government’s 2008 decision. The decision was originally arrived at following concerns about limited local supply and complaints from opposition parties that Egyptian prices were far below current world prices.

Shamil Hamdi, First Undersecretary at the Ministry of Petroleum, at the time said: “We are suspending new contracts until world prices stabilise and we have a clear picture of the future of the markets.”

But these latest finds may well begin to change those circumstances, in addition to promising results the previous year, with Egypt’s proven natural gas reserves standing at 77.2 trillion cubic feet in the 2008/09 fiscal year.
Having said this, domestic demand is still growing. Apache, the largest producer of liquid hydrocarbons and natural gas in Egypt’s Western Desert, is looking to invest $8 billion in the country after foreseeing further opportunities for robust growth in domestic gas consumption.

“The corporation considers Egypt as an area of growth,” Thomas Voytovich, vice president and general manager of Apache Egyptian Companies, said.

“If everything works favourably; the pricing environment, demand, and our success in drilling, I could see that there is room for that (the spending per year) to continue.”

In the next year Egypt may well find itself in a highly envious position where it will not only be able to support its growing domestic demand, but also begin signing new export contracts with the overflow. While the country may well see such a situation as unlikely at the moment if the number of new finds continues at this pace, it is not that hard to imagine.

To be published in Issue 5, April 2010, of  The Arab Business Review (A publication for the Arab African International Bank)

– Apologies for grammar, etc- yet to be proof read for third time!

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