Egypt: the gas conundrum

• LNG exports have dwindled as domestic consumption has increased and upstream production has declined, primarily driven by the decline in the mature offshore fields in the Nile Delta which account for the majority of Egypt’s gas production
• The declines have been exacerbated by the IOCs moderating capex due to increased political uncertainty and build-up of outstanding payments from the Government
• Increasing investment in growing gas production is critical but unattractive fiscal terms have discouraged investment
• Although in 2010, BP and RWE secured better fiscal terms for the North Alexandria gas development (60%, 40% WI respectively) with a revised gas pricing structure incorporating a floor of USD3/mmbtu and ceiling of USD4.1/mmbtu
• Egypt has now become an LNG importer with an estimated USD1bn of imports estimated to be required to satisfy summer demand in 2014
• In October 2013, Egypt issued a tender for a floating regas terminal and this was awarded to Norwegian firm Hoegh LNG – however, the contract was not finalised as the financial guarantees offered by EGAS to underpin the project were not acceptable
• Aid has provided temporary relief for Egypt, but subsidy reform will form an important part of a longer term solution. However, any newly elected government will be unlikely to instigate radical subsidy cutbacks due to avoid increasing social unrest
• Aid packages includes:
• Qatar offered five LNG cargoes as a gift through the summer months of July-September 2013
• Saudi Arabia has announced a USD5bn package before the Egyptian elections on 26-27 May
• Egypt is currently receiving USD700m in petroleum aid every month from Arab countries