- Egypt has cleared nearly $6.1 billion in arrears owed to international oil companies, paving the way for a new wave of investment from Western energy majors, including Shell, Chevron, Eni, and BP.
- The country is emerging as a strategic battleground between the U.S. and its allies on one side and China and Russia on the other.
- Beyond hydrocarbons, Egypt’s importance stems from its control of the Suez Canal and SUMED pipeline
The announcement from Egypt’s petroleum and mineral resources minister Karim Badawi that the country has paid all its outstanding debts to foreign oil firms is as welcome to international oil companies and their governments as it is to the country itself.
Egypt has become one of the West’s prime targets in the hunt for replacement gas supplies after the loss of Russian flows following the 24 February 2022 invasion of Ukraine. Officially, it holds around 93 trillion cubic feet (Tcf) of proven natural gas reserves, but unofficially, it is believed to hold three or four times that at least. In fact, the U.S.
Geological Survey estimates that the Nile Delta Basin Province alone holds up to 286 Tcf of undiscovered, technically recoverable natural gas. Its strategic weight is amplified by its sitting astride so many critical hydrocarbon transit routes, and by its longstanding political influence across the Arab world. So, the payment of the near-US$6.1 billion owed to international firms clears the way for the planned expansion of Western gas and oil developments across the country. However, as with all such global energy reservoirs, China and Russia are looking to do precisely the same thing and overtake the significant on-the-ground advantage established by the West.
Looking ahead, Egypt has implemented a strict, multi-layered economic defence mechanism specifically designed to prevent another vicious cycle of foreign currency depletion and runaway debt. It was the enormous wave of development of primarily Egypt’s gas reserves that previously helped exacerbate the serious currency problem in the country that began in earnest after Russia invaded Ukraine.
Not only did this dramatically increase prices for wheat in the country (one of the world’s biggest importers of the foodstuff) but it also led to the removal of billions of dollars’ worth of foreign investment from the country. That said, on 6 March 2024, Egypt was allowed by the IMF to expand its US$8 billion financial support package and further offers of financial aid were opened from the World Bank and the European Union. The key measure in this debt-defence package that will work to the advantage of foreign firms operating in Egypt is that it is drastically reducing the level of state ownership in energy projects to further limit the country’s sovereign liability if projects face delays. Another key measure likely to significantly reduce the chance of a new debt spiral precluding regular payments to international oil companies is the abandonment by the Central Bank of Egypt of the artificial pegging of the Egyptian
Given the very recent settlement of its energy sector debt, Egypt is likely to see a major expansion in the activity of Western firms in the very near future. British supermajor Shell is targeting Q4 this year for first gas at the Mina West field in the deepwater Northeast El Amriya concession in the Mediterranean Sea.
Initial flow tests are clocking in at 45 million standard cubic feet of gas per day (mmcf/d) alongside 1,000 barrels per day (bpd) of high-value condensates, while Phase 1 of the project is engineered to inject a total of 160 mmcf/d of gas and 3,000 bpd of condensates directly into Egypt’s domestic grid. Shell is also set to further explore the Sirius exploratory well and the potentially ultra-high-reward Velox well in the North Cleopatra block within the Herodotus Basin.
At the same time U.S. supermajor Chevron has launched new drilling at the giant Nargis field, with a very conservatively estimated 3.5 Tcf of natural gas reserves. The firm has also secured a 27% participating interest in the ultra-deepwater North Cleopatra offshore block that places it directly alongside operator Shell (36%), QatarEnergy (27%), and Tharwa Petroleum (10%) in a massive collaborative exploration front along some of Egypt’s primary gas assets. Moreover, Italian giant Eni has committed to an US$8 billion investment plan, including fast-track development at the newly unveiled Denise exploration well (which holds around 2 Tcf of gas) in the East Mediterranean. Meanwhile, Great Britain’s BP has pledged a US$5 billion exploration framework to fund new wells in the Mediterranean and Nile Delta, building on its historic US$12 billion investments in the West Nile Delta project.
That said, China has now shifted from its previous focus in Egypt on logistics and manufacturing in the Suez Canal Economic Zone (SCZONE), to its upstream sector. State-owned supermajor China National Offshore Oil Corporation announced its first investment in Egypt’s gas and oil sector last October, targeting deepwater blocks in both the Mediterranean and the Red Sea to secure an entry point into North African upstream markets. Its United Energy Group had earlier signed a memorandum of understanding to explore immediate joint investment opportunities in oil and gas production, renewable energy, and regional energy trading.
Underscoring these developments as part of a broader supply chain integration, Chinese firms also launched a US$2.4 billion logistics and container terminal investment at Ain Sokhna Port. This is intended to streamline commodity and energy flows out of the SCZONE.
Meanwhile, Russia views Egypt as a critical geostrategic partner to redirect its trade and establish a permanent energy gateway into Africa and the Middle East, given tightening Western sanctions on it. To this effect, state-controlled Zarubezhneft has committed to a US$14 million drilling agreement targeting the onshore North Khatatba block in the Nile Delta, while Rosneft maintains a 30% stake in the giant offshore Zohr gas field. On a broader note, Russian President Vladimir Putin has proposed a framework to transform Egypt into a centralised Russian grain and energy hub, looking to blend fuel and agricultural distributions to sidestep European shipping sanctions.
The leader’s longer-term ambitions were reflected in the US$25 billion financing package agreed in 2017 to construct the Al-Dabaa nuclear power plant in Egypt. The construction phase as stalled at around 33% complete, but the first reactor is still supposedly on track to connect to the power grid in 2028, with all four units fully operational by 2030. Given how the U.S. and its allies have regarded Iran’s nuclear industry over the years, it appears unlikely that these deadlines will be met.
oilprice.com
