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Egypt aspires to become East Med energy hub

Egypt’s Minister of Petroleum & Mineral Resources, Tareq El Molla, addressing the conference

By Charles Ellinas

Turning Egypt into a regional energy hub was the subject of a keynote presentation at IP Week 2018 in London on February 22 by Egypt’s Minister of Petroleum & Mineral Resources, Tareq El Molla. Egypt’s aspiration is to become East Med’s regional energy hub.

In order to facilitate this, the government approved in August 2018 a new gas law opening its natural gas sector to private investors. This includes the establishment of a new regulatory body to supervise the liberalisation of the Egyptian natural gas sector and enabled Egypt to take a giant step towards realising its energy ambitions.

The minister emphasised Egypt’s ideal location, with the Suez canal connecting Asia and East Africa to Europe, facilitating the transportation of oil, products and LNG. In addition, Egypt is Africa’s biggest energy market, with extensive energy infrastructure and downstream industry.

The government is basing its strategy on three key pillars:

  • Domestic level: Through the gas market liberalisation and the appointment of an independent regulator
  • Technical and commercial: A well-established energy system with marine platforms, storage facilities, extensive transmission system and infrastructure, two gas liquefaction plants and strong possibilities for more hydrocarbon discoveries
  • Alignment with EU energy policy: Egypt’s key ambition is to supply Europe with energy

Israeli and Cypriot gas finds, together with the giant Zohr and other gas fields off Egypt, and potential gas reservoirs off Lebanon, could create a gas hub right on Europe’s doorstep.

The recently announced major $15bn gas deal between the Egyptian private company Dolphinus and Israel’s Delek and Noble Energy is a major step.

Egypt is also in discussions with Cyprus to build a subsea gas pipeline to bring gas from the Aphrodite gas field to Egypt for liquefaction and export. The minister sees this as part of a larger effort to position the East Med as a gas-exporting region to Europe.

The minister also said that an MOU has been signed between Egypt, Jordan and Iraq to bring oil and gas to Egypt, further supporting the country’s hub plans.

Concluding, the minister confirmed that Egypt is ready to implement any further reforms that may be required to achieve the country’s energy vision.

Should this succeed, it could contribute to stability in the region. But it would, of course, make it difficult for Cyprus to achieve its own aspiration to turn Vasilikos into the energy centre of the East Med.

Israeli gas deals

Two deals were signed in February between Noble Energy and its partners to sell 64 bcm Tamar and Leviathan gas over 10 years to the private Egyptian company Dolphinus, estimated to cost $15 billion.

However, there are a number of challenges that must first be overcome before that happens:

  • There is still the unresolved issue of the arbitration decision by the International Chamber of Commerce (ICC) that Egypt should pay Israel close to $2 billion compensation for the cessation of gas deliveries to Israel in 2012. Egypt froze gas import talks until the dispute is resolved.
  • Noble Energy and its partners still have to secure a pipeline to transport this gas to Egypt. There are choices but all challenging, passing through Sinai.
  • Security challenges to the part of the gas pipeline passing through Sinai. Attacks on such pipelines took place in the past
  • Given the estimated gas price in this deal, $6 to $6.50 per mmBTU, by the time such gas arrives to gas customers in Egypt competitiveness may be a challenge – Egyptian industry currently pays about $7 per mmBTU for its gas
  • Political challenges. There is huge resistance in Egypt to this deal, but this is not expected to become a show-stopper.

The pipeline options being considered include use of the East Mediterranean Gas Pipeline (EMG), originally used to supply gas from Israel to Egypt. This is still subject to resolution of the arbitration case that resulted in the disruption of these gas supplies. The ICC ruled that Egypt must pay EMG $324 million compensation. However, Noble Energy and Delek are in negotiations with EMG to buy the rights to the pipeline. Another option is the Jordanian-Israeli pipeline being built in accordance with a deal to supply gas from Leviathan to Jordanian electric company Nepco.

However, both pipelines will have to pass through Sinai, with inevitable security challenges by becoming a target for terrorists.

As and when all issues are resolved successfully, it is hoped to start exports in 2020/2021.

Another landmark deal for Israel was the gas sales and purchase agreement that was agreed in September 2016 between Noble Energy and its partners and Jordan’s Nepco, to supply 3 bcm/yr gas over 15-years, on an oil-price-linked and take-or-pay basis, reported to be worth about $10 billion. This was finally approved by Jordan’s Council of Ministers early February and was signed by Nepco and Noble Energy on February 20, despite the huge political resistance against it in Jordan. The deal is positive news for the development of Leviathan.

 

Dr Charles Ellinas is a nonresident senior fellow at the Global Energy Center of the Atlantic Council

@CharlesEllinas

 

 

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