Pay up or dry up: Egyptian gas at a crossroads

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Pay up or dry up: Egyptian gas at a crossroads

Post by DJKeefy » Fri Sep 27, 2013 3:35 pm

An offshore gas find in the Nile Delta is strong new evidence that Egypt has the resources to end power cuts and get export income flowing again. Its challenge is to persuade wary international oil companies to develop them.

In the deepest well ever drilled in the delta, some 7 km under the sea bed and in 649 metres of water, BP has found a 50 km-long structure with a hydrocarbon column over 180 metres deep, the British oil multinational announced on 9 September.

With an estimated 1.2 trillion cubic feet or more, the well, named Salamat, will not by itself make a significant dent in Egypt's chronic energy shortage or revive its flagging exports.

But as one of only a handful drilled into Oligocene Nile Delta rocks to date, it is suggestive of some very productive geology at these extreme depths.

"What's significant about this discovery is that it was really expensive at about $380 million to drill. Despite the high cost, BP clearly believes in the potential of some of the deeper plays," said analyst Martijn Murphy of Wood Mackenzie.

Deep offshore gas finds cost a lot to develop, and unlike oil, they do not get developed without an assured market and an agreed price. Political and economic turmoil in Egypt over the past two years has damaged its capacity to offer a good price as well as investor confidence that it can pay.

In addition, energy sector investors are less tolerant of politically risky oil and gas spending than they were, even setting aside the political upheaval that began in Egypt over two years ago.

This is partly down to a more uncertain outlook for prices and rampant cost inflation over recent years, but it is particularly true of investors in the United States, who have a wealth of opportunities in unconventional resources at home.

Apache Corp's sale of a 30 percent stake in a top quality Egyptian oil asset last month is testament to that change, even though it secured a good price from the buyer, Chinese state group Sinopec, parent of Sinopec Corp.

Egypt owes about $6 billion to companies working on projects in the country, the equivalent of over six months worth of payments and more in some cases.

As a result, long-term investors such as Britain's BG Group are facing some difficult questions from shareholders as Egypt, which accounts for 15 percent of BG's production, struggles to pay its bills.

On top of the late payments, gas contracted to BG and French group GDF Suez for export as liquefied natural gas (LNG) is being diverted for domestic use to keep the lights on and replace expensive fuel imports.

That has left Egypt, the companies, and in turn their LNG customers reliant on cargo donations from Qatar.

BG's attempts to boost production at one well this year by adding extra compression succeeded only in pumping out larger amounts of water. New wells need to be drilled regularly in the more established fields, and the latest drilling phase at its West Delta Deep Marine offshore project has fallen behind schedule.


The underlying issue

All of these production issues are everyday oil and gas industry problems, but their importance has been magnified in the eyes of investors by Egypt's instability.

BP made another deep discovery, called Satis, more than a year ago, and has yet to do anything with it.

"Salamat is a great find too, but until we have an agreement with the government, it's just a hole in the ground we are rather pleased with," one BP insider said.

Egypt's latest oil minister, Sherif Ismail, is widely seen among the western oil companies that operate there as someone who can kick-start an easier working environment for them.

On 1 September, Ismail said he was preparing a repayment timetable.

Higher prices are also being offered under the later phases of production-sharing contracts. WoodMac says projects such as Temsah, to which Salamat may eventually be attached, are receiving prices "north of $5" per million British thermal units (mmBtu), a dollar or so more than companies were getting two years ago.

The need to import LNG, which can cost more than twice that price, will mean an acceleration of this higher pricing trend, Murphy said.

But a real step change in Egypt's gas productivity will need something much more sustainable than a higher price.

Its prospects are simply not as good as that of geologically luckier neigbours such as Algeria, analysts and company executives say.

To compensate, what it needs is an investment environment in which its deep, far-from-shore gas reserves could be developed on a larger scale, and under an integrated development solution involving co-operation between several big oil companies.

"Improved prices will help, but what's also needed is a prolonged period of stability," Murphy said. "For the companies, what that means is a government with a mandate to make quicker approvals and an upstream body that's able to pay investors' receivables on time."

Source: http://english.ahram.org.eg/News/82628.aspx


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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by Who2 » Fri Sep 27, 2013 5:40 pm

Mubarak was far worse than Maggie at 'flogging off this countries' natural resources, even all those Pharonic gold mines over in Quseir are worked by Aussies....:cool:
"The Salvation of Mankind lies in making everything the responsibility of All"
Sophocles.

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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by Brian Yare » Fri Sep 27, 2013 11:07 pm

Who2 wrote:Mubarak was far worse than Maggie at 'flogging off this countries' natural resources, even all those Pharonic gold mines over in Quseir are worked by Aussies....:cool:
Please check your facts. 94% of the workforce of Centamin at Sukari is Egyptian.

http://www.centamin.com/centamin/sustai ... -employees

The board and senior management include a number of foreigners:

http://www.centamin.com/centamin/about-us/our-team

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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by Who2 » Fri Sep 27, 2013 11:26 pm

Another dried up brain from worcester is it ? telling us how it 'really is.........:cool:
"The Salvation of Mankind lies in making everything the responsibility of All"
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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by Brian Yare » Fri Sep 27, 2013 11:41 pm

Who2 wrote:Another dried up brain from worcester is it ? telling us how it 'really is.........:cool:
Don't you like the facts?

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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by A-Four » Sat Sep 28, 2013 6:33 am

You may remember a couple of weeks ago, I said that benzene prices in Egypt would have to double, very soon, as they did in Nigeria. Well, next door to Egypt, Sudan has just done so, I shall leave it to interested parties to check what effect it has had on that nation, in such a short time,......................Oh the power of 'the Sisters'.

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Re: Pay up or dry up: Egyptian gas at a crossroads

Post by Hafiz » Tue Oct 01, 2013 7:41 am

Whoever can work out the gas industry in Egypt should win a Nobel. I cant work it out.

Egypt used to be the principal supplier of gas to Israel although that contract may have been cancelled several years ago because of accusations against Egyptian (Ministers/bureaucrats/pricate corporations?) on corrupt practices and sale to Israel at less than market rates, Someone was charged but I bet they were never convicted - maybe they are now a minister in the current government. Supplies to Israel were also, at that time, being interrupted because of bandits/terrorists/aggrieved Bedouin tribes blowing up the pipeline.

In any event Israel won't be buying much gas in a few years when its finds on the Med. come on stream.

Around 2011 there was press coverage of gas imports.

At the same time there was confusing press coverage that Egypt was continuing to export (to meet contracts?) and had started (?) to import.

Over the past 2 years there appears to have been supply problems to domestic users and the only reasons given for this are: panic buying, hoarding,corrupt practices. The government has never accepted responsibility for this nor has it for any other shortages.

All the explorers in the Egyptian Med are international companies but some or all are in joint enterprises with: the government/domestic businesses/army. There seems to have been a bit of a strike on as regards the internationals until the political situation settles down.

Even though there have been domestic shortages in 2012 and 2013 Egypt has received large gifts of gas (or maybe oil) at the same time from Libya and a recent very large gift of gas from the UAE or Kuwait.

It is announced that the government owes multinationals/gulf states up to $US6 billion for oil/gas delivered (if this about only oil then this irrelevant to the gas story).

The government has announced that some or all of the gifts from UAE/Kuwait will be used to buy out a multinational from a existing/proposed gas/oil Med. tenement. No public reason was given for this. Only in Egypt would a government owned oil company be a good idea.

The purchasing of gas on the international market, the domestic processing and the supply (either by bottles or via a domestic system such as in Cairo) is undertaken by government or the army. not sure of last point.

So, Egypt used to be mostly self sufficient. The situation has radically reversed, with no explanation, in a short period of time. Whilst domestic supplies remain unreliable huge supplies of gas are diverted to other purposes with no reason given. Export markets have disappeared and exploration is at a standstill/is in the hands of the government. There is no company operating on rational private enterprise principles in the industry so its fair to assume that government bodies operate on political objectives. For example has anyone heard that the 'reticulated' system in Cairo has suffered any shortages or that army factories have the same problem?

If anyone else has been following this arcane subject I would welcome additions to the timeline above.

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