Western firms are planning more investments in Egypt’s gas sector

Since Russia invaded Ukraine on February 24, 2022, liquefied natural gas (LNG) has become the main emergency power supply around the globe. This is because it doesn’t take a lot of time and money to build the infrastructure associated with pipeline energy. Given its growing importance in the smooth functioning of the world’s economies, it has also become a vital political weapon for key buyers and suppliers seeking to best position themselves in the global LNG market from 2022. In this regard, the US has made enormous progress in production, jumping from zero production before 2016 to becoming the world’s largest LNG exporter in 2023. Without recoverable gas reserves as large, China has sought to -secure future LNG supplies over several long periods of time. -term agreements with major producers from around the world, especially from the Middle East, in addition to Russia. For the US and its allies, developing additional long-term LNG supply relationships has been difficult, but Egypt remains a key prospect. Consequently, new initiatives are being worked on to ensure that the country’s current financial problems do not jeopardize this broader Western energy strategy.

For the West, Egypt is designated as a critical ally in the Middle East and North Africa region for two key reasons – one related to energy and the other to geopolitics. On the energy side, in addition to its modest oil reserves of about 3.3 billion barrels, it has conservatively estimated gas reserves of about 1.8 trillion cubic meters (Tcm). It is also the only country in the Eastern Mediterranean gas hotspot with operational LNG export capacity and is therefore ideally positioned to become the most important regional gas export hub. Also crucial is that its geographic positioning means it controls the main global choke point of the Suez Canal, through which around 10% of the world’s oil and LNG is moved. It also controls the vital Suez-Mediterranean pipeline, which runs from the Ain Sokhna terminal in the Gulf of Suez near the Red Sea to the port of Sidi Kerir west of Alexandria in the Mediterranean. This is a crucial alternative to the Suez Canal for transporting oil from the Persian Gulf to the Mediterranean. The importance of the Suez Canal to the global energy sector is further enhanced by the fact that it is one of the few major transit points not controlled by China. Specifically, Beijing already has effective control over the Strait of Hormuz through all-encompassing “Iran-China Comprehensive 25-Year Cooperation Agreement”as first revealed anywhere in the world in my September 3, 2019 article on the subject and also fully analyzed in my latest book. The same deal gives China control over the Bab al-Mandab Strait, through which goods are transported up through the Red Sea to the Suez Canal before moving into the Mediterranean and then west. This has been achieved because it lies between Yemen (the Houthis have long been supported by Iran) and Djibouti (over which China has also established a debt grip linked to its multi-generational power grab project – the “Belt and Road” ).

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Geopolitically, Egypt holds a unique position in the Middle East and the Arab world. For decades, the Arab world has been seen as the main supporter of the “pan-Arab” ideology, which believes that lasting power can only be found in the political, cultural and socioeconomic unity of the Arabs that emerged after the two world wars. The philosophy’s strongest recent proponent was Egypt’s president from 1954 to 1970, Gamal Nasser. Among the most tangible signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria between 1958 and 1961, the formation of OPEC in 1960, the series of conflicts with neighboring Israel throughout the period, and then the oil embargo of 1973/ 74, as also detailed in my latest book on the new global oil market order. By bringing this Arab world leader to the side, the US and its allies hope to offset the negative geopolitical impact of long-term ally Saudi Arabia, which has been lost to the China-Russia bloc. Politically and historically, Egypt is at least as much a leader in the Arab world as Saudi Arabia ever was.

Mainly for these two reasons, there has been a flurry of Western firms doing deals in Egypt in recent years, especially after February 24, 2022. Chevron has been the key US operator in the field from the start, with an announcement in December 2022 that it hit at least 99 billion cubic meters of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometers north of the Sinai Peninsula. After that came an announcement about the discovery with Italy’s Eni of a potentially huge offshore gas field in its concession area in the Red Sea, centered on the Nargis-1 well. This increased its already significant presence in the Eastern Mediterranean by exploiting the massive Leviathan and Tamar fields in Israel and the Afrodita project offshore Cyprus. In July, it was reported that Eni also plans to drill two new wells in the huge Zohr field in the second half of 2025, with investments estimated at $160 million. This beachhead has since been used by several other major international oil companies of its allies, notably Shell and BP of Britain. The latter said it would invest $3.5 billion in the exploration and development of Egypt’s gas fields over the next three years. This amount could be doubled if the exploration activity brings new discoveries. Meanwhile, Shell has started development of the tenth phase of Egypt’s WDDM (West Delta Deep Marine) concession in the Mediterranean Sea. This came after the British firm and its partner developed the previous nine development phases of the WDDM concession which
includes 17 gas fields. The same Shell-led consortium also agreed to start 11^th WDDM phase.

Ironically, this wave of development exacerbated Egypt’s currency problems. Egypt owes Eni more than $1.25 billion for costs related to its energy development, according to industry sources. However, the country’s ability to pay it has been affected by the roughly 60 percent devaluation of the Egyptian pound since March this year. That said, Egypt remains too important to the US and its allies from an energy and geopolitical perspective to let it slide further into economic crisis. Indeed, the country was allowed on March 6 to extend its $8 billion financial support package with the IMF, and new offers of financial aid from the World Bank and the EU remain open. With these assurances in mind, on September 19, Prime Minister Mostafa Madbouly announced that the country aims to restore normal production at its natural gas fields by next summer.

In this regard and to further strengthen its position as a key regional energy transport and trading center in the meantime, on September 23 there was a statement from Egypt’s Ministry of Petroleum that it is working on ways to accelerate development plans and production for natural gas and crude oil. oil fields with Eni. Both sides also recently discussed the progress of the Italian company’s fields in the eastern Mediterranean region, including connecting the Cronos gas field in Cyprus to Egyptian facilities on the Mediterranean coast and then re-transporting the gas to foreign markets.

By Simon Watkins for Oilprice.com

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