The newly discovered Zohr gas field dominated the conversation at this week’s Euromoney Egypt conference and captured the audience’s attention, so much so that it almost displaced the Suez Canal development zone as the government’s darling project.
Hopes are being pinned on the “supergiant” field’s ability to expedite the growth of Egypt’s economy, although many experts have warned against expecting the gas to be a quick fix for the country’s energy problems or its economic woes.
Italian energy firm Eni announced on Sunday the discovery of the gas field, located off of Egypt’s Mediterranean coast, which could potentially yield 30 trillion cubic feet of lean gas, enough to satisfy Egypt’s natural gas demand for decades.
The field is the largest gas discovery in Egypt and in the Mediterranean Sea, and could become one of the world’s largest natural gas finds, the company said.
The find was made at a depth of 1,450 meters in the Zohr prospect in the Shorouk Block of Egypt’s offshore Mediterranean holdings.
Day two of the Euromoney conference opened with a discussion with Khaled Abu Bakr, executive chairperson of Taqa Arabia and secretary general of the Egyptian Gas Association, about the newly discovered gas field and what it can mean for the future of Egypt’s economy.
“The impact of the discovery is huge, on the short to medium term, over the coming eight years. You will definitely see more young Egyptian entrepreneurs and multinational companies developing services related to development,” Abu Bakr said.
He pointed out that, in the long-term, this could lead to enhancing the overall economy, reducing subsidies and the budget deficit while creating job opportunities.
The discovery also opens the way for Egypt to become the strongest hub in the area, he says, if the proper upgraded infrastructure is in place. The current onshore infrastructure is strong and reliable, and with proper development, will create opportunities to increase energy capacity, he adds.
In a report published today, UK-based economic research firm Capital Economic stresses that despite the potential significant economic benefits of the discovery, it will take years for them to be realized.
According to the report, the newly discovered field can help raise Egypt’s real GDP by 4.5 percent by increasing daily natural gas production by 2.5-3 billion cubic feet per day from the current 4.5 billion cubic feet per day.
Capital Economics also says this could increase state revenue by 1.6 percent of GDP, in addition to alleviating electricity blackouts and lowering the deficit.
Still, production from the field is not expected before 2018 at the earliest, the report says, since Eni announced they won’t start installing pipelines and drilling before next year. The London firm also expects the increased domestic consumption levels will end up swallowing the extra output that may be exported, after five years starting 2018, leaving none for exports after that period. This means that Egypt may be forced to once again resort to imports, assuming the demand levels will continue increasing at the same pace that has been going for the past 15 years.
The boost from increased exports is estimated to be around 2.5 percent of GDP in those five years, around US$7 billion, according to Capital Economics. It also mentioned that even if the domestic consumption used all the extra output, it will still help in freeing up gas from other fields, which can be exported.
The high levels of domestic consumption are mainly caused by Egypt’s dependence on fossil fuels as its main energy source, a problem Abu Bakr addressed during the confernce.
He highlighted the importance of having a better, more diversified energy mix in Egypt, saying that the current mix, consisting of 93 percent fossil fuels, 6 percent hydroelectricity mainly from the High Dam, and only 1 percent renewable energy, is unhealthy. The dependence on one source, oil and gas in the case of Egypt, can lead to lack of investments when a shortage occurs, which is what has been happening in Egypt during the past five years, he adds.
“In petroleum and electricity sectors we have proper candidates, engineers and technicians, but we don’t have the same with renewable energy, and in my opinion it is a necessity to develop the capital needed for renewable energy usage and have proper technicians. If I was in the government I would continue encouraging renewable energy and even subsidize it for a while,” he suggested.
Tim Fox, head of research and chief economist at Emirates NBD, gave a short presentation during the conference, in which he referred to the new Zohr field discovery as a game-changer. He said it cancan be beneficial for Egypt’s economy as a whole, and not just in terms of meeting domestic energy needs.
The field was also mentioned repeteadly by officials during the conference.
Hany Kadry Dimian, the minister of finance, described the new gas field as a huge asset for the country and its coming generations during the conversation held with him, adding that it gives the government a lot of hope about other explorations in the area.
Investment Minister Ashraf Salman also made sure to mention the discovery during the conference, stating that it will motivate more investors to come and explore the shores of Egypt, because of the potentials that lay there. However, he also mentioned that Egypt will continue to import gas, despite the discovery.
Discovered by Italian firm Eni, the field, according to initial reports, holds around 30 trillion cubic feet of natural gas, which is around 5.5 billion barrels of oil. The find is considered to be the largest gas discovery in the history of the Mediterranean.