Laboratory initiative launched to support domestic gas supply, net export

As Egypt consolidates moves to become a net energy exporter by re-exporting gas from its Eastern Mediterranean neighbors to Europe, the Petroleum Ministry turns its gaze to sources of domestic energy production.

In a statement on Saturday, the ministry announced the launch of a pilot program at a new natural gas laboratory at the Zohr gas field to ensure that the quality of natural gas extracted from the largest ever find in the Mediterranean Sea is in line with “accepted standards” of production.

The laboratory, now the largest in Egypt, is to verify the standard of gas produced strictly for domestic energy consumption, as opposed to international export, Petroleum Ministry spokesperson Hamdy Abdel Aziz told Mada Masr.

Until 2011, Egypt was a net exporter of energy, committed to long-term deals from the early 2000s to export natural gas reserves, the actual capacity of which analysts later deemed to have been exaggerated.

The instability in the country in the aftermath of the 2011 uprising left Egypt unable to pay arrears to international oil companies, suspending any new explorations in natural gas, halting exports and prompting the government to import supplies to cover the nation’s energy needs.

The situation changed following the recent launch of production at several national gas fields, chief among them Zohr, which is predicted to produce 2 billion cubic feet per day in September. The government is relying on this production to re-establish self-sufficiency and return Egypt to being a net energy exporter again.

This goal rests largely on Egypt becoming a regional trading hub for natural gas, utilizing its existing energy infrastructure. Along these lines, the private sector would import gas, liquify it at Egypt’s LNG terminals, and export it to Europe. The government has already put in place a legislative framework to facilitate this plan, introducing Law 196/2017 to regulate the market, thus reducing the government’s role to that of regulator, and privatizing the sector, while amending the financial markets law with a view to encourage private sector competition and participation.

Leading the charge for Egypt’s regional hub ambitions is a February 2018 agreement between private Egyptian company Dolphinus Holdings and partners in Israel’s Tamar and Leviathan gas fields. Israel’s Delek Group Ltd and the US Noble Energy company agreed to export 64 billion cubic meters of natural gas at a value of US$15 billion over a 10-year period.

The agreement is expected to take effect within the first three months of 2019, according to Egyptian sources familiar with the project, who spoke to the privately owned Al-Shorouk newspaper on August 5. Egyptian gas imports from Israel are expected to begin with small quantities, and to increase gradually to reach a peak in September 2019, according to a source speaking to Reuters.

Dolphinus Holdings owned by several Egyptian businessmen, and led by Alaa Arafa was only able to sign the deal after President Abdel Fattah al-Sisi ratified the new gas law in August 2017. The law reduces the role of the government to that of regulator, establishing a governmental Gas Regulatory Authority that is responsible for devising a plan to liberalize Egypt’s gas market, and will eventually allow for the import of gas by private companies for the first time.

Previous to the law’s ratification, contracts in the Egyptian gas market were managed and carried out exclusively by the Petroleum Ministry’s Egyptian General Petroleum Corporation and its later subsidiary, the Egyptian Natural Gas Holding Company, which had a monopoly over partnership deals for exploration and extraction with international oil companies, as well as sales to the private sector. The new law is intended to encourage private sector access to national gas infrastructure.

At the time the deal was struck in February, an Egyptian government source, who spoke to Reuters on condition of anonymity, said the agreement would not mean Egypt wouldn’t import gas from overseas for domestic consumption, adding that private companies would still import gas to liquefy and export, according to their own needs.

Egypt also aims to sign a deal to import natural gas from the Cypriot Aphrodite gas field, to be liquified in Egypt and re-exported to Europe. The Cyprus Mail reported that an agreement has been reached and will be signed in the autumn, citing Cypriot state television. Sources speaking on condition of anonymity told Mada Masr in February that Egypt was in negotiations with Cyprus to import gas through the pipelines connected to Israel’s Leviathan field.

In 2017, a government official involved in Egypt-Israel relations told Mada Masr that there were ongoing maritime demarcation talks between Egypt, Cyprus, Greece and Israel aimed to turn the East Mediterranean into a regional energy hub.

Egypt also signed off amendments in August to a 2004 gas deal with Jordan that was halted due to sporadic attacks on the pipeline. Several groups of armed militants in Sinai bombed pipelines that Egypt used to export gas to Israel on at least 24 occasions between 2011 and 2014. The August amendments will reportedly allow the export of gas to Jordan to be resumed in 2019, once Egypt has reached domestic self-sufficiency.

The Egyptian Stock Exchange is also in negotiations with the government to launch a commodities exchange and trade natural gas futures, a move facilitated by amendments to Law 95/1992. With the hope of expanding the role of the non-banking financial sector, the Investment and International Cooperation Ministry proposed amendments to the financial markets law, which were approved by Parliament in February and ratified by the president in March.

The commodities exchange is intended as a mechanism through which the private sector would be able to trade natural gas, while the Egyptian exchange, the privately owned financial Al-Mal newspaper reported, would determine the quantities to be traded, the timeframes for delivery and pricing systems.