Egypt may soon be paying more for locally produced natural gas, reports Stefan Weichert
British Gas Egypt (BG) is negotiating with the Egyptian General Petroleum Corporation (EGPC), an oil company affiliated to the Egyptian ministry of petroleum, to increase the price paid for gas produced in the 9B concession area in Egypt's Mediterranean waters.
It has asked for a price of $7 per million BTUs (British Thermal Units) or $1 billion of debt owed to it by the government to be paid immediately. EGPC has offered $5.88 per million BTUs, according to Daily News Egypt. BG were not available for comment.
BG wants to raise the price because the amount of gas in the 9B reservoir is 40 per cent lower than in 9A. This makes production costs higher in 9B, according to a source speaking to Daily News Egypt.
Furthermore, the depth of 9B is greater than 9A, which increases the drilling time to two months and a week in 9B compared to 45 days in 9A.
BG has suspended work at some development projects after it failed to negotiate a price with EGPC, according to an EGPC official who spoke to Reuters.
"BG has stopped work at 9A+ and 9B after the failure to reach an agreement on the fixed price to be paid for the extracted gas, and it withdrew rigs working on the 9A+ wells on 7 March," the EGPC official told Reuters last week.
Egypt's Ministry of Petroleum has denied the claim. The ministry said that "negotiations over timelines for the projects" are ongoing and noted that negotiations on the development of the B9 site in the deep water off the West Delta are also continuing.
BG has agreed on a price of $5.88 per million BTUs for 9B if BG is paid $1 billion in dues, but the ministry has not responded, according to a source close to the negotiations who spoke to Daily News Egypt.
If a deal is made, it will mean a rise in price from the current $3.95 per million BTUs, an increase of almost 33 per cent, according to Reuters.
Over the past few years, Egypt has raised the price it pays international companies for natural gas, a measure that should help boost foreign investment in the gas-exploration sector.
However, because of current shortages in hard currency earnings, Egypt has been late in paying arrears owed to these petroleum companies, estimated at $3 billion at the end of December 2015, according to Reuters.
The online media outlet Mada Masr has also reported that Egypt's payments for gas from offshore developments have reached as high as $6 per one million BTUs, up from $2.65.
It is not certain if BG and EGPC will reach a deal. "The negotiations continue with EGPC, but we did not find any response regarding their debts to us or to the price increase," the official told Daily News Egypt.
Egypt, which used to be an energy exporter, has in recent years been a net importer of energy because of the country's declining oil and gas production. There is thus a crucial need to keep the 9B and 9A areas for Egypt's plan to increase production.
Egypt also has plans to expand its oil and gas production. Minister of Petroleum Tarek Al-Molla recently said that production from the B9 site off the West Delta will begin in 2017 and is expected to produce 400 million cubic feet of gas daily in a $1.3 billion investment.
BG Egypt is a subsidiary of Royal Dutch Shell and works in more than 25 countries around the world. According to the company's website, its production of gas and oil in Egypt declined by 67 per cent between 2011 and 2015 to 44,000 BOE/D (barrels of oil equivalent per day).
© Al Ahram Weekly 2016
