30 July 2015
Egypt's Petroleum Ministry and the Italian energy group Eni have amended the deal they signed back in March to include Eni's new discovery of 15 billion cubic metres of gas reserves in the Nile Delta. The new discovery is equivalent to around one per cent of Egypt's total proven reserves. The deal, worth $5 billion, would see Eni developing 200 million barrels of oil and 1.3 trillion cubic feet of gas in the area over the next four years.

The new discovery was made in western Abu Madi 120 km northeast of Alexandria where Eni holds 75 per cent of exploration rights through an Egyptian subsidiary. British Petroleum holds the remaining stake. Production is set to start in two months.

Egypt's energy sector has struggled over the past few years, with natural gas output declining by around 20 per cent from its peak on the back of the volatile political atmosphere including recurrent attacks on pipelines. This has been coupled with foreign companies' reluctance to expand their production or pump in new investment in the light of the government's delays in paying their dues.

However, over the past year or so the government has made significant progress in addressing these problems, according to a research note by Jason Tuvey, a senior economist at Capital Economics. Agreements have been struck with a number of foreign energy companies to raise the price that the government pays for gas consumed domestically. Earlier this month, Egypt's state-owned gas company EGAS announced that it had reached deals with Eni, as well as with fellow Italian energy company Edison to almost double the price it pays for new gas discoveries from $2.65 per BTU to as much as $5.88 per BTU.

"The agreements marked an attempt by the Egyptian authorities to improve terms for foreign oil and gas businesses in the hope that more competitive pricing will encourage investment in the energy hungry country," Capital Economics said.

Moreover, the government has also repaid a large chunk of its outstanding energy debts. At the end of 2014, arrears with foreign energy companies stood at $3.1 billion, down from $6.4 billion at the end of the 2013/14 fiscal year. The authorities expect to repay all of their energy debts by the middle of next year.

The expected recovery in the natural gas sector is expected to have substantial macroeconomic benefits. If gas production returns to its peak, this will push the economic growth rate up by 1.5 per cent annually. "In addition, the boost to export earnings could be as much as $1.5 billion a year, which would make a significant dent in the current account deficit," Capital Economics said.

Eni has operated in Egypt for more than 60 years through its Egyptian subsidiary IEOC and is one of the main energy producers in the country, with a daily production of around 180,000 barrels of oil equivalent.

© Al Ahram Weekly 2015