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01/04/2005 | Egypt's Gas Exports Receive Further Boost with Damietta LNG Approval

WMRC Staff

The Egyptian authorities have finally given initial approval for the expansion of the SEGAS LNG project at Damietta, raising hopes that more natural gas reserves will be approved for exports in the wake of recent exploration success.

 

Significance

The approval of expansion at Damietta signals a new willingness by the Egyptian authorities to make gas reserves available for export, following a long period of indecision at the official level, despite solid reserve growth.

Implications

Participants in the rival LNG project at Idku will hope that this volition to approve further exports will allow them to expand their two-train facility further, although the race to find new gas supplies for the facility continues in the Mediterranean offshore basin.

Outlook

Recent gas finds by players including Apache, Shell, BP, and BG should theoretically enable further export projects to go ahead. However, the Egyptian authorities are likely to keep a tight rein on export volumes in view of burgeoning domestic energy requirements, and plans for the development of gas-based industries, sticking to the 33:33:33 formula advanced for the allocation of gas reserves in the 1990s.

The Sphinx Decides

Following more than a year of speculation the Egyptian petroleum ministry has signed a memorandum of understanding (MOU) with the SEGAS LNG project developers for a further train at the facility, after the first train was commissioned at end-December 2005 (see Egypt: 28 March 2005: Eni, BP and EGAS Agree Deal for Second LNG Train at Damietta).

The original SEGAS developers - Eni, Union Fenosa, EGPC and EGAS - are set to be joined by the upstream gas market leader BP, for the construction of the second 5-million-tonne train, formalising the alliance between those partners after BP's decision to supply the SEGAS facility last year with gas from its Nile Delta reserves (see Egypt: 6 July 2004: BP Opts to Supply Gas to Segas LNG Project).

The expansion will put the SEGAS LNG facility ahead of the rival LNG project at Idku operated by a BG/Petronas consortium, where two trains are expected to reach full capacity of 7.2 million tonnes per annum from 2006-07, supplied by gas from BG's Simian/Sienna fields. The first train of the Idku facility is due online ahead of schedule in May this year, although the Egyptian authorities have so far held back on approving further expansion at the facility until the operators obtain further reserves for the facility, prompting increased offshore exploration by BG in its WDDM and Rosetta concessions.

Outlook and Implications

Concerns over the availability of supplies for domestic usage remain a core sticking point in freeing up further gas for export, despite outstanding exploration success and reserve growth over the last few years, which has put proven reserves at some 66 trillion cubic feet (Tcf) in early 2005. This should mean at least 22 Tcf of reserves is allocated to the export market, according to the official policy of allocating one-third of supplies to exports, one-third to the domestic market and one-third for strategic purposes, which could still be assigned to exports.

As yet, the Egyptian authorities have been most reluctant to move onto allocating strategic reserves for export purposes, waiting for operators to make further finds at their own upstream assets or those of other operators, rather than pre-empting future exploration success. This policy has had the advantage of incentivising further upstream exploration work, as evidenced by BG's ongoing efforts in WDDM and its pre-emption of Shell's sale of its Rosetta stake. It is also likely to allow the Egyptian authorities to come up with more ambitious gas-based industry development plans, which have lagged behind those of other regional gas producers to date.

However, ongoing exploration success by LNG players and by non-aligned operators such as Shell and Apache, suggest that further export projects will receive a positive reception from the Egyptian authorities, who are also chasing targets to export some 20 million tonnes of LNG by 2010. With 17 million tonnes of that production now in the pipeline after the approval of the SEGAS expansion, there is still scope within those targets for a further train at Idku, if BG can come up with the necessary reserves from its own or allied operator fields.

WMRC (Reino Unido)

 


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