Rich reservoir

Due to major recent discoveries, natural gas is likely to be the primary growth engine of Egypt’s energy sector for the foreseeable future. Natural gas production in Egypt averaged 3.6 billion cubic feet per day in 2004, while, according to the Oil and Gas Journal, Egypt’s estimated proven gas reserves now stand at 58.5 trillion ft3, or roughly 1% of world reserves. As of January 2005, much of this is now exported as liquefied natural gas (LNG), adding to the country’s hydrocarbon revenues.

Although the country’s gas production may be on the increase, oil production in Egypt however, has continued to decline from its 1996 peak of 922,000 barrels per day (bpd) of crude oil.

Production

Egyptian oil production comes from four main areas of the country: the Gulf of Suez (over 80%), the Western Desert (about 9%), the Eastern Desert (about 6%), and the Sinai Peninsula (about 5%).

Under a Production Sharing Agreement (PSA) between BP, and the Egyptian General Petroleum Corporation (EGPC), the Gulf of Suez Petroleum Company (GUPCO) and the International Egypt Oil Company (IEOC) produce oil from the Gulf of Suez basin.

The oil centre of 260,000 bpd capacity, gathers some 160,000 bpd from the onshore and offshore fields run by the operating company Petrobel.

Petrobel, Egypt’s second largest oil producer is a joint venture between EGPC and Eni of Italy. While operating the Belayim fields near the Gulf of Suez, the company is also undertaking an enhanced oil recovery (EOR) programme to stem declining production.

Other major companies in the Egyptian oil industry include Badr el-Din Petroleum Company (EGPC and Shell); Suez Oil Company (EGPC and Deminex); and El Zaafarana Oil Company (EGPC and British Gas).

Egypt’s overall oil production has been declining more slowly than in the Gulf of Suez fields, due to new output from independent producers like Apache and Seagull Energy at smaller fields, in the Western Desert and Upper Egypt.
 

Since 2000, Western GUPCO has been attempting to slow the natural decline in its fields through significant investments in EOR as well as in increased exploration activity.

Due to these activities, desert production has risen substantially, accounting for roughly 27% of total oil production, more than double the levels in 2000.

Oil transit: Suez Canal/Sumed Pipeline

Besides its decline in production levels, Egypt is in an important location for the transit of oil, relied on heavily for transits between the Arab Gulf and the Mediterranean area. Most of these shipments take place in the Suez Canal and Sumed (Suez-Mediterranean) Pipeline, a 200 km long pipeline from the Gulf of Suez to the Mediterranean coast – two routes for export of Persian Gulf oil.

The Suez Canal Authority (SCA) is continuing enhancement and enlargement projects on the canal. The canal has been deepened so that it can accept the world’s largest bulk carriers, but it will need to be deepened further from its current 58 feet, to 68 or 70 feet, to accommodate very large crude carriers (VLCCs).

The Sumed pipeline is an alternative to the Suez Canal for transporting oil from the Persian Gulf region to the Mediterranean. The 200-mile pipeline runs from Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean. The Sumed’s original capacity was 1.6 million bpd, but with completion of additional pumping stations, its capacity today has significantly increased to 3.1 million bpd.

Refining capacity

Egypt’s nine refineries have a combined crude oil processing capacity of 761,700 billion bpd. The largest is the 146,300 billion bpd El-Nasr refinery at Suez, which is owned by the Egyptian government and operated by the El Nasr Petroleum Company.

The oil-refining sector in Egypt looks set for big expansion, with at least two new projects being promoted by the government in the aim of increasing production of lighter products, petrochemicals and higher-octane gasoline.

One is a 500,000 billion bpd refinery to be built near the Suez Canal. The second is a 130,000 billion bpd refinery to be built at Ain Sukhna, on the Red Sea coast. The 500,000 billion bpd export-oriented oil refinery is to be a joint venture among Egyptian, Saudi Arabian and Kuwaiti investors; start up is scheduled for summer 2009.

LNG

In addition to Egypt’s burgeoning oil sector, perhaps most significant to the country’s progression, is the level of production and exports of LNG. Operating three trains, Egypt is now the sixth largest LNG producer in the world.

In order to support its goals of doubling natural gas exports by 2010-11, the government aims to add 30 trillion ft3 to its proven gas reserves by 2010. Plans are for most of this increase to come from new natural gas discoveries offshore from the Nile Delta, and the Western Desert.
 

In the Nile Delta, recent offshore field developments include Port Fuad, South Temsah, and Wakah. In the Western Desert, the Obeiyed Field is an important natural gas area currently under huge developments.

The International Egyptian Oil Company (IEOC), a subsidiary of Eni, is Egypt’s leading natural gas producer, operating in the Gulf of Suez, the Nile Delta, and the Western Desert regions. In cooperation with BP, IEOC has been concentrating its natural gas exploration and development efforts in the Nile Delta region.

Two areas in the Western Desert, Obeiyed and Khalda have shown great potential for increasing Egypt’s natural gas production levels in the near future. This area is appealing as it has both, lower development and operating costs than in the Mediterranean region, and an expanding network of pipelines and processing plants by which to quickly transport production upstream.

Obeiyed, with probable natural gas reserves estimated at 5 trillion ft3, is producing 300 million ft3 per day. Production in the Khalda concession is currently around 275 million ft3 per day. All of the offshore wells completed thus far have shown commercial quantities of natural gas, with reserves in the Western Mediterranean block estimated at around 3 trillion ft3.

Upstream activities

Egypt is hoping that exploration activity, particularly in new areas, will discover sufficient oil in the coming years to slow the recent annual declines in output, while maintaining crude oil production comfortably above 800,000 bpd.

Firms are beginning to explore offshore oil production possibilities in the Mediterranean. The largest concession was awarded to Shell in February 1999 for a large deepwater area off Egypt’s Mediterranean coast. BP and Total were also awarded a large offshore block from the same bidding round. A smaller offshore concession was awarded to Eni. While most offshore discoveries in the Nile Delta have been natural gas, it is believed that there may also be significant quantities of oil in the area.

Shell reportedly is optimistic about the prospects for its North East Mediterranean Deepwater (NEMED) concession, but drilling so far has yielded natural gas rather than significant quantities of oil.

Discoveries

Dana Gas, the sixth largest natural gas producer in Egypt from among the 64 companies operating in the country, made the most recent of exploration successes in a new gas discovery.
 

The Dabayaa-2 delineation well was drilled by Centurion Petroleum Corporation, the upstream division of Dana Gas in Egypt, on the eastern side of the West Manzala concession, in order to appraise the Dabayaa-1 discovery well in the Lower Abu Madi Sandstone formation. The well was drilled to a total depth of approximately 3 000 metres and encountered gas bearing zones in both the Upper and Lower Abu Madi formations. The Lower Abu Madi formation was tested and found to flow at a gas rate of over 10 million ft3 per day, and 240 bpd of condensate.

“We are very pleased with the results we obtained from Dabayaa-2, which confirm our high expectations for the potential of the Abu Madi formation in this block,” said Hany El-Sherkawi, Dana Gas Egypt country director.

“The Lower Abu Madi formation was tested previously, but this is the first time that we have been able to confirm the productivity in the Upper Abu Madi formation,” he added.

According to Egypt’s Petroleum Minister Sameh Fahmy, attracting international oil companies to the country’s downstream gas sector to build up liquefied natural gas facilities, including new pipelines is a major priority for the country’s development.

And a fast development of its natural gas reserves will allow for Egypt to offset the decline in its oil production levels, and allow it to concentrate on, and maintain its present role as a leading exporting country.