Natural Gas Discovery Could Give Egypt Relief

The discovery of a huge gasfield off the Egyptian coast couldn’t have come at a better time for the Arab nation.

The Adriatic liquified natural gas terminal near Rovigo, Italy is seen from the air, August 10, 2009
The Adriatic liquified natural gas terminal near Rovigo, Italy is seen from the air, August 10, 2009 (Wikimedia Commons)

The Italian oil and gas company Eni said on Sunday it had discovered a huge gasfield off the coast of Egypt, the largest ever found in the Mediterranean Sea. It could come as a relief to an Arab state that has struggled in recent years to meet rising gas demand.

The Financial Times reports that the field holds a possible thirty trillion cubic feet of gas, or 5.5 billion barrels of oil equivalent, which would make it around the twentieth largest of its kind in the world.

“This historic discovery will be able to transform the energy scenario of Egypt in which we have been welcomed for over sixty years,” said Eni’s chief executive, Claudio Descalzi.

The company has been active in Egypt since 1954 and is its main oil and gas producer.

Egypt could desperately use the extra gas. As Keith Johnson reported for Foreign Policy magazine last year, it is scrambling to import enough gas to meet domestic demand and exports have plummeted.

Before the 2011 “Arab Spring” uprising that toppled longtime ruler Hosni Mubarak, Egypt — which has the third-largest gas reserves in Africa — exported to nearby Israel and Jordan as well as more developed economies in Asia and Europe.

It had ambitious plans to further develop offshore natural gas resources and was expanding its creaky electricity system on the back of natural-gas fired power plants.

In 2009, Egypt exported 647 billion cubic feet of gas, mostly liquefied gas to satisfy demand in Europe. By 2012, a year after Mubarak was forced out of office, gas exports had fallen to less than half, or 256 billion cubic feet, and one of the two terminals that shipped LNG to Southern Europe was shuttered. Pipeline exports plummeted to one-tenth of their peak level. Exports continued to plunge in 2013 and Egypt was unable to export any gas in the first three months of 2014.

“The abrupt reversal is a result of unsustainable economic policies,” according to Johnson, “such as generously subsidized fuel prices at home that spur unbridled growth in gas consumption.”

Domestic gas consumption increased by a quarter from 2009 to 2012. Under the Islamist-led government that succeeded Mubarak’s, fuel subsidies took up a fifth of public spending. Last year, the administration of former army chief Abdul Fatah Sisi, who led a restoration of the regime in 2013, cut subsidies, causing gasoline and natural gas prices to rise over 70 percent. But this hasn’t affected gas used in power generation, the biggest source of domestic demand.

Another reason the industry is struggling, Forbes‘ Christopher Coats has reported, is that foreign investors are wary when Egypt remains politically unstable and still owes billions in debts to international energy companies like BG and BP.

This doesn’t seem to deter Eni. The Italian firm said on Sunday it would immediately appraise the new gasfield “with the aim of accelerating a fast-track development” that would use existing infrastructure.

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