As things stand, BG Group is continuing with business as usual in Egypt, but this is likely to change dramatically in early 2016, when its merger with UK/Dutch Shell is completed.

In March, when Shell’s CEO Ben van Beurden was asked about the combined group’s future operations in Egypt, he said: “In valuation of things we haven’t given it a lot of value in our assessment of the combined company going forward.”

This has prompted speculation that the new company may sell some of its Egyptian assets.

Speculation about asset sale in Egypt has been exacerbated by comments from Shell’s chief financial officer, Simon Henry, who has said the combined company will target global asset sales of $30bn in the 2016-18 period.

BG’s Egypt operations were once a core part of its business, but have increasingly become a source of frustration over recent years.

In the mid-2000s, Egypt accounted for more than one-third of BG’s total global gas production. By the first quarter of 2014, that had been reduced to just 5 per cent.

The group’s Egyptian gas fields have declined faster than expected, and the rapid rise in domestic demand for natural gas has resulted in feedstock that had been designated for its liquefied natural gas (LNG) export operations being diverted to the local market.

In early 2014, BG declared force majeure to customers and creditors of its Egyptian LNG plant as it was not able to meet in full its supply commitments.

In March 2015, the group signed a heads of agreement with national oil company Egyptian General Petroleum Corporation (EGPC) and Egyptian Natural Gas Holding Company (Egas) to invest $4bn in developing phase 9b of its multibillion-dollar West Delta Deep Marine (WDDM) gas field development project, stating that the investment would be made over three to four years.

However, the deal to invest more in Egypt remained contingent upon the repayment of some of the money owed to BG by EGPC.

BG also demanded to be paid more for gas produced at its wells.

“Due to the fact that neither of these demands have been met, we are not progressing with phase 9b of the WDDM project,” a BG spokesperson told MEED on 1 July.

While BG group continues to see very little activity on WDDM, other gas megaprojects have seen rapid progress as the Egyptian government has negotiated deals with the likes of UAE-based Dana Gas and the UK’s BP.

In September 2014, Dana signed a gas production enhancement agreement (GPEA) with Egas and EGPC, agreeing to undertake a seven-year development programme that includes 37 new wells and an equivalent number of workovers of existing wells.

In March, BP signed a $12bn deal to restart Egypt’s biggest-ever gas project, the North Alexandria gas field development.

Although BG has been one of the most active foreign oil and gas companies in Egypt over recent decades, its failure to gain traction with projects such as WDDM signals a reduced commitment to the Egyptian market, which could manifest itself in an asset sell-off after the merger with Shell is completed.

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