Cairo will pay more for deep-sea gas

03 October 2008
Oil majors strike fresh deals to explore the deep-water gas reserves of the Mediterranean Sea.

Cairo is to pay higher gas prices to producers operating in the deep waters of the Mediterranean Sea, emphasising that it is prepared to offer incentives to keep energy majors on side.

Sources at international oil companies (IOCs) tell MEED that five gas producers have signed agreements in recent weeks to be paid $4 a million BTUs.

Previous price cap for all firms exploring for gas in Egypt$2.65 a million BTUs
Revised price agreed with five energy majors working on deep-water exploration$4 a million BTUs
Price paid on the international energy markets in September$8 a million BTUs

Previously, all firms exploring for gas in the country have been subject to a price cap of $2.65 a million BTUs.

The move comes in the wake of widespread speculation in the local industry that better terms would be offered to energy majors (MEED 29:8:08).

Gas producers have been lobbying Cairo since February for improved terms to reflect higher international prices for gas, which reached $8 a million BTUs on international markets in September. In 2007, the price was $6.10 a million BTUs.

The UK’s BG Group and the US’ Edison, which jointly operate the 800 million-cubic-feet-a-day (cf/d) Rosetta development, are understood to be among oil majors that have signed deals. BG has also finalised revised terms for its West Delta Deep Marine project, which it runs with Malaysia’s Petronas.

Italy’s Eni and the US’ Hess have also struck similar deals for gas from their North Bardawil and West Mediterranean concessions.

There is relief among energy majors that the ministry has shown flexibility in setting prices, says one business development manager.

“We have been lobbying the ministry and some of the state-run firms for some time on this and I think it is a common sense decision to raise the price.”

The moves follow an increase in the price earlier in the year to $3.95 a million BTUs, which the ministry paid to BP and its partner, Germany’s RWE Dea, for gas produced from the West Mediterranean deep-water and North Alexandria fields, which are both in the Nile Delta.

Gas produced in shallow waters will continue to be priced at $2.65 a million BTUs. Onshore operators in Egypt have yet to start discussions for a revised price formula.

Firms are now confident that the new exploration round, recently launched by Egyptian Natural Gas Holding Company (Egas), will include an offer of $4-$4.50 a million BTUs for drilling in the Mediterranean Sea.

“There is an expectation this will happen within the industry but we have to wait for official confirmation from the authorities,” says an executive from a US firm that expects to submit a bid.

Potential bidders have been told that the final pricing terms will not be divulged until after bids are submitted on 9 February next year (MEED 19:9:08).

In 2007, Egas estimated Egypt’s gas reserves to be 72.3 trillion cubic feet.

Some 78 per cent of this is understood to be in the Mediterranean, 4 per cent in the Nile Delta onshore area, 10 per cent in the Western Desert, and 8 per cent in the Gulf of Suez.

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