Egypt: Going for gas

24 January 2003
The interest generated by the liquefied natural gas (LNG) projects under way at Idku and further down the coast at Damietta appears to have had a positive impact on the latest 38-block exploration bid round, which closed in early November. A total of 36 companies submitted bids for 21 of the blocks on offer. The new round will test the government's plans to speed up the awards process: in the past, it has taken three years for some deals to progress from submission of bids to final ratification.

Of the new acreage on offer, 14 blocks are in the Gulf of Suez, 10 in the Mediterranean, 10 in the Delta and Western Desert, three in the Red Sea and one in Upper Egypt. Companies were keen to see the data on the offshore Mediterranean blocks because of their proximity to areas where large amounts of gas have already been discovered.

Egypt has proven gas reserves of 55 trillion cubic feet and oil reserves of 2,900 million barrels. Gas production is running close to 3,000 million cubic feet a day, while oil output is about 625,000 barrels a day (b/d). The exploration business is likely to remain vigorous enough to sustain oil production and to establish sufficient reserves to support a long-term gas export business.

When the first trains of the two LNG projects at Idku and Damietta come on stream in 2005, Egypt will become the world's seventh largest LNG exporter. Spain's Union Fenosa is working on the 5 million-tonne-a-year (t/y) LNG project at Damietta, the more advanced of the two projects and the biggest of its kind in the world. The bankability of the Union Fenosa project has been significantly improved by the selection last year of Italy's Eni as a strategic partner. Eni has taken a 50 per cent stake in Union Fenosa Gas and agreed to underwrite a Eur 440 million ($440 million) increase in the company's share capital to Eur 930 million.

The successful launch in December of Egypt's biggest-ever project finance facility, for the LNG scheme at Idku, has prompted the partners of Egyptian LNG (ELNG) to authorise the start of the engineering, procurement and construction (EPC) early works programme for the estimated $550 million second train.

Bechtel of the US, which was awarded the $900 million EPC package for the first train, is expected to complete the early works programme for train 2 by the end of the third quarter. Marketing of train 2's output has already reached an advanced stage, and ELNG is understood to be in discussions with US and European buyers for the second train. An offtake agreement is expected to be signed before the end of the third quarter.

Digby Lidstone

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