'Shellevaluates its exploration portfolio on a regular basis, looking for opportunities to add value and shift risk exposure as appropriate,' says a company spokesperson, who nevertheless declined to comment on negotiations. 'As business opportunities arise and valuation of the block matures, Shell will take appropriate portfolio actions to maximise the present value of our investment and to create additional option value.'

The two companies have also entered into negotiations over an international gas partnership which would improve the chances of a revival of Shell Egypt's proposed liquefied natural gas (LNG) project near Damietta, for which it signed a memorandum of understanding with state-owned Egyptian General Petroleum Corporation (EGPC)in November 2001. Gail in June tabled an offer to take a 26 per cent stake in Shell's $500 million LNG regassification terminal at Hazira, in the Gujarat region of India.

The companies are now negotiating the terms of a sales agreement under which Gail would market gas conveyed from the terminal through its Hazira-Vijaipur-Jagdishpur pipeline. The Hazira terminal is due to begin full-scale operations in 2007, when it will receive 5 million tonnes a year (t/y) of LNG. Shell is currently involved in seven LNG export projects worldwide, but its proposed plant near Damietta has been kept on hold over the past two years (MEED 12:1:03).

Shell has extensive upstream and downstream operations in Egypt, where it is the country's leading gas producer. The company forecast reserves of 15 trillion cubic feet (tcf) of gas and 4,000 million barrels of oil in the Nemed concession after it carried out its first drilling in December 2000 and February 2001. With the arrival of new drilling equipment in September, the companyis preparing to step up exploration in the 41,500-square-kilometre block. Shell officials indicated in June that the company is planning further investment in developing the concession, in which ExxonMobil Corporationof the US holds a 25 per cent stake and Malaysia's Petronas Carigalia 12 per cent interest (MEED 27:6:03).

Shell has formed an increasingly close partnership in its downstream gas distribution operations with the Egyptian Kuwaiti Holding Company (EKHC), from which it first acquired an 18 per stake in Natgas in 2001. Natgas has a concession to distribute gas in the West Delta and some districts of Cairo and Alexandria. EKHC, a joint venture between the Kuwait-based Kharafi Groupand the local Commercial International Bank (CIB), in May also acquired a 27 per cent stake in Fayoum Gas, a gas distribution network which Shell operates with the local AIC(MEED 18:7:03; 9:2:01).

Fayoum Gas is expected to supply the feedstock for a new fertilisers company which EKHC agreed to set up with the local Abu Qir Fertilisers & Chemicals Industries Company in mid-July. The company will oversee the construction of a fourth unit for Abu Qir to produce ammonia and urea (MEED 18:7:03, Industry).

The third Shell venture in which Gail has expressed an interest is Shell CNG Express, which in late June inaugurated its first CNG fuelling station. Under a $28 million investment programme, the company plans to set up at least 35 natural gas stations and 11 conversion centres by 2006, with a target of converting about 20,000 vehicles.

Cairo has been developing a natural gas vehicle programme, with co-financing from the US Agency for International Development (USAID), which is intended to reduce pollution. Due to stringent import regulations, few modern cars adapted for reduced emissions are brought into the country. But about 47,000 vehicles have been built or adapted to operate on CNG so far and this number is growing by about 25 per cent a year (MEED 18:7:03).