Gas export schemes gain critical mass

15 October 2001

Slowly but surely the day is approaching when Egypt will export its first consignment of natural gas. The two active liquefied natural gas (LNG) schemes have both made solid progress, and tender invitations have been sent out for the project to transport 1,000 million cubic metres a year of gas via pipeline to Jordan. The Jordanian supplies are scheduled to start in mid-2003. Spain's Union Fenosa is on target to load its first LNG cargoes at Damietta one year later, and the UK/Italian team of BG Group and Edison International is aiming to follow suit in mid-2005.

The furthest advanced of the three export schemes is that of Union Fenosa, entailing the investment of some $1,600 million in two trains of 4 million tonnes a year (t/y) each. The gas will be sent to a terminal in Spain, and distributed to a series of power stations operated by Union Fenosa and others.

The Spanish utility, which has no previous experience of running a hydrocarbons project, has made impressive progress since it concluded the initial agreement for the scheme in July 2000. The question most often asked about the project now is whether it will go all the way to the operational phase on its own, or whether it will bring in an international oil company as a partner.

One of the first steps Union Fenosa took was to appoint Foster Wheeler Corporation of the US as the owner's representative, thereby bringing on board a firm with considerable experience of putting together LNG projects around the world. Chiyoda Corporation of Japan and the UK-based MW Kellogg Company were selected to do parallel front-end engineering and design (FEED) studies. The two companies have also bid for the engineering, procurement and construction (EPC) contract, which is scheduled to be awarded by the end of October.

Other elements already in place include orders for two tankers, which are now being built in Spain and South Korea, an Eur 80 million ($73 million) contract with France's SN Technigaz for the storage tanks in Damietta, and the appointment of Citibank as financial adviser.

Union Fenosa has acknowledged that it is talking to international oil companies about a possible partnership in the Damietta project. The prime candidates for such a role are BP of the UK, Eni of Italy and the Royal Dutch/ Shell Group. The three companies are major players in the Egyptian gas industry, and they have all expressed interest in LNG export projects. BP and Eni have jointly agreed commercial terms for the purchase of gas from Egyptian General Petroleum Corporation (EGPC) for an LNG scheme in Damietta, and Shell has announced plans for a gas-to-liquids (GTL) scheme to process gas from its North East Mediterranean (Nemed) block.

Union Fenosa has agreed terms for buying natural gas from EGPC, but company officials say it would be interested in joining forces with a partner that could bring its own gas for the project. BP's ability to do this has been enhanced following recent promising gas discoveries in the North Alexandria block. Shell has also expressed high hopes for Nemed's gas prospects, but has yet to publish details of its initial drilling programme completed in February 2001. The company plans to drill two more wells in early 2002.

The position is clearer as regards the BG/Edison LNG export project, to be based at Idku, east of Alexandria. The gas for this plant will come from the two sponsors' West Delta Deep Marine block. The first two fields in the block - Scarab and Saffron - are scheduled to come on stream in 2003, supplying 530 million cubic feet a day of gas for the domestic market. Gas from the next cluster of fields has been allocated for the LNG project, and will share much of the infrastructure being developed for the first two fields.

The model for the Idku scheme is the Atlantic LNG project developed by BG and other partners in Trinidad and Tobago. That was the first major LNG plant to use the optimised cascade process developed by Phillips Petroleum Company of the US. The main contractor on Atlantic LNG was the US' Bechtel, which also figures prominently in the Idku scheme. Bechtel is project manager on the Scarab/Saffron development, and has just been awarded the FEED contract for the LNG scheme. By the time the FEED is completed in the first quarter of 2002, BG says it hopes to have in place gas sales agreements for the first LNG train, which is due to come on stream in 2005. The main target markets are the US and Italy. Societe Generale is understood to have been brought on board as financial adviser.

The project to export gas by pipeline to Jordan passed a milestone in June with the signing of a long-term supply agreement between Egypt-based Al-Sharq Gas Company and the Jordanian Energy & Mineral Resources Ministry. The next step will be submission of bids to the Jordanian ministry towards the end of 2001 for the establishment of a 370-kilometre gas transmission system to deliver the gas to two power stations in the north of the country. Supplies are scheduled to start in 2003 with an annual contracted volume of 1,000 million cubic metres. Details have yet to be disclosed about arrangements on the Egyptian side, but it is assumed that Al-Sharq will purchase the gas from EGPC - or indeed from the newly formed Egyptian Natural Gas Holding Company.

The formation of the holding company earlier this year has been seen as a logical development following the rapid expansion of the gas sector over the past 15 years. The company's inaugural general assembly in August elected Mohamed Tawila to serve as chairman. Tawila was the architect of EGPC's 1986 gas clause that paved the way for the surge in investment in gas exploration, and has been the head of EGPC since mid-2000. As such, he is the obvious choice for the new post. Ibrahim Saleh, a long-term EGPC executive, has been promoted to become chairman of the petroleum corporation. The new structure provides a measure of continuity for gas developments, as Tawila remains in charge of this sector, but it will also allow him to concentrate his attention, rather than being required to oversee all the other disparate elements of the hydrocarbons sector. The change has been pushed through by Petroleum Minister Sameh Fahmy, who, since his appointment in October 1999, has striven to promote Egypt's gas export strategy and to streamline the internal organisation of the oil, gas and petrochemicals sectors.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications