International firms line up for Abu Qir

20 March 2008
Cairo's hopes of increasing its gas exports have been given a significant boost, with international oil companies lining up to submit bids to develop the Abu Qir gas field.

The Abu Qir concession near Alexandria is Egypt's third-largest gas field, but has been suffering from declining output having been in production for more than 30 years. Egyptian General Petroleum Corporation currently produces gas from the field.

It is only the second time Egypt has offered a licence to develop an existing field, rather than offering virgin territory for exploration, and the first such concession in the Mediterranean. The potential for gas discoveries will play an important role in Cairo's plans to increase its exports of liquefied natural gas (LNG).

About 45 international com-panies are understood to have expressed interest in the acreage. Several oil majors are expected to submit commercial bids by the end of March deadline, including Germany's RWE, Gaz de France, the UK's BG, Spain's Repsol and Petronas of Malaysia.

“We are going through the second round of due diligence and we will submit commercial bids at the end of the month,” says the Cairo-based country manager of one potential bidder.

But some large oil majors have ruled themselves out. The UK/Dutch Shell Group says it does not intend to bid for the acreage, declining to give a reason, along with at least one other international oil company.

The winner of the contract is expected to be announced in June.

Work will involve the rehabilitation of existing field facilities, including pipelines, and the drilling of additional wells.

“There is a trend in the Nile delta for more gas to be found at deeper levels, so this might be one of the strategies companies are considering,” says Ross Millan, analyst at UK-based energy consultant Wood Mackenzie.

Cairo's plans to increase LNG export capacity from its two existing terminals have so far been hampered by a shortage of gas, but further gas from Abu Qir would help to address this.

The country has LNG capacity of 6.8 billion cubic metres a year (cm/y), from one train at Damietta and 9.8 billion cm/y from the two trains at Idku.

Oil Minister Sameh Fahmy announced in early March that a fourth LNG train will soon be approved, for either Damietta or Idku. A fifth train should follow by 2011.

The Abu Qir bidding process could provide a template for concessions. “If it is faster [than the bid round model], maybe it could become a model for the future,” says the country manager.

Although the majority of fields in Egypt are already being developed by international consortiums, development contracts could be offered for the remaining state-operated fields. “Egypt needs foreign investment to develop these fields,” says the country manager.

The price Cairo will pay for gas from Abu Qir is expected to be in line with recent price increases for offshore gas.

Parliament is expected to approve a cabinet resolution to increase the maximum price paid for offshore gas from $2.65 a million BTU to $3.95.

Cairo also agreed bilateral deals in 2007 with BP and RWE to pay $4.50 a million BTU for gas from ultra-deep discoveries including the Raven and Satis fields.

Most oil and gas concessions in Egypt are awarded through open international tenders run by one of Cairo's three state-owned oil and gas companies: EGPC, Ganoub el-Wadi Petroleum Company (Ganope) and Egyptian Natural Gas Holding Company (Egas).

Output at Abu Qir has declined since 1993, when it produced 170 million cubic feet a day.

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