Egypt’s natural gas future: A world class resource will fuel expanded local use and LNG exports

Arab Gas Pipeline, Jordan.

From 2001 to 2004, two international bid rounds were held and 41 discoveries added about 15 tcf of gas and 127 million bbl of condensate to proven reserves. Petroleum Minister Fahmy signed the first two EGAS concession agreements in the Mediterranean Sea during the period, one for the Tina area and one for the Baltim area. Another international bid including 12 exploration blocks in the Nile Delta, North Sinai onshore and Mediterranean Sea closed in July 2006.

Major discoveries during 2003/2004 fiscal year included Kasr-2 which added 1.8 tcf of reserves and three programs that added 1 tcf each—Raven, Tarot, and Kg 45.

Export facilities: Up and running

Exporting natural gas is a cornerstone of Egypt’s oil and gas development strategy, according to Petroleum Minister Fahmy. And gas export operations are off to a fast start. Both the pipeline export of natural gas and LNG exports began almost simultaneously from different locations.

The Arab Natural Gas Transmission Pipeline, a regional system to serve neighboring countries, now extends to Rehab, Jordan and agreements have recently been put in place to expand it to the Syrian-Turkish border, making it possible to market gas to Europe.

At the same time, three LNG trains began shipments within little more than a year. Two or three more LNG trains could be built at either of the existing plants—Damietta or Idku—over the next five years, depending on exploration success, according to Hesham Mekawi, Chairman, BP Egypt.

A final element of the natural gas value chain is natural gas liquids. NGLs extracted at a processing plant provide liquefied petroleum gases (LPG).

A final element of the natural gas value chain is natural gas liquids. NGLs extracted at a processing plant put on stream in 2004 provide liquefied petroleum gases (LPG) and condensate for the local market, propane for export and ethane for the production of ethylene and polyethylene.

In 2003/2004, production of LPG, propane and ethane totaled more than 1 million tons; condensate production was about 1 million bbl.

Already in sixth place

LNG export will be an important driver of Egypt’s economic growth and a reliable source of natural gas for world markets far into the future. The country now has two plants on stream and a vision for aggressive expansion. Within four years after EGAS was established, the country became the 6th largest LNG producer in the world.

Damietta, the largest LNG plant with a design capacity of 7.56 billion cu m/year, was put on stream in December 2004 after a record of only 52 months from inception to first shipment. LNG from Damietta is sent to the Spanish market by Union Fenosa, 80% owner of The Egyptian-Spanish Natural Gas Co. (Segas), which operates the facility; and to Mediterranean and US markets by EGAS, 10% owner of Segas.

Two liquefaction trains of the Idku LNG project east of Alexandria, each with a design capacity of 3.6 million tons/year, were put on stream in 2005. Construction of both trains was completed ahead of schedule, Train 1 by three months and Train 2 by nine months.

Beheira Natural Gas Liquefaction Co. owns the first train, output from which will be taken by Gaz de France under a 20-year agreement. Though output from Train 1 has been sold to Gaz de France, BG Group will purchase from Gaz de France about two cargoes of LNG per month between July 2005 and the end of 2006.

BG Group lifted its first LNG cargo from Idku LNG Train 1 on 29 May 2005, some three months ahead of schedule. This was the first of three pre-commissioning cargoes from Train 1.

Idku Natural Gas Liquefaction Co. owns Train 2, which will supply BG Group with LNG for export to the Lake Charles terminal in the US, and to Italy. For about the first three years of LNG production, BG Group intends to send the entire output to Lake Charles. A portion of Train 2 output will then be supplied to the Brindisi LNG import terminal in Italy which BG Group is developing.

Gas fields in the West Delta Deep Marine area of the Mediterranean will be further developed to feed the Idku LNG complex.

Idku uses the proven Phillips liquefaction technology. Total project cost of Trains 1 and 2 was about $1.9 billion. Project financing of $949 million was secured for Train 1 in April 2004 and $880 million was secured for Train 2 in July 2005. The latter includes $320 million to repay the Train 1 owner for Train 2’s share of the common facilities.

LNG Tanks, Western Desert Gas Complex.

There is sufficient space at the Idku site for four more LNG trains. BG Group, for example, is seeking reserves that would support a third train through its own exploration program and in partnership with third parties, according to the company.

The project’s commercial structure has been designed to allow future expansion without the need to involve all existing partners and it is possible that third parties could supply gas to future trains. The Egyptian LNG Co. owns both the Egyptian LNG site and common facilities. Its sister company, Egyptian Operating Company for Natural Gas Liquefaction Projects (Opco), operates all trains.

EGAS role

EGAS was established in 2001 to realize the Ministry of Petroleum’s strategy to restructure the petroleum sector in Egypt according to the vision of HE the Minister of Petroleum.

With responsibility for all natural gas activities including exploration, production, transmission, distribution, marketing and export, EGAS will:

• Encourage investments in natural gas activities
• Prepare action plans for natural gas industry and related projects
• Develop techno-economic studies for gas projects
• Manage sales gas transmission & distribution systems and coordinate all related activities
• Develop LNG projects on its own or with national and international partners
• Participate in exploration, development and production from gas discoveries
• Develop the natural gas industry database
• Study and define optimum locations for gas projects

A special focus is to apply advanced exploration techniques and concepts in the search for the potential 120 tcf of undiscovered gas reserves thought to exist. EGAS also will work to expand gas export pipelines to link with the European Gas Pipeline system and implement additional LNG trains.

Leveraging opportunity

Success in all this will require a dedication to regional and international cooperation.

EGAS has a number of exploration concessions with international companies in the Mediterranean and in the Nile Delta onshore. In the near future, EGAS will have approximately 25 concession agreements in place.

The latest bid round, including 12 blocks, nine of them offshore and three onshore, has generated great interest among international companies.

The largest LNG plant, Damietta.

There is more than one way to monetize the reserves found. In addition to exports by both pipeline and LNG, the local market has been expanding in the last five years to accommodate new fertilizer manufacturing, petrochemical and methanol plants.

Egypt has extensive infrastructure and a national pipeline grid that is continuously upgraded to accommodate new production. Most important is Egypt’s business expertise, its modern petroleum sector, and its reputation for political stability. Some international companies have been operating in Egypt for more than 40 years.

“We have never been to arbitration, and all our differences with our partners have been amicably resolved.” states EGAS insiders.

Gas Center in Alexandria.

Throughout the entire oil and gas value chain, the Egyptian petroleum sector has been attracting foreign direct investments of $2-3 billion per year. With the current plan to extend the national gas grid as far as Aswan by 2011, there will be opportunities for investments in pipelines and downstream facilities, as well as new opportunities for exploration.

And Egypt’s strategic position makes it possible to serve European, US and even Far East LNG markets at a very competitive cost, he said. The opportunity for more LNG projects exists. There is plenty of room to expand and add many more trains.

Serving domestic markets

Gasco has an important role to play in promoting the utilization of gas in Egypt through its presence at every point of the Egyptian gas chain, said Eng. Ismail Karara, Chairman. The company is owned 70% by EGPC, 15% by Petrojet and 15% by EGAS.

Since its establishment in 1997, the company has been responsible for the management, operation, maintenance, development and upgrading of the national gas grid. A pioneer in transmission, distribution, processing and marketing, Gasco has always been a link between natural gas producers and consumers.

That connection now has extended to consumers in neighboring countries. Gasco supplies gas to the Arab Natural Gas Pipeline and transmits natural gas to the Damietta LNG plant where it is exported to Europe.

Idku LNG plant.

“In political terms, the Arab Natural Gas Pipeline system helps consolidate Arab integration,” said Eng. Karara.

With about 2 million household, commercial and industrial consumers now connected, the plan is to bring that total to 6 million consumers within the coming six years, he said.

Gasco also plays a leading role in gas processing, recovering LPG for local use, an ethane/propane mixture for petrochemical feedstock, and commercial propane for export. As gas processing moved to the forefront of Gasco strategy, the company integrated the operation of the Western Desert Gas complex and the Ameryia LPG recovery plant.

Gasco currently has several projects underway to enhance productivity. One of the projects will boost production of the ethane/propane mix from the Western Desert Gas Complex and Ameryia plant. Scheduled for completion within 30 months at an approximate cost of $200 million, it will almost double production.

Several projects are also in progress to expand the national gas grid. The El Tina-Abu Sultan pipeline will satisfy the demand in Suez, and north of the Gulf of Suez, the Dahshour- Koraimat pipeline will cope with increased demand resulting from expansion of the Koraimat power station. South Valley Pipeline will feed the south of the country, and feasibility studies have been conducted to evaluate a plan to supply natural gas to Sharm El Sheikh and Hurghada.

Using technology

Gasco also operates Egypt’s National Advanced Control Center (NATA) that provides control for the national gas grid. NATA monitors and regulates the gas flow using a sophisticated communication network that collects data from all pipelines, delivery points, distribution centers and consumption stations in each geographic center and sends them through a subsidiary control center to the principal control center.

Conceived by the Ministry of Petroleum, NATA covers a system that includes 150 gas production sites and delivery points and 4,700 km of pipelines with a transmission and distribution capacity of 135 million standard cubic feet per day (MMscfd).

Gasco’s On Line Inspection technology is another part of the diverse effort that maintains the reliability of the gas grid. The technology recently was used to rehabilitate Egypt’s oldest natural gas pipeline.

First installed in 1975 to move gas from the Abu Madi field to a power plant and fertilizer plant at Talkha, the 12-in. 40-km line was not properly coated when installed and large sections had corroded.

Reducing the operating pressure from 70 to 40 bar (atmospheres) would reduce capacity by 65%. Instead a rehab plan was devised to deal with more than 700 defects and faults ranging from superficial to dangerous and return the line to safe operation at 70 bar.

The rehabilitation plan called for the pipe surface at seven sites to be sandblasted, cleaned and recoated. For other defects, the pipe wall was reinforced without shutting down the pipeline system. A patch was welded into the line to repair 16 other defects, again without the need to shut down the line. But to repair some very severe flaws, the line had to be shut down and sections of pipe replaced.

Key international gas partners

In addition to LNG, BG Group’s activities in Egypt span the gas chain from exploration, through development and production, including:

• Operatorship of two gasproducing areas offshore the Nile Delta, the Rosetta Concession and the West Delta Deep Marine (WDDM) Concession
• Production of 345 MMscfd of gas from the Rosetta concession for the domestic market
• Production of gas from the Scarab Saffron fields in WDDM, including 475 MMscfd for the domestic market, and 225 MMscfd for five years through the Damietta LNG plant
• Production of gas from the Simian Sienna fields in WDDM that supplies Idku LNG Train 1 with 565 MMscfd
• Development of the Sapphire field in WDDM to supply Idku LNG Train 2
• A major shareholding in the Idku LNG project
• A shareholding in the Nile Valley Gas Co., which has the distribution franchise for Upper Egypt

BG Group undertakes upstream development and production activities in Egypt through joint operating companies. In the case of Rosetta, this is the Rashid Petroleum Co. (Rashpetco); in the WDDM, it is the Burullus Gas Co. These companies are 50% owned by EGPC. BG Group and its partners in each concession hold the remaining 50%.

With its various partners, BP has, over the past few years, discovered 8 tcf of gas. All of the produced gas is sold into Egypt’s domestic market. BP expects its aggressive exploration strategy to form the foundation for significant LNG business.

In early 2006, Egypt and Greece signed a memo of understanding for oil and gas exploration that also calls for discussing the best economic means to export gas to Greece either through LNG, CNG or pipelines. Greece would become a transit point in moving gas on to Europe. Formation of a joint work group made up of the two countries’ experts will be the first phase of the cooperation.

Greece already has begun to study a plan to transfer CNG to the Greek islands of Crete and Rhodes in cooperation with Egypt. By the end of 2006, the natural gas pipeline between Turkey and Greece will be completed along with a study of a gas pipeline between Greece and Italy.

The two pipelines will enable gas movement from Italy to Turkey and it will play a major role in getting Egyptian natural gas to other new markets.