Global Energy Review

North Africa plans higher Production

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

Contents

List of Tables

Introduction

North Africa contains three large producers of oil and gas–Algeria, Libya and Egypt–together with a minor gas producer, Tunisia. A fourth country–Morocco–has few reserves of oil or gas but is attempting to discover more.

The three main producers are of particular interest to Europe since they are amongst the closest large oil- and gas-exporting nations to the continent. The EU in particular is keen to increase the trade in hydrocarbons with North Africa in order to reduce its dependence on the Persian Gulf for oil and Russia for supplies of natural gas.

Algeria and Libya have plans to increase their production of crude oil and natural gas liquids (NGL), which could lead to a rise in exports of these liquids to Europe. The principal European interest in North Africa, however, is natural gas. Algeria, Libya and Egypt as well have ambitious plans to raise their gas production. At the same time, there are several proposals for new pipelines and liquefied natural gas (LNG) terminals serving the European mainland.

The problem for Europe, however, is that there is demand for North African gas from other regions, including the Middle East and North America. North Africa, despite its apparently large reserves, may not have sufficient spare gas to meet all of Europe’s future needs.

This report updates a previous GER Report on North Africa, which was published in December 2004.

Oil

North Africa’s main oil producers are Algeria, Libya and Egypt. All three are net exporters, with a total net trade in crude oil and NGL of 3.3 mn bpd in 2006. Tunisia was a net importer in 2006 but has since achieved self-sufficiency following the commissioning of new production late in 2006. Morocco produces virtually no oil and is consequently a net importer.

OET ARCHIVE:

'Energy in North Africa I', Focus Oct07

'Energy in North Africa II', Focus Nov07

Algeria

Algeria is an important producer of oil and gas. In 2006, it accounted for 2.2% of the world’s output of oil and 2.9% of global production of natural gas. Its proven reserves of oil and gas form 0.9% and 2.6%, respectively, of the world total. Algeria is also a member of OPEC. Its oil exports amount to 3.3% of the world’s oil trade, whilst its exports of natural gas constitute 8.6% of global international, trade outside the former Soviet Union. It is the world’s fourth-largest exporter of LNG.

Until recently, Algeria was planning significant increases in its production of both oil and gas. In July 2007, however, the national oil and gas company, Sonatrach, signalled a shift in policy towards conserving its oil reserves and concentrating its efforts instead on raising the production of natural gas.

Crude oil production looks like averaging 1.4 mn bpd during 2007. It had been proposed to raise this to 2.0 mn bpd by 2010, but Sonatrach now says that production is only likely to be in the region of 1.5-1.6 mn bpd by then.

Algeria produces just over 8 bn cfd of natural gas, of which around 6 bn cfd are exported. The Ministry of Energy and Mines has indicated that Algeria plans to raise exports to 8.5 bn cfd by 2010, which would imply production in that year somewhere in the region of 11.0 bn cfd, allowing for some increase in domestic consumption as well.

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Oil Production

Algeria’s decision to lower its crude oil target for 2010 stems largely from a series of delays to existing oil projects, which have led to the commissioning of new projects later than originally expected. The country is now close to its capacity limit of 1.5 mn bpd. Third quarter 2007 output of 1.4 mn bpd leaves Algeria with just 0.1 mn bpd of spare capacity.

In addition to its 1.4 mn bpd output of crude oil, Algeria also produces a further 0.6 mn bpd of gas liquids, composed of 270,000 bpd of LPG and 330,000 bpd of condensate. Some increase in output of both is possible over the next few years as the production of natural gas increases. By 2010, the output of NGL could be in the region of 0.8 mn bpd: a rise of a third over present-day levels.

Algeria’s production of crude oil has risen in recent years. For most of the 1990s and part of the present decade, output averaged 0.8 mn bpd. In 2003, though, production increased by 0,3 mn bpd, or nearly 40%, to just over 1.1 mn bpd. Since then, it has gone up by a further 0.3 mn bpd, or 27%, to 1.4 mn bpd.

New field developments are being commissioned more slowly than originally envisaged. At the same time, its principal field, Hassi Messaoud, is in decline. Hassi Messaoud has remaining reserves of about 4 bn bbl, accounting for nearly one third of the country’s total reserves (see Table 1). It is undergoing a major programme of enhanced oil recovery (EOR), the latest phase of which is the construction of new crude treatment and stabilization facilities as part of an agreement signed with Italy’s Saipem in May 2007.

New discoveries in recent years have reduced Algeria’s reliance on Hassi Messaoud. In 1998, for example, it accounted for 65% of Algeria’s oil reserves, nearly double the proportion today. Algeria’s oil reserves nevertheless remain dominated by older fields. The country’s second-largest field, Hassi R’Mel, is nearly as large as Hassi Messaoud, and the two, between them, constitute 63% of the country’s proven reserves.

New fields were expected to offset the decline from the country’s two largest field-complexes, but delays to some projects are making this difficult. Such delays are expected to continue in some cases. The upstream licensing process has been delayed by a reorganization of the sector. In 2006, a new hydrocarbons law was introduced changing the taxation of foreign upstream investments and requiring Sonatrach to be given a shareholding of at least 51% in any new upstream venture. Under the former hydrocarbons law, Sonatrach’s participation went up to only 30%.

Table 1
Algeria: Oil Profile
2007
Reserves: 12.27 bn bbl
Reserves remaining: 17 years
2006
(th bpd)
Production 2,005
Consumption 260
Net Exports 1,745
Includes NGL
Source: (Reserves) Oil & Gas Journal
(Other) BP Statistical Review of World Energy, 2007

The tax changes have been vigorously resisted by foreign oil companies. They require them to pay an ‘exceptional profits tax’ ranging from 5% to 50%, when the monthly average price of Brent crude goes above $30/bbl. There have been predictions that the new tax will discourage foreign participation in the deep offshore acreage that Algeria wants to develop to ensure future rising levels of production. Sonatrach at present lacks the expertise to develop these frontier areas on its own.

The new hydrocarbons law also changes the supervision of the upstream sector. Regulatory duties were formerly carried out by Sonatrach, but these are now the responsibility of two new bodies, named Alnaft and the Hydrocarbon Regulatory Authority. Alnaft is responsible for organizing upstream licensing rounds and awarding licences. Delays in staffing Alnaft, however, have led to the postponement of the country’s seventh upstream licensing round, which was due to take place earlier in 2007.

One important project affected by the changes in the upstream regime is the El-Merk field, which is being developed by US independent Anadarko Petroleum in partnership with Sonatrach. The field was discovered between 1993 and 1998. Anadarko’s development plan was finally agreed in May 2003 with first oil scheduled for 2008. The four fields making-up El-Merk are scheduled to produce 108,000 bpd of crude oil plus a further 75,000 bpd of LPG and 55,000 bpd of pentanes-plus. El-Merk will also process output from nearby fields, including Hassi Berkine South, and from blocks being developed by ENI and US independent Burlington Resources. Its start-up has been postponed, however, following administrative and other delays and will now not take place until 2010.

Libya

Libya is endowed with considerable reserves of oil (see Table 2) and plans to increase production of both. Libya’s proven oil reserves are estimated to 41.5 bn bbl: sufficient for 62 years’ production at 2006’s level. This should give the country considerable scope to raise its output levels over the next few years. The National Oil Company (NOC) says that it is continuing to add new reserves each year. In 2006, for example, NOC claims to have identified 3.06 bn bbl of new reserves of which 920.8 mn bbl are recoverable.

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Table 2
Libya: Oil Profile
2007
Reserves: 41.46 bn bbl
Reserves remaining: 62 years
2006
(th bpd)
Production 1,835
Consumption 300
Net Exports 1,535
Includes NGL
Source: (Reserves) Oil & Gas Journal
(Production) BP Statistical Review of World Energy, 2007
(Other) GER estimate

Oil production in 2006 was 1.8 mn bpd, of which all but 60,000 bpd was crude oil, according to OET’s Annual Statistical Review of May 2007 (see Table 4.2). Output of crude oil in 2007 is running at 1.7 mn bpd for the year as a whole. Fourth quarter production may be closer to 1.8 mn bpd following OPEC’s decision in September to raise production from 1st November, 2007. That would bring Libya more or less to the limit of its production capacity.

Libya has become a magnet for foreign oil companies since the thaw in relations between the government of Colonel Muammar Qadhafi and governments in the west, and the ending of UN and US trade and investment sanctions in 2004. In the first upstream licensing round after the ending of American sanctions, US companies gained 11 of the 15 contracts then on offer.

More US involvement looks set to follow. ExxonMobil recently announced that it wanted to increase its role there. Like all other US companies, ExxonMobil was forced to leave Libya between 1982 and 1986 after Washington imposed a trade embargo the previous year. The Libyan government has tried to attract more US and other foreign oil companies by improving some of its upstream contract terms.

Libya’s oil sector will require increasing outside investment in order to open-up new upstream areas away from the existing older fields, where output has been in decline–in some cases since the 1970s. Libya’s peak output of 3.3 mn bpd dates from 1970. By the 1990s, it was down to 1.4 mn bpd and only began to rise again during the present decade.

The government plans to raise production to 3 mn bpd by 2010. Output is supposed to pass the 2 mn bpd mark in 2008, but this still leaves a large increase for the following two years. Some recent developments, moreover, have been coming on-stream later than planned, notably ENI’s 150,000 bpd Elephant field. Some Libyan officials concede privately that 2010’s target of 3 mn bpd is unachievable. The line inside NOC is that it cannot be reached until 2012: but even this appears over-optimistic.

The new production is scheduled to come from both new discoveries and EOR at existing fields. The latter include the following:

Field Operator Present Output
(bpd)
Waha Oasis (ConocoPhillips; Hess; Marathon) 350,000
El-Sharara Repsol 200,000
Elephant ENI 150,000
Al-Jurf Total 40,000
Mabruk Total 18,000

Further EOR is expected in fields in the Sirte Basin. The main application, however, is likely to be at the Oasis-operated Waha field, where the aim is to increase output by 250,000 bpd, or 71%, to 600,000 bpd.

Egypt

Egypt’s oil production has been in steady decline since 1993, when it was 945,000 bpd. Last year, output was 678,000 bpd, of which 66,000 bpd were exported. The reserve base suggests there is little scope to reverse this decline, despite an increase reported for the last fiscal year. Even with the latest increase, Egypt still has a reserves:production ratio of only 16:1 (see Table 3).

Table 3
Egypt: Oil Profile
2007
Reserves: 3.97 bn bbl
Reserves remaining: 16 years
2006
(th bpd)
Production 678
Consumption 612
Net Exports 66
Includes NGL
Source: (Reserves) Oil Ministry
(Other) BP Statistical Review of World Energy 2007

Oil Production

The Oil Ministry’s plan is to raise the production of crude oil and condensate by 100,000 bpd by next year, of which 60,000 bpd is to come from the Gulf of Suez and the remainder from the Western Desert. The Ministry plans to achieve the increase largely by speeding-up the development of fields that have already been discovered. Output may very well be increased in the manner described but any increase is unlikely to be more than temporary. Egypt’s oil production is in long term decline.

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Tunisia

Tunisia, like Egypt, has seen its oil production decline in recent years. There has recently been a rise in output, however, thanks both to the discovery of new fields and the application of enhanced oil recovery (EOR) to an existing field, which may allow Tunisia to become a net exporter for a short time.

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Oil Production

Oil production has declined steadily since 1992, when it was 110,000 bpd. By 2006 it had fallen to 70,000 bpd, but early in 2007, it was reported near 100,000 bpd, following the commissioning of the 20,000 bpd Oudna field in late 2006. Further increases were reported by the state-owned Entreprise Tunisienne d’Activités Pétrolières (ETAP) from the Adam field and from the Didon oilfield, where output was reported to have been increased by 13,000 bpd as a result of EOR. By May of this year, national output was estimated by ETAP at 110,000 bpd.

The government is continuing to offer new exploration acreage. Three new exploration licences were awarded in February 2007, all of them to independents in association with ETAP. There are hopes of further discoveries in the Ghadames Basin in the south of the country, which contains the newly-discovered Jenein Nord field, expected on-stream in late 2007. The country’s small reserves, however, suggest that any increase in national output is likely to be temporary (see Table 4).

Table 4
Tunisia: Oil Profile
2007
Reserves: 400 mn bbl
Reserves remaining: 16 years
2006
(th bpd)
Production 70
Consumption 100
Net Exports 30
Includes NGL
Source: (Reserves) Oil & Gas Journal
(Production) ETAP
(Other) GER estimate

Morocco

Morocco attracted foreign interest in oil exploration long before its neighbours. Some leading twentieth century geologists believed that the Sahara contained little or no oil. Moroccan exploration got under way after the establishment of the Bureau de Recherches et de Participations Minières (BRPM) in 1928 and was carried out principally by France’s two main oil companies, Elf and Total, then operating under different names. Production was far from spectacular, reaching a peak of 3,000 bpd in 1963, before dwindling to virtually nothing.

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Oil Production

Morocco’s proven oil reserves are a minuscule 988,000 bbl. Production is similarly tiny at less than 224 bpd, according to the country’s central bank, Bank al-Maghrib (see Table 5). Despite this, there has been some interest in exploration, mainly from small independents.

Table 5
Morocco: Oil Profile
2007
Reserves: 988,000 bbl
Reserves remaining: 12 years
2006
(bpd)
Production 224
Consumption 155,000
Net Exports 155,000
Includes NGL
Source: (Reserves) Oil & Gas Journal
(Production) Bank al-Maghrib
(Other) GER estimate

The main area of interest is the Atlantic continental shelf. Exploration is overseen by the state-owned Office National de Recherches et d’Exploration Pétrolières (Onarep), which replaced BRPM as the body responsible for oil and gas in 1981. Onarep’s terms for offshore exploration were seen as unattractive by many oil companies but early in 2004, Vanco Energy announced plans to drill an offshore block it owns with Onarep and ENI. Shell, too, began exploring off southern Morocco later the same year.

Offshore southern Morocco is seen by many geologists as the most prospective area in the country. This area adjoins the disputed area of Western Sahara. Morocco claims sovereignty over the former Spanish colony, but its title to the territory has been disputed by a political and military group known as the Polisario Front, which established a government-in-exile for the Saharawi Arab Democratic Republic (SADR). One Australian independent, Fusion Oil & Gas, signed a technical co-operation agreement with the SADR in 2003 for an offshore survey. France’s Total and Kerr-McGee of the US, however, signed a similar deal covering offshore Western Sahara with the government of Morocco. In 2007, a small African independent, Kosmos Oil, obtained a concession from the Moroccan government for an offshore field known as Boujdour off Western Sahara. Under a United Nations’ ruling of 2002, Morocco has no right to award upstream contracts in Western Sahara. Until the sovereignty issue is resolved, therefore, the legal status of any production off Western Sahara remains unclear.

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The other place to have attracted attention is the area along the Algerian border. The attention may not in the end have been entirely welcomed by the Moroccan authorities. In 2000, Onarep and the Ministry of Energy announced an enormous find in that area by a small Texas oil company called Lone Star Energy. Government officials claimed ‘undiscovered’ reserves of up to 15 bn boe, more than the proven reserves for the whole of Algeria (see Table 1). The statement was later finessed to a claim that Lone Star had actually discovered 100 mn bbl: still a substantial find by Moroccan standards. Lone Star was taken over by a Saudi Arabian consortium, which then reduced the size of the find to zero by claiming the well was a dry hole. The Lone Star saga was just one in a long line of tall tales dating back to the 1950s of wonder finds in the basin known as Tindouf. It is unlikely to be the last.

Oil Shales

One area of Morocco that does contain oil is Tarfaya in the south-west of the country, where reserves almost certainly do run into billions of barrels. Unfortunately for the Moroccans, these reserves exist in the form of oil shales, from which it is both difficult and costly to extract the liquid oil. The government’s long term ain is to use the shale to fuel a power station at Tarfaya and to use it in other applications such as the production of bitumen, sulphur and cement.

Morocco’s oil shales are beginning to attract the attention of foreign oil companies. Petrobras is to conduct a feasibility study into extracting oil from Moroccan shale deposits. The Brazilian state company already produces small amounts from shale deposits in Brazil.

Coal

As well as oil shales, Morocco has small deposits of coal. Mining declined sharply during the late 1990s. OET’s Annual Statistical Review of 2007 shows no output since 2002, when it was 280,000 tonnes.

Outlook for Oil Production

Oil production from conventional sources is likely to remain small throughout the remainder of the decade, though there may be some offshore output from the south after 2010. Long-standing plans to produce up to 60,000 bpd must be viewed as unrealistic for the foreseeable future.

North African Oil Exports

Three of North Africa’s oil producers–Algeria, Libya and Egypt–are net exporters of oil. Tunisia is more or less self-sufficient, whilst Morocco imports practically all of its oil. Volumes are shown in Table 6.

Table 6
North Africa: Net Oil Trade, 2006
Country Volume
(th bpd)
Algeria 1,745
Libya 1,535
Egypt 66
Tunisia (30)
Morocco (155)
Total 3,161
Includes NGL
Source: BP Statistical Review of World Energy, 2007
Country data

Consumption

Consumption is rising strongly in all five countries and will restrict the amount available for export in future. Tunisia has improved its position in terms of net trade since 2006 (see above) and is likely to require no net imports in 2007, but this state of affairs is unlikely to persist as the country’s ageing fields continue their natural decline. Morocco will remain a net importer despite ambitious plans for its shale oil measures. Egypt will soon become a net importer, leaving only Algeria and Libya as net exporters of oil. Consumption totals are given in Table 7.

Table 7
North Africa: Oil Consumption, 2006
Country Volume
(th bpd)
Algeria 260
Libya 300
Egypt 612
Tunisia 100
Morocco 155
Total 1,427
Includes NGL
Source: BP Statistical Review of World Energy, 2007
Country data

Outlook for Exports

Net exports are expected to rise from their 2006 total of 3.1 mn bpd to 3.4 mn bpd in 2015, thanks to increases from Algeria and Libya. Egypt, Tunisia and Morocco are forecast to be importing collectively some 0.7 mn bpd by then. The export predictions are contained in the composite table for production, consumption and trade, Table 8.

Table 8
North Africa: Oil Production, Consumption & Net Trade, 2006 and 2015
2006 2015 Change
(mn bpd)
Algeria
    Production 2.0 2.5 0.5
    Consumption 0.3 0.4 0.1
    Net Trade 1.7 2.1 0.4
Libya
    Production 1.8 2.5 0.7
    Consumption 0.3 0.5 0.2
    Net Trade 1.5 2.0 0.5
Egypt
    Production 0.7 0.5 (0.2)
    Consumption 0.6 0.9 0.3
    Net Trade 0.1 (0.4) (0.5)
Tunisia
    Production 0.1 0.1 -
    Consumption 0.1 0.2 0.1
    Net Trade - (0.1) (0.1)
Morocco
    Production * 0.1 0.1
    Consumption 0.2 0.3 0.1
    Net Trade (0.2) (0.2) -
Total
    Production 4.6 5.7 1.1
    Consumption 1.5 2.3 0.8
    Net Trade 3.1 3.4 0.3
Includes NGL
* Negligible
Source: (2006) Previous tables; (2015) GER estimate

Natural Gas

All five North African countries produce natural gas, ranging from Algeria, with 8 bn cfd, to Morocco’s tiny 5 mn cfd. Four countries–Algeria, Libya, Egypt and Tunisia–export gas, though only the first three are net exporters. Exports from Algeria, Libya and Egypt looks set to increase over the next decade or so.

Algeria

Gas production is set to rise strongly, led by the export trade. Output is just above 8 bn cfd, giving exports of about 6 bn cfd (see Table 9). The aim is to raise exports by nearly 2.5 bn cfd, or 40%, by 2010. Nearly a third of the increase is earmarked for the US. To enable this to take place, Algeria must add new export capacity to its LNG terminals.

Table 9
Algeria: Gas Profile
2007
Reserves: 161.74 trillion cf
Reserves remaining: 53 years
2006
(bn cfd)
Production 8.2
Consumption 2.3
Net Exports 5.9
Source: (Reserves) Oil & Gas Journal
(Other) BP Statistical Review of World Energy, 2007

Exports

There are also plans to increase export pipeline capacity. Around 60% of Algeria’s gas exports go by pipeline to Europe (see Table 10). Plans to increase exports to Europe appeared to be under threat recently when Sonatrach refused to allow customers in Europe to resell gas bought from Algeria. The EU Commission objected that this contravened competition policy. Sonatrach broke the impasse by agreeing to drop the destination clauses in its contracts.

Table 10
Algeria: Gas Exports, 2006
Mode Destination Volume
(mn cfd)
Pipeline Italy 2,366
Spain 834
Portugal 203
Tunisia 126
Slovenia 43
Total Pipeline 3,571
LNG France 711
Turkey 445
Belgium 324
Italy 290
Spain 271
Great Britain 193
US 47
Greece 44
South Korea 31
Japan 23
India 8
Total LNG 2,387
Pipeline + LNG 5,957
Contract volumes only. Actual deliveries may differ
Totals rounded
Source: BP Statistical Review of World Energy, 2007

Algeria has now agreed to support a 2.3 bn cfd pipeline known as the Trans-Saharan Gas Pipeline (TSGP) designed to supply gas from both Algeria and Nigeria to Europe via Italy from 2015. The total length of TSGP is 2,600 miles and the cost is put at $10 bn, though this is likely to prove an under-estimate. The EU Commission is supporting the scheme, but it is difficult to see how it can be brought into operation by 2015. TSGP also faces competition from plans by ENI to increase capacity on the existing line to Italy and from proposals for a second pipeline–known as Galsi–between Algeria and Italy (see Table 17).

Libya

Libya also has ambitious plans to increase the production of natural gas (see Table 11). NOC recently held its first-ever licensing round solely for gas. Some 35 companies qualified as operators and 21 as investors in the 41 offshore and onshore blocks on offer. The firms come from the US, Europe, Asia and Latin America.

Exports

As part of the plan to increase gas production, Libya is to build a new LNG export terminal at Mellitah, as well as refurbishing its existing one at Marsa al-Brega. There is even a tentative proposal for a third one if sufficient gas can be found. The country’s one export pipeline is also to be increased in capacity. The Greenstream pipeline to Italy is to be expanded by 300 mn cfd, or 38%, to 1.1 bn cfd (see Table 12).

Libya’s gas production is centred on ENI’s West Libya Gas Project. About 57% of the gas is non-associated. There are plans to use more gas domestically, especially in power generation, but neither the export plans nor schemes to use more at home can come into effect until Libya extends its presently inadequate pipeline network. If that were to happen, output could rise by up to 1 bn cfd.

Table 11
Libya: Gas Profile
2007
Reserves: 52.65 trillion cf
Reserves remaining: 100 years
2006
(mn cfd)
Production 1,431
Consumption 610
Net Exports 821
Source: (Reserves) Oil & Gas Journal
(Production) BP Statistical Review of World Energy, 2007
(Other) GER estimate
Table 12
Libya: Gas Exports, 2006
Mode Destination Volume
(mn cfd)
Pipeline Italy 744
Total Pipeline 744
LNG Spain 70
Total LNG 70
Pipeline + LNG 814
Contract volumes only. Actual deliveries may differ
Totals rounded
Source: BP Statistical Review of World Energy, 2007

Egypt

Large and increasing gas reserves have been accompanied in recent years by a rapid rise in production. Output went up by nearly 30% between 2005 and 2006 and has risen nearly four-fold over the past decade. At the same time, Egypt has been revising its reserve estimates upwards. In July 2007, the Oil Ministry announced that proven reserves stood at 72.3 trillion cf: a rise of 9% compared with a year earlier.

Much of the recent addition to reserves has come from either the offshore Mediterranean sector or the Western Desert. Exploration in the Mediterranean has recently been moving into deeper waters. Both areas have attracted a range of foreign companies, which have made a number of important discoveries.

Much of the new gas is earmarked for export, initially as LNG, but also by pipeline once new export pipelines have been built. Egypt began exporting LNG in 2005, with contracted deliveries of 670 mn cfd. Last year, the total had risen by 116% to 1,450 mn cfd.

In September 2007, the Oil Ministry announced that it was studying proposals to build a new export train at the Damietta LNG export terminal. There are also proposals for an additional train at the country’s other LNG export facility, at Idku. Pipeline exports centre on a proposal to supply gas to parts of the Levant.

Latest EstimateDateVolumeReserves Remaining*
Table 13
Egypt: Gas Reserves
(trillion cf) (years)
BP 31.12.06 68.48 43.3
Oil & Gas Journal 1.1.07 58.50 37.0
OET 31.12.06 58.49 37.0
Ministry of Oil 30.6.07 72.30 45.8
* Based on 2006 output of 4.3 bn cfd
Totals rounded
Source: BP Statistical Review of World Energy 2007; Oil & Gas Journal; OET Annual Statistical Review 2007; Egyptian Oil Ministry.

Reserves

Egypt’s proven reserves of natural gas have risen steadily in recent years. BP estimated them at 32.5 trillion cf at the end of 1999. By the end of 2006, the same source gave them as 68.5 trillion cf: a rise of 36.0 trillion cf, or 111%. Some other estimates give different figures (see Table 13), but both the magnitude and the trend are clear. The discrepancies are mainly explainable in terms of the use of different methodologies employed by the various sources in calculating proven reserves. The Oil Ministry’s estimate of 72.3 trillion cf is more recent than those quoted either by BP or the Oil and Gas Journal and is thought by several oil companies operating in Egypt to be a reasonable figure.

Egypt’s gas reserves are found principally in the following areas:

Other areas, however, are being opened-up, including the Upper Nile Valley and the Red Sea. The most prospective areas appear to be the deeper waters of the Mediterranean and the Western Desert. Some of the country’s earlier gas production came from the oilfields of the Gulf of Suez. These are now in decline but discoveries of non-associated gas are expected to exceed the losses of gas produced in association with oil.

Egypt is expected to go on reporting increases in reserves for some years to come. Some industry forecasts predict proven reserve levels of around 80 trillion cf by 2010. By that time, however, many of the most prospective areas should have been explored. It is therefore difficult at present to see from where additions after 2010 might come.

Production

Egypt’s gas production has risen by 290% over the last decade, reaching 4.3 bn cfd in 2006. Further increases are likely over the next five years as foreign investment continues to pour into the upstream gas sector. Amongst the companies recently announcing new projects are the UK’s BG Group, which has earmarked $1 bn to develop and extend existing production from the Nile Delta, where BP and Shell also have acreage.

BG is also drilling offshore in the North East Mediterranean Deepwater concession, where water depths exceed 9,000 feet. Another company active in Egypt’s gas upstream is Germany’s RWE-DEA, which has recently gained a number of new interests. Egypt has also been able to attract other large companies, such as ENI, and a clutch of independents from Europe and North America.

Some foreign companies, though, have claimed that exploration is being hindered by the low prices they receive from the Egyptian General Petroleum Corporation (EGPC) for their gas. Several of them refer in particular to the rising costs of chartering drilling rigs.

The Oil Ministry has set a transfer price of $2.50-2.65 per mn BTU for more than a decade, but companies operating in the Mediterranean say this is too low, particularly for the deep-water areas. Earlier in 2007, BP and RWE-DEA were able to negotiate a sliding-scale from $2.65 to $4.70 per mn BTU according to the depths of the wells drilled.

Discussions are now being held with other foreign gas producers, but the Oil Ministry says that these only involve deep-water acreage. The Ministry insists that the current transfer price is economic for onshore production or that from shallower offshore waters.

The low transfer price is reflected to some extent in the low prices charged to consumers in Egypt. The government recently announced that prices would be increased for some large users, mainly in the electricity, cement, fertilizer and metals industries. The current price to those consumers is $1.25 per mn BTU. Under proposals agreed in August 2007, this will be increased to $2.65 per mn BTU over the next three years.

Table 14
(bn cfd)
Production 4.33
Consumption 2.77
Net Exports 1.56
LNG Exports*
(mn cfd)
Spain 464
US 348
France 222
South Korea 121
Great Britain 93
Japan 77
India 53
Belgium 24
Mexico 15
Taiwan 15
Italy 10
Greece 4
Total 1,448
* Contract volumes only. Actual delivery volumes may differ
Totals rounded
Source: BP Statistical review of World Energy 2007; Cedigaz

Exports

Egypt exported around 1.6 bn cfd during 2006 (see Table 14). The country has two LNG export terminals, which it plans to expand. LNG is exported to 12 countries. The largest customers are Spain and the US. There are also plans to deliver gas to parts of the eastern Mediterranean via a new export pipeline.

In just two years, Egypt has become a major exporter, accounting for 7.1% of world trade. Its production amounts to only 1.6%, whilst its reserves at the beginning of 2007 were the equivalent of just 1.1% of the world total. Of the world’s 13 LNG exporters, Egypt rates eighth.

The country has two export terminals, with a combined capacity of 1.6 bn cfd. This is due to rise to 2.3 bn cfd once a second train is added to the Damietta terminal. The other is located at Idku (see Table 15). Both are located on the Mediterranean. There are longer term plans for a further train at Idku, though the government has yet to give its approval for this. Approval for the Damietta expansion is expected to be given before the end of 2007.

Table 15
Egypt: LNG Export Terminals, 2007
Segas terminal
    Location: Damietta
    Starting date: 2005
    Number of trains: 1
    Capacity: Train I: 667 mn cfd
    Total: 667 mn cfd
    Expansion plans: Approval of Train II expected by end-2007
    Planned capacity: 1,334 mn cfd
Egyptian LNG terminal
    Location: Idku
    Starting date: Train I: 2005
Train II: 2006
    Number of trains: 2
    Capacity: Train I: 480 mn cfd
Train II: 480 mn cfd
Total: 960 mn cfd
    Expansion plans: Third train proposed. Approval not yet granted
    Planned capacity: 1,440 mn cfd
Source: Company reports

Egypt is also planning to export gas to a number of places by pipeline, beginning with Israel in late-2007 or early-2008. After that, there are proposals to deliver gas to other parts of the Levant and even further afield. Exporting to Israel involves the construction of an under-sea pipeline. The scheme is being developed by an Israeli-Egyptian consortium known as East Mediterranean Gas (EMG). The Israel Electric Corporation has a 15-year supply agreement for 165 mn cfd. The gas will fuel power stations in Israel.

Egypt presently supplies Jordan with about 100 mn cfd of gas via a trunkline known as the Arab Gas Pipeline (AGP). There are plans to increase this by 50 mn cfd, but AGP also has plans to export gas beyond Jordan, to Syria and Lebanon. Syria is to receive 100 mn cfd and Lebanon a further 50 mn cfd. Before this can happen, however, the AGP will have to be extended to Syria.

There are long term plans to supply Turkey via the AGP, from where Egyptian gas could even be supplied to Western Europe via one or more of the proposed trunklines to Europe (see ‘Gas and Power’). From time to time, there have been proposals to supply gas by pipeline to Cyprus. Whether Egypt has anything like the volume of gas to fill these new pipelines is another matter.

Egypt’s gas production is set to rise sharply over the next few years, but domestic consumption is increasing strongly as well. This year should see gas production above 5 bn cfd. By 2009, output should have surpassed 6 bn cfd and may be above 7 bn cfd by 2011. Consumption is now around 3 bn cfd and is expected to pass 4 bn cfd by 2010-11. This would limit Egyptian exports to around 3 bn cfd in 2011. Some 2.8 bn cfd of this could be exported as LNG (see Table 15). The remainder could easily be absorbed by Israel and Jordan leaving nothing extra for Syria, Lebanon or any other new pipeline destination.

Hyper-links:

Tunisia

Tunisia produces 270 mn cfd of gas and imports a further 125 mn cfd by pipeline from Algeria (see Table 16). Output has grown over the last decade but appears to have reached a plateau for the time-being.

Around three-quarters of Tunisia’s gas production comes from a single field: the offshore Miskar field, which is operated by BG. Most of the remainder comes from a collection of small fields owned by ETAP, of which Franig is the largest. Much of the current exploration interest in Tunisia appears to be oil rather than gas. Production of gas is unlikely to rise by very much in future.

Table 16
Tunisia: Gas Profile
2007
Reserves: 2.30 trillion cf
Reserves remaining: 100 years
2006
(mn cfd)
Production 270
Consumption 395
Net Exports 125
Source: (Reserves) Oil & Gas Journal
(Production) ETAP
(Other) OET estimate

Morocco

Morocco produces a mere 5 mn cfd of natural gas, though output is rising. This is not nearly sufficient to meet the country’s projected needs and the total is unlikely to rise by very much given Morocco’s minute proven reserves of only 58 bn cfd (see Table 17). As a result, Morocco is studying the feasibility of building an LNG import terminal capable of handling 485 mn cfd by 2013.

Table 17
Morocco: Gas Profile
2007
Reserves: 58 bn cf
Reserves remaining: 32 years
2006
(mn cfd)
Production 5
Consumption 165
Net Exports 160
Source: Country data

North African Outlook for Natural Gas Exports

Algeria, Libya and Egypt all plan substantial increases in their exports of natural gas. This is of particular interest to the EU, which wants to decrease its reliance on its largest supplier, Russia. As a result, the EU Commission is encouraging the building of new pipelines from other areas to Europe, including the Middle East, the Caspian and North Africa (see Table 18). Imports from North Africa are particularly favoured owing to the region’s proximity to the EU and what Brussels regards as North Africa’s greater political instability than some competing regions.

Exports from the region will undoubtedly rise. The forecast presented in Table 19 suggests a rise of 5.1 bn cfd between 2006 and 2015 to 13.1 bn cfd, with the greatest rise coming from Algeria. How much of that 5.1 bn cfd will go to countries belonging to the EU is another matter.

More Gas to EU?

Algeria, Libya and Egypt all plan additional LNG export capacity, which will enable them to supply destinations further afield, including North America and Asia. Egypt also plans to supply about 0.4 bn cfd of the 1.4 bn cfd increase in exports forecast by 2015 to Israel, Jordan, Syria and Lebanon. Of the remaining 1.0 bn cfd of additional exports, some–perhaps a third–may go outside Europe as LNG, leaving the EU with only 0.7 bn cfd more than it imports already.

Of the 4.3 bn cfd that Algeria and Libya are likely to have over and above their 2006 levels, at least 1.0 bn cfd could go outside the EU as LNG. A further 0.6 bn cfd may be required by Tunisia and Morocco, though Morocco could import from outside North Africa if it were to go ahead with its plans to import LNG.

All this leaves the EU with a possible 3.4 bn cfd as a maximum level of additional imports from North Africa by 2015. Given the decline in EU production that has taken place since 2001, this is not necessarily a large total. The EU, Moreover, may find that North Africa has considerably less additional gas than this in future for EU customers, given the increasing competition for new gas supplies worldwide.

OET ARCHIVE:

'Russia pre-empts Iranian and Caspian pipeline plans', Gas & Power Nov07

'Europe struggles to find more gas', Gas & Power Oct07

'Middle East and North Africa take growing share of EU gas market', Focus Aug07

Table 18
EU: Proposed Gas Pipeline Links
Name Route Capacity Source of Gas On-stream
(bn cfd)
North Africa
Galsi Algeria-Italy TBD Algeria TBD
Transmed Algeria-Italy 0.3 (exp) Algeria 2008
0.3 (exp) Algeria 2009
Medgaz I Algeria-Spain 0.7 Algeria 2008
Medgaz II Algeria-Spain 0.8 Algeria 2023
TSGP Nigeria-Algeria-Italy 2.3 Nigeria; Algeria 2015
Greenstream Libya-Italy 0.8 (exp) Libya TBD
Total North Africa 5.2
Iran/Caspian
Nabucco Turkey-Austria 3.0 Iran; Azerbaijan 2010
TAP Turkey-Greece-Italy 1.0 Iran 2010
ITGI Turkey-Greece-Italy 1.0 Azerbaijan 2012
West Balkan Greece-Austria 1.0 Caspian TBD
Total Iran/Caspian 6.0
Other
AGP Egypt-Levant-Europe 1.0 Egypt, Iraq, Saudi Arabia 2008 (to Syria)
Total Other 1.0
Total 12.2
Volumes and dates provisional. TBD = to be decided
(exp) = expansion of existing line
TSGP: Trans-Saharan Gas Pipeline; TAP: Trans-Adriatic Pipeline;
ITGI: Interconnector Turkey-Greece-Italy; AGP: Arab Gas Pipeline
Table 19
North Africa: Natural Gas Production, Consumption & Net Trade, 2006 and 2015
2006 2015 Change
(bn cfd)
Algeria
    Production 8.2 12.0 3.8
    Consumption 2.3 3.0 0.7
    Net Trade 5.9 9.0 3.1
Libya
    Production 1.4 3.0 1.6
    Consumption 0.6 1.0 0.4
    Net Trade 0.8 2.0 1.2
Egypt
    Production 4.3 7.5 3.2
    Consumption 2.8 4.5 1.7
    Net Trade 1.6 3.0 1.4
Tunisia
    Production 0.3 0.3 -
    Consumption 0.4 0.5 0.1
    Net Trade (0.1) (0.2) (0.1)
Morocco
    Production * *
    Consumption 0.2 0.7 0.5
    Net Trade (0.2) (0.7) (0.5)
Total
    Production 14.2 22.8 8.6
    Consumption 6.3 9.7 3.4
    Net Trade 8.0 13.1 5.1
* < 0.1
Source: (2006) Previous tables; (2015) GER estimate

Latest Developments

Egypt

Egypt is considering reversing the flow of one of its pipelines between the Mediterranean and the Red Sea to allow Russian and Caspian crude to be delivered to markets east of Suez via the Red Sea.

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Algeria

OET ARCHIVE LINK: ‘Algeria’s gas plans fall behind schedule’, Gas & Power, Dec 09

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