How Egypt's Declining Natural Gas Production Impacts its Economy and Energy Hub Aspirations

2023-08-07 16:22:00

A gas field off the Egyptian coast

Natural gas production fell 9% year on year in the first 5 months of this year

Cairo – Archyde.com

Posted on: August 07, 2023: 08:22 PM GST Last updated: August 07, 2023: 09:52 PM GST

Figures issued by the Joint Organizations Data Initiative (JODI) showed that natural gas production in Egypt fell to its lowest level in three years during the first five months of 2023, raising questions about the country’s efforts to become a regional energy hub.

Egypt is currently suffering from a shortage of energy at a time when the heat wave has increased the demand for cooling means.

Natural gas production from January to May decreased by 9% year-on-year and 12% compared to the same period in 2021.

Egypt faces a growing demand for gas from its 105 million people, and is seeking to play a role in supplying gas to the region by selling its gas production.

The Egyptian market received support after the Italian company Eni discovered the giant Zohr gas field in 2015, and Cairo began importing natural gas from Israel beginning in 2020.

Since then, however, the number of major discoveries has diminished, and increased supplies from Israel depend on large investments in infrastructure.

The government said last month that the Zohr field’s production was 2.3 billion cubic feet per day, down from 2.7 billion cubic feet per day in 2019.

Analysts and a source in the gas sector said that production was curtailed due to problems related to water leakage in the Zohr field, which has estimated gas reserves of about 30 trillion cubic feet and a production capacity of 3.2 billion cubic feet per day.

“The decrease in production from the field will have a noticeable impact on gas production, as the field provides about 40% of the total gas production in the country,” said Olumid Ajayi, senior analyst of LNG at the London Stock Exchange.

Last week, Eni and the Egyptian government denied any problems with Zohr field production. The government says that well No. 20 is currently being drilled in the Zohr field.

In July, the government announced the launch of a $1.8 billion program to drill wells for natural gas exploration in the Mediterranean Sea and the Nile Delta, and to explore the offshore Narges field, whose reserves are expected to reach about 2.5 trillion cubic feet.

In July, Fitch Ratings cut its forecast for gas production in Egypt in 2023 by 4 percent, after it had previously expected it to rise 1 percent year on year. The agency attributed its decision to low production and high depletion rates in existing fields.

This includes lower production from Western Desert fields, West Delta deep-water fields and onshore fields in the Nile Delta, said Siamak Adibi of FGE Consulting.

The power outages this summer also raised questions about gas supplies, which accounted for 77% of Egypt’s electricity generation in 2022, according to research firm BMI Research.

In 2022, the Egyptian government announced a decision to rationalize the use of electricity so that it could export more gas, but said last month that it would stop exports until the fall to meet domestic demand.

“The rationalization of gas for export, with the increase in demand for electricity and the lack of gas, has led to power outages in Egypt,” said Lerato Munisa, senior energy and renewable energy analyst at BMI.

Electricity Minister Mohamed Shaker told local media in July that the power outages were caused by his ministry receiving less natural gas and fuel oil.

However, Prime Minister Mostafa Madbouly later denied that the lack of natural gas or its exports was a factor in the power outages, and said that more mazout, a carbon-intensive fuel oil used by the government to generate electricity, would be imported.