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    Egypt Upstream Gas Production Forecast


    November 18, 2021 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Egypt Upstream Gas Production Forecast

      • 05 Nov 2021
      • Egypt
      • Oil & Gas

      Key View: Having been a net importer of gas since 2014, Egypt returned to status of net exporter again in 2019 and 2021 is expected to be a peak year for production of natural gas in Egypt during our forecast period. Egypt experienced a substantial oversupply of gas in 2020 given the collapse in the spot price for LNG and suppressed demand from the power sector and from industry because of Covid-19.

      Latest Updates
      • We have revised our gas production forecast up to 15%, from 10% previously, due to the delayed upstart of the Raven field and high prices driving gas production for exports.
      • In late April 2021, BP announced that it had started production from the offshore Raven field, the third stage of its major West Nile Delta (WND) development, in the coastal waters of the Mediterranean.
      • BP said in October 2020 it had begun production at the Qattameya field offshore Egypt in the North Damietta concession. The company launched the field through its Pharaonic Petroleum joint venture with EGAS. The field should reach 50mn cubic feet per day with one subsea well tied back to existing infrastructure. Qattameya was discovered in 2017 and is 45 km west of the Ha’py platform, in 108 metres of water. BP tied the field back to the Ha’py and Tuart field via a new 50 km pipeline.
      • In September 2020, Egypt’s Minister of Petroleum and Mineral Resources Tarek al-Molla announced Egypt’s highest ever production of natural gas. Egypt increased its gas production to 7.2bn cubic feet per day, representing a 12.4% increase in the 2019/20 fiscal year. Between 2015 and 2019, Egypt was a net importer of gas through LNG as supply failed to keep pace with demand, with the country only returning to being a net exporter in 2019.
      • In September 2020, petroleum minister al-Molla announced 15 gas wells dug in the southern area of Zohr oil field are already in production. Daily production from the offshore Zohr field exceeds more than 3bn cubic feet and represents 40% of Egypt’s total gas production per day. The field is operated by Belayim Petroleum Company (Petrobel), a 50:50 joint-venture between Eni and state-owned Egyptian General Petroleum Company (EGPC). Petrobel operates the field on behalf of Petroshorouk, which is a joint venture between Eni, Rosneft, BP, Mubadala Petroleum, and EGAS. The Zohr gas field was discovered in August 2015 and was brought on stream in December 2017.
      • Covid-19 had limited impact on Egyptian gas output, which continued to rise throughout 2020, increasing at a y-o-y rate of 9% against 2019. We expect continued growth in 2021, though at a lesser level of 1%. After 2021, we expect gas output to decline through the remainder of our forecast period, reducing at a y-o-y rate of 3%.
      • As of December 2019, Eni's Zohr field has ramped up production to around 3.0bn cubic feet/day, equivalent to around 24bcm annually. The Zohr project was originally brought online in December 2017 with initial production rates of 350mn cubic feet/day. Through the end of 2019, Eni aims to boost Zohr's output further to a plateau of around 33bcm.
      • SDX Energy announced a significant 35% increase in reserves at the South Disouq gas project in Egypt. The company owns 55% of South Disouq, which came online last year with ‘first gas’ achieved in November 2019.
      • In early February 2019, BP reached first gas production from the second stage of its West Nile Delta development offshore Egypt. The Giza and Fayoum development, which includes eight wells, will ramp up to around 4.0bcm through 2019.
      Structural Trends

      In 2021, we see Egypt’s natural gas output increasing at a y-o-y rate of 1% on 2020 output. This will see Egyptian gas production increase from 72.7bcm in 2020 to 73.4bcm in 2021. Egyptian gas output continued to rise in 2020, despite the impact of the Covid-19 pandemic, increasing at a y-o-y rate of 9% on 2019’s 66.6bcm to 72.7bcm in 2020.

      We expect 2021 to be a peak year of gas production for Egypt, however, with output declining from 2022 onwards. We see there being a very minor decline of about 1% y-o-y through to 2023, when we are forecasting gas output to fall to 72.3bcm. This will be followed by a slightly faster y-o-y decline of about 3% between 2024 and 2029. At the close of our forecast period in 2029, we expect Egyptian gas output to stand at 59.7bcm.

      Egypt has a particularly strong project pipeline which will yield positive results over the short term. The subsequent phases of development at the Zohr field provide upside risk to output from 2020, supporting output growth into the mid-2020s. From 2017 to 2020, we expect Egypt's gas output to increase by over 65%.

      Rise In Production From Delayed Raven Field
      Egypt - Gas Production Forecast (2019-2030)

      e/f = Fitch Solutions estimate/forecast. Source: JODI, EIA, Fitch Solutions

      Further Upside From Zohr

      Eni's discovery and successful five-well appraisal programme of the Zohr field also adds considerable upside to the long-term potential gas output. The 840bcm in place gas reserve estimate, despite already being the largest discovery in the Mediterranean, is thought to be somewhat conservative.

      The Zohr development has first priority of all gas projects in Egypt and will be fast tracked after a final investment decision on phase 1 was made in February 2016. A number of wells will be tied back to existing infrastructure in the shallower water of the Nile Delta, though existing facilities would only allow for limited production.

      Eni has now sold 50% of the Zohr gas field for a total of around USD2.9bn. A 30% share was acquired by Rosneft, with BP purchasing 10% and most recently, Mubadala Petroleum also acquiring 10%. As stipulated by Eni, all companies have the option of increasing their share by an additional 5%.

      Given the size of the field, new facilities will need to be built for the field in order to benefit from the full production potential. A larger scale phase two (which could raise production above the 27bcm level) is plausible within our forecast period.

      Unconventional Gas

      In H116, Apache and Shell completed two horizontal wells in the Apollonian tight gas formation in the Western Desert. The three-well pilot programme on the Apollonian field in the Western Desert will cost around USD30-40mn, and could support a 30-well development over the next two to three years. The project was supported through the negotiation of new gas prices. The companies will receive USD4.6/mn BTU for gas from the formation, up from USD2.6/mn BTU. We do not believe that shale output will have a significant impact over the next five years, but the results will give a greater indication of Egypt's unconventional potential and will direct plans for a larger-scale development.

      Shell, Apache and new independent Apex Energy have all successfully bid on new license blocks in the Western Desert, where they will commit a total of USD154mn to exploration. While any new discoveries and production brought online within the desert are likely to be small, particularly in comparison with offshore projects, the area could provide incremental increases in gas production in the future.

      Smaller Upside Onshore

      SDX Energy commenced drilling at its South Disouq high impact exploratory prospect in Q217. The company has since confirmed the size of a new gas discovery, in line with its expectations, with an independent consultant assigning just over 47bn cubic feet of contingent resources. The gas play is thought to be part of the wider Abu-Madi Baltim trend in the Nile Delta region. The company will now look to develop an early production system for the discovery. Onshore operating costs remain very competitive and we expect ongoing interest in smaller gas plays through our forecast period.

      Gas Production (Egypt 2019-2024)
      Indicator 2019 2020e 2021f 2022f 2023f 2024f
      Dry natural gas production, bcm 67.5 61.4 70.6 72.7 72.0 69.8
      Dry natural gas production, bcm, % y-o-y 10.9 -9.0 15.0 3.0 -1.0 -3.1
      Dry natural gas production, % of domestic consumption 116.0 111.1 121.7 121.7 116.9 111.1
      e/f = Fitch Solutions estimate forecast, Source: JODI, EIA, Fitch Solutions
      Gas Production (Egypt 2025-2030)
      Indicator 2025f 2026f 2027f 2028f 2029f 2030f
      Dry natural gas production, bcm 67.6 65.5 63.5 61.5 59.6 57.8
      Dry natural gas production, bcm, % y-o-y -3.1 -3.1 -3.1 -3.1 -3.1 -3.1
      Dry natural gas production, % of domestic consumption 105.5 100.3 95.2 90.5 86.0 81.7
      f = Fitch Solutions forecast, Source: JODI, EIA, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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