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.
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%.
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.
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.