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oil ministry changes export strategy when he first took over as petroleum minister in 1999, sameh fahmy took a radically new approach to his portfolio. falling oil reserves, he argued, meant the country would have to redirect its priorities towards natural gas production as a source of export revenue. “there is no solution other than to start exporting gas,” fahmy told middle east economic digest (meed) at the time. faced with a seemingly interminable shortage of hard currency, the government is now banking on egypt’s extensive – and still largely untapped – reserves of natural gas as the ticket to future prosperity. but gas requires heavy initial investment, not just in exploration and production, but also in transport and downstream infrastructure. egypt has been a significant oil producer for several decades. though never a major exporter in world terms, the country has met most of its own oil needs from local production, and earned a bit of revenue from exports when global prices have been high. but now, despite new discoveries in the western desert, most of egypt’s oil fields have hit “middle age,” with their output in decline. combined with rising local demand, egypt has found itself a net importer of many oil products, with imports expected to rise further in the years ahead. natural gas, though, is a whole other story. while fields in the nile delta area have been producing small amounts for local consumption since the early 1980s, recent discoveries at offshore, deep-water sites have put egypt on the world map as an up-and-coming producer. geologists had long been aware that a sizeable quantity of gas was sitting idly under egypt’s surface, but little thought had been given to extracting it, given negligible local demand and the lack of a viable export market. the first step in developing the industry was to stimulate local demand. along with developing gas fields, the government embarked on programs to encourage the use of natural gas as a cleaner alternative to gasoline. initially, the idea was to use more gas domestically in order to save the country’s precious oil for export. but since the late 1990s, foreign exchange revenues have fallen, while gas finds have been made at an accelerating rate. the government’s thinking on petroleum, therefore, shifted. when fahmy became minister, natural gas exports became the highest priority for future development. timing and location have worked in egypt’s favor. while egypt’s oil reserves have been falling, so have north sea gas reserves, the major source of gas to the western european market, opening up a host of potential markets directly across the mediterranean. “with the depletion of the north sea, there are very few places european countries can get their natural gas from,” explained ian kelly, vice president mediterranean & middle east for drilling company globalsantafe. europe is, in a sense, a captive market. “most of europe converted to natural gas [as the main source of energy] in the 1960s and 1970s,” kelly said. “it is very difficult to go back.” southern europe has therefore opened up as an enormous potential export market, as has the levant region. but getting the gas on line for export is far from simple. unlike oil, which can be exported in barrels, gas has to be either compressed into liquefied natural gas (lng) or transported through a pipeline. both options require intricate, expensive infrastructure, but once set up are very cheap to run. in a country with current proven gas reserves of 58.5 trillion cubic feet (tcf) and probable reserves in excess of 120 tcf, this is an expense that both the government and investors have been willing to bear, expecting a serious return on investment in the years ahead. “the gas is there, and everyone knows it’s there. but it requires investment, and it takes time to get it out of the ground in commercial quantities,” a cairo-based energy executive said. in fact, the first returns on investment for egypt’s new gas infrastructure are just around the corner. initial exports are due to begin in may, when a gas pipeline to jordan is expected to come on stream. this pipeline will eventually be extended to carry additional gas into lebanon and syria, and possibly further afield. but mediterranean europe – and beyond – is where the greatest export potential lies. it was chiefly with europe in mind, therefore, that fahmy in january announced negotiations with foreign investors for the expansion of gas liquefaction ventures currently under construction at idku and damietta, near alexandria. “the commitment of the egyptian government to gas exports is very clear,” the minister said, adding that new concession blocks would be offered for exploration this year. the european response has been enthusiastic, with british energy group bg, spain’s union fenosa and gaz de france all looking to get into – or stepping up their interest in – the egyptian market. according to fahmy, the industry could attract as much as $20 billion of foreign investment over the coming six years. some analysts predict that, eventually, the industry could bring the country $2 billion per year when fully operational. exports to europe are scheduled to begin with deliveries of lng from the damietta liquefaction plant to spanish power generation plants in 2004. “it will come together in 2004 or 2005, when the supply of gas and the lng infrastructure projects will be matched up,” according to a lawyer who specializes in energy-related issues. additional markets are expected to come on stream between 2005 and 2007. by then, the economy should start to taste the fruits of the nascent industry. european markets are hungry, and egypt can expect long-term benefits. “there will never be a saturation for gas,” according to one energy executive. but will gas exports be enough to make egypt prosperous? with a population reaching 69 million and still growing at nearly 2 percent a year, the answer is a qualified yes. “there are fundamental economic and developmental problems,” the executive said. “but lng will bring dollars, or other hard currency, into the country.”
geoff king
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