WORLD: Egypt, the new gas hot spot on the global map of the Western giants
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In the new geopolitical and energy context, Egypt, a country with a strategic geographic location in the hydrocarbon trade, but which also has huge gas reserves, is increasingly tempting for the West, both politically and especially economically. Simon Walkers wrote an analysis in Oil Price that you can read below.
Since Russia invaded Ukraine on February 24, 2022, liquefied natural gas (LNG) has become the main source of emergency power supplies around the globe. This is because it doesn’t take a lot of time and money to build the infrastructure associated with pipeline energy.
Given its growing importance in the smooth functioning of the world’s economies, it has also become a vital political weapon for key buyers and suppliers seeking to best position themselves in the global LNG market from 2022. In this regard, the US has made enormous progress: jumping from zero production before 2016 to becoming the world’s largest LNG exporter in 2023.
Without recoverable gas reserves as large, China has sought to secure its future LNG supplies through forward agreements with major producers around the world, particularly in the Middle East, in addition to what it has signed with Russia.
For the US and its allies, developing new trade links for long-term LNG supplies has been difficult, but Egypt offers a key insight. As a result, new initiatives are being worked on to ensure that the country’s current financial problems do not jeopardize this broader Western energy strategy.
For the West, Egypt is designated as a critical ally in the Middle East and North Africa region for two key reasons – one related to energy and the other to geopolitics. On the energy side, in addition to its modest oil reserves of about 3.3 billion barrels, it has huge gas reserves, conservatively estimated at about 1.8 trillion cubic meters.
It is also the only country in the so-called Eastern Mediterranean gas hot spot with operational LNG export capacity and is therefore ideally positioned to become the most important regional export hub for gas. It is also essential that through its geographical positioning it controls the Suez Canal, through which approximately 10% of the world’s oil and LNG is transported.
It also controls the vital Suez-Mediterranean pipeline, which runs from the Ain Sokhna terminal in the Gulf of Suez, near the Red Sea, to the port of Sidi Kerir, west of Alexandria, in the Mediterranean. This is a crucial alternative to the Suez Canal for transporting hydrocarbons from the Persian Gulf to the Mediterranean Sea.
The importance of the Suez Canal to the global energy sector is further enhanced by the fact that it is one of the few major transit points not controlled by China. Specifically, Beijing already has effective control over the Strait of Hormuz through the Iran-China “25-Year Comprehensive Cooperation Agreement”. The same deal gives China rights to the Bab el-Mandeb Strait, through which goods are transported north through the Red Sea to the Suez Canal before reaching the Mediterranean and then west. That’s because the strait is between Yemen (the Houthis have been supported by Iran for a long time) and Djibouti (a state entered into China’s sphere of influence through its policy – the “Belt and Road Initiative”).
Geopolitically, Egypt holds a unique position in the Middle East and the Arab world. For decades, the Arab world has been seen as the main supporter of the “pan-Arab” ideology, which believes that lasting power can only be found in the political, cultural and socio-economic unity of the Arabs, which emerged after the two wars worldwide.
The philosophy’s strongest recent proponent was Egypt’s president from 1954 to 1970, Gamal Nasser. Among the most tangible signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria between 1958 and 1961, the formation of OPEC in 1960, the series of conflicts with neighboring Israel and then the oil embargo of 1973-74
By bringing this leader of the Arab world to their side, the US and its allies hope to offset the negative geopolitical impact of long-term ally Saudi Arabia, which has been lost to the China-Russia bloc. Politically and historically, Egypt is as much a leader in the Arab world at least as Saudi Arabia was.
Mainly for these two reasons, there has been an avalanche of Western firms doing business in Egypt in recent years, especially after February 24, 2022, when Russia invaded Ukraine. Chevron has been the key US operator in the field from the start, with an announcement in December 2022 that it had found at least 99 billion cubic meters of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometers north of the Sinai Peninsula.
After that came an announcement about the discovery by Italians from Eni of a potentially huge offshore gas field in its concession area in the Red Sea, centered on the Nargis-1 well. This increased its already significant presence in the Eastern Mediterranean by exploiting the massive Leviathan and Tamar fields in Israel and the Aphrodite project off Cyprus.
In July, it was announced that Eni also plans to drill two new wells in the huge Zohr field in the second half of 2025, with investments estimated at $160 million. The news piqued the interest of Western oil companies, particularly Shell and Britain’s BP. Ultima said it would invest US$3.5 billion in the exploration and development of gas fields in Egypt over the next three years. This amount could be doubled if the exploration activity brings new discoveries. Meanwhile, Shell has started development of the tenth phase of the WDDM (West Delta Deep Marine) concession in the Egyptian Mediterranean. This comes after the British firm and its partner developed the previous nine development phases of the WDDM concession, which comprises 17 gas fields. The Shell-led consortium has also agreed to start the 11th phase of the WDDM project.
Ironically, however, this wave of development exacerbated Egypt’s currency problems. The country would owe Eni more than $1.25 billion for costs related to its energy development, according to industry sources. However, the country’s ability to pay has been affected by the severe 60% devaluation of the Egyptian pound since March this year.
But Egypt remains too important to the US and its allies from an energy and geopolitical perspective to let it slide further into economic crisis. The country was allowed in March to extend its $8 billion financial support package with the IMF, and further offers of financial aid from the World Bank and the EU remain open. With these assurances in mind, on September 19, Prime Minister Mostafa Madbouly announced that the country aims to restore normal production at its natural gas fields by next summer.
In this regard, and to further strengthen its position as a key regional energy transportation and trading hub, on September 23, officials from Egypt’s Ministry of Petroleum announced that they are working on ways to accelerate oil field development and production plans together with Eni. Both sides also recently discussed the progress of the Italian company’s fields in the eastern Mediterranean region, including connecting the Cronos gas field in Cyprus to Egyptian facilities on the Mediterranean coast and then re-transporting the gas to foreign markets.
