November 12, 2017

Egypt prepares for oil and gas exploration in Red Sea

High hopes. Gas tanks at the desert road of Suez city north of Cairo. (Reuters)

Cairo - Egypt said it expected to in­vite international oil and gas companies to start exploration in its Red Sea territorial waters during the first half of 2018 after the com­pletion of seismic and geophysical studies.

Petroleum Ministry spokesman Hamdi Abdel Aziz said two com­panies will “most probably finalise their studies early next year. The finalisation of the studies will make us able to invite international com­panies to submit their bids to ex­plore oil and gas.”

The state-run Ganoub El Wadi Pe­troleum Holding Company signed a $750 million contract in July for international companies to conduct seismic and geophysical studies off Egypt’s Red Sea coast for the first time.

American Schlumberger and Brit­ish TGS have reportedly met with officials from international oil and gas companies to sell the findings of their studies on the area.

Egypt and Saudi Arabia signed a maritime boundary demarcation deal in 2014 to define their Red Sea territorial waters in preparation for oil and gas exploration.

“The government could never have invited international compa­nies to conduct studies on poten­tial oil and gas reserves in the area without the deal,” said Salah Hafez, a former vice-president of the Gen­eral Petroleum Corporation, the ex­ecutive arm of the Egyptian Petro­leum Ministry.

“International companies are al­ways afraid that the money they spend on studies such as this will get lost in the event of border dis­putes between countries,” he said.

The maritime boundary demar­cation deal included the contro­versial repatriation of two Red Sea islands to Saudi Arabia, a move that was met with widespread discontent in Egypt over the perceived selling off of its land.

Reports indicate that there are huge gas and oil reserves in the Red Sea area. Abdel Aziz said the ministry expected there would be 8 billion barrels of oil off the Red Sea coast.

Oil experts said this could be just a fraction of what might be discov­ered in the area. In August, an un­named Petroleum Ministry source told al-Watan daily that expected reserves off the Red Sea coast could turn Egypt into a major oil-export­ing country in the next decade, describing the reserves as a “game changer.”

Egypt produces 147 million cubic metres of natural gas daily, which is expected to rise to 176 million cubic metres next year when production goes online from a major Mediter­ranean field discovered in 2015 by Italian state-owned Eni. Egypt con­sumes about 6 billion cubic metres of gas every day.

Egypt produces about 2.4 mil­lion barrels of oil every month. It imports an additional 1 million barrels per month to satisfy domes­tic demand.

A seismic study in 2009 indicated the presence of natural gas in the Red Sea area. In 2013, Saudi state-owned Aramco discovered three oil and two gas fields in the Red Sea region after using a deep-water rig. Work was halted in 2015 because of the cost of exploration and the de­clining price of oil.

With oil prices picking up, energy companies are expected to look to­wards exploration in the region.

“This actually makes us optimis­tic about the prospects of this re­gion in the future,” Hafez said.

There are, however, challenges, not least the cost of deep-water ex­ploration in the Red Sea compared to the Arab Gulf. Depths in the Arab Gulf rarely exceed 100 metres but in the Red Sea they can be ten times deeper.

“The seafloor in the Red Sea is known to be rough and salt deposits are also thick,” said Egyptian ener­gy expert Ibrahim Zahran. “This, in fact, raises the cost of exploration, which can at the end scare oil com­panies away.”