Natural gas production in Egypt has been in decline, falling from a 2009 peak of 5.8 billion cubic feet per day (Bcf/d) to 3.9 Bcf/d in 2016, based on estimates in BP’s Statistical Review of World Energy. The startup of a number of natural gas development projects located offshore in the eastern Mediterranean Sea near Egypt’s northern coast has significantly altered the outlook for the region’s natural gas markets. Production from these projects could offset the growing need for natural gas imports to meet domestic demand, according to the Egyptian government.
The West Nile Delta, Nooros, Atoll, and Zohr fields were fast-tracked for development by the Egyptian government and have begun production, providing a substantial increase to Egypt’s natural gas supply. The Zohr field’s estimated recoverable natural gas reserves of up to 22 trillion cubic feet (Tcf) would make it the largest natural gas field in the Mediterranean, based on company reports gathered by IHS Markit. The Zohr field is currently producing 1.1 billion cubic feet (Bcf) per day and is expected to increase to 2.7 Bcf per day by the end of 2019.
Natural gas production in Egypt has declined largely as a result of relatively low investment, according to Business Monitor International research. Meanwhile, domestic demand for energy has grown, driven by economic growth, increased natural gas use for power generation, and energy subsidies. With the exception of small declines in 2013 and 2014, natural gas consumption has increased every year since at least 1990, and it is up 19% from 2009, when domestic production peaked.
Faced with growing demand and declining supply, Egypt had to close its liquefied natural gas (LNG) export terminals to divert supply to domestic consumption. Egypt became a net natural gas importer in 2015, and although LNG exports resumed in 2016, Egypt’s net imports of natural gas continued to increase.
Source: U.S. Energy Information Administration, based on 2017 BP Statistical Review of World Energy
The Middle East Economic Survey (MEES) indicated that Egypt will still need to import small volumes of natural gas in the coming years, particularly for the power sector. MEES reported that the state-owned Egyptian Electricity Holding Company (EEHC) awarded contracts that would add 25 gigawatts (GW) to total generation capacity, 70% of which would come from natural gas-fired projects. Three combined-cycle natural gas turbine power plants with a total capacity of 14.4 GW will collectively require as much as 2.0 Bcf/d of natural gas when they become fully operational in 2020.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)