Egypt remains a focus of the West’s strategy to find gas supplies to substitute for those that came from Russia following the 24 February 2022 invasion of Ukraine. Its appeal is further enhanced by its key geographical location that gives it enormous influence over vital hydrocarbons transit routes. On top of these considerations, the country also occupies a unique leadership position in the Arab world. It is little wonder, then, that any new hydrocarbons exploration opportunities there excite huge interest from top Western firms, and from their Eastern counterparts tasked with securing their own energy supplies and disrupting the plans of the West.
The latest round of such opportunities come in the form of 12 major gas exploration blocks concentrated in the Mediterranean and the Nile Delta. State-owned Egyptian Natural Gas Holding Company (EGAS) has invited foreign firms to put together investment proposals to explore and develop these five offshore and seven onshore sites with an eye on increasing its hydrocarbons reserves and boosting its output. The blocks are in turn part of the latest concession licenses round which includes 34 oil and gas exploration and development opportunities. Egypt’s proven gas reserves are officially estimated at around 2.2 trillion cubic metres (Tcm), but this is widely regarded as an extremely conservative figure. The geographical focus of the new exploration and development blocks will be away from the Red Sea area, following the shift towards other Egyptian gas assets by Western firms in recent months. U.S. giant Chevron sold its 45% stake in Red Sea Block 1 to focus more on key sites in the Mediterranean. According to global energy analysis firm Wood Mackenzie, the net present value of the remaining East Med sites is US$19 billion.
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Given the enormous influx of investment into Egypt from Western firms since the invasion of Ukraine, it is expected that the majority of the new gas awards will go to its leading firms. It was Chevron again, for instance, that recently won the right to drill three exploratory wells in East Alexandria offshore block. A consortium of Chevron and the U.K.’s Shell BG?Group was awarded the North Samian offshore block and Northwest Atoll offshore block at around the same time. Shell also recently announced plans to begin the development of the tenth phase of Egypt’s Nile Delta offshore West Delta Deep Marine (WDDM) concession in the Mediterranean Sea. In the meantime, BP has said that it will invest US$3.5 billion in the exploration and development of Egypt’s gas fields in the coming three years, with the amount subject to a doubling in size if the exploration activity yields new discoveries. Italy’s ENI – at the vanguard of Europe’s attempts to substitute for sanctioned Russian gas – was given the exploration and development rights to the North Ras El Tin offshore block through its IEOC Egyptian operation. Last year, Eni announced the completion of the Cronos-2 well in the Eastern Mediterranean, which it now estimates to have production capacity of over 150 million standard cubic feet per day. Eni also operates Blocks 2, 3, 8, and 9, and has active interests in Blocks 7 and 11 operated by TotalEnergies. For its part, the French supermajor’s CEO Patrick Pouyanné recently discussed with Badawi the firm’s progress on the Cronos field and strategies to link its production to Egypt’s facilities.
That said, the previous set of awards also featured an oil exploration agreement with Russia’s Lukoil Overseas Egypt Limited to conduct a 3D seismic survey and drill six exploratory wells in the Eastern Desert. The other side of the same region is to become a focus of China’s North Petroleum International Company (NPIC), which announced it has set aside a preliminary US$100 million to acquire new concession contracts or establish partnerships for oil and gas exploration in the Western Desert and offshore areas. The firm has said that it has shifted its attention to these areas as they remain largely untapped, and it has held concession contracts in eastern Egypt for around a decade. Last month, NPIC Chairman Wang Yuetao told Egyptian Minister of Petroleum and Mineral Resources Tarek El-Molla that his company plans to increase investments in Egypt to help ramp up crude oil production. NPIC is a subsidiary of China ZhenHua Oil. It is interesting to note that ZhenHua Oil was the key company tasked by China to work with Russia in their attempts to secure control over Iraq’s oil and gas sector, as analysed in full in my latest book on the new global oil market order. Russia effectively seized control over the oil and gas sector of Iraq’s northern semi-autonomous Kurdistan area in 2017 through US$1.5 billion in financing through forward oil sales, taking an 80% working interest in five potentially major oil blocks in the region, and establishing 60% ownership of the vital Kurdish pipeline through a commitment to invest US$1.8 billion to increase its capacity to one million barrels per day. At the end of 2020/beginning of 2021, China’s ZhenHua Oil used the same playbook in southern Iraq -- signing a US$2 billion five–year prepayment oil supply deal with the Federal Government of Iraq in Baghdad, taking significant interests in several key oil sites, and offering huge investment in infrastructure. It is also apposite to note in this context that on 24 June, Egyptian Minister of Investment and Foreign Trade, Hassan El-Khatib, showcased Egypt’s positive economic transformation and pro-investment reforms during the Egypt-China Business Forum. He highlighted that China’s ‘Belt and Road Initiative’ aligns with Egypt’s ‘Vision 2030’, particularly in areas such as sustainable development, infrastructure modernisation, and industrial growth. He also underlined recent Chinese investments in flagship Egyptian projects, including the energy sector and the Suez Canal Economic Zone.
One of the broader reasons why the West and East are so desperate to win the battle of influence over Egypt is that its geographic positioning means that it controls the major global shipping chokepoint of the Suez Canal, through which around 10% of the world’s oil and liquefied natural gas (LNG) is moved. 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 Sidi Kerir port, west of Alexandria in the Mediterranean Sea. This is a crucial alternative to the Suez Canal for transporting oil from the Persian Gulf to the Mediterranean. The Suez Canal importance to the global energy sector is further boosted by the fact that it is one of the very few major transit points that is not controlled by China. Beijing already has effective control over the Strait of Hormuz through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in my latest book on the new global oil market order. The same deal also gives China a hold over the Bab al-Mandab Strait, through which commodities are shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. This has been achieved as it lies between Yemen (the Houthis having long been supported by Iran) and Djibouti (over which China has also established a stranglehold through debts connected to its multi-generational power-grab project - the ‘Belt and Road Initiative’). Egypt is also the only country in the Eastern Mediterranean gas hotspot region with operational LNG export capacity.
Crucially, as well from a geopolitical perspective, is that Egypt occupies a uniquely influential position in the Arab word more broadly. For decades, it has been seen by the Arab world as the leading proponent of the ‘Pan-Arab’ ideology founded on the idea that enduring strength for the region can only be found in the political, cultural, and socioeconomic unity of Arabs across the different countries that emerged after the two World Wars. The philosophy’s most powerful recent proponent was Egypt’s president from 1954 to 1970, Gamal Nasser. Among the most palpable signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighbouring Israel over the period, and then the 1973/74 oil embargo. By bringing this leader of the Arab world on side, the West had hoped to offset the negative geopolitical impact of losing so many of its former allies to the China-Russia bloc during the presidency of Joe Biden. The apparent loss of long-term ally Saudi Arabia – before its re-emergency as a key U.S. ally in this second presidency of Donald Trump – meant that Egypt was even more important to the West, as it has been regarded as at least as much of a leader in the Arab world as Saudi Arabia has ever been.
By Simon Watkins for Oilprice.com
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