Energy deals set to charge up Egypt economy

Egypt signed a number of deals with energy companies during its weekend Egypt the Future conference in the Red Sea resort of Sharm El Sheikh.

The agreements were part of attempts to address the country’s worsening energy crisis, which has been a major drag on the economy as well as a source of political unrest.

The centrepiece was the formal signing of a previously announced US$12 billion deal with BP to develop 5 trillion cubic feet of gas resources and 55 million barrels of condensate in the North Alexandria and West Mediterranean Deep Water areas in the West Nile Delta.

The deal represents the largest foreign direct investment in Egypt to date, according to a statement issued by BP chief executive Bob Dudley.

According to a separate BP statement: “The project envisages peak production of 1.2 billion cubic feet of gas a day, equating to a quarter of Egypt’s current gas production,” with the first gas expected in 2017.

The project would double BP’s current level of gas supply to a domestic market that has for years been chronically undersupplied, leading to regular power outages at times of greatest need during the summer heat.

BP also announced it had made another significant gas find in Egypt, in its North Damietta offshore concession, where the company estimated there is more than 5 trillion cubic feet of recoverable gas.

Meanwhile, Italian oil major Eni signed initial documents for a $5bn deal to develop several discoveries in Mediterranean, Western Desert, the Nile Delta and Sinai concessions that the company said would generate 900 million standard cubic feet of gas.

The Future of Egypt summit is targeting $60bn of foreign investment to keep building momentum in the economy, which is forecast to grow 6 per cent a year over the next five years, and to reduce unemployment and the potential for political unrest.

The energy sector particularly has suffered from chronic underinvestment for decades, and was particularly badly hit by the unrest that followed the Arab Spring protests in 2011.

Last summer, power generation stood at only 70 per cent of capacity, and the government ordered cutbacks to various industrial sectors.

In the decade and a half to the end of 2013, Egypt added only about 10,000 megawatts (MW) of power-generating capacity to bring the total to 30,000MW a woefully inadequate level for a population of nearly 90 million, according to the Middle East Institute, a think tank.

Countries with half the population, for example South Africa and South Korea, have capacities of 44,000MW and 80,000MW, respectively.

The sector’s problems have been a significant contributor to unrest over the years. The former prime minister Hisham Qandil angered citizens during a crisis in the summer of 2012 when he advised them to conserve energy by congregating in single rooms and wear cotton clothes. The former president Mohammed Morsi blamed political enemies for cutting power lines to stir up trouble.

The North African country’s demand for electricity is growing by about 12 per cent a year.

In another energy deal at the conference, General Electric said it agreed to sell gas turbines worth $1.7bn, which it estimates will add 10 per cent to the country’s generating capacity.

“It’s one of the largest single power projects for the year globally,” Bloomberg News quoted GE’s head of power and water, Steve Bolze, as saying.

The GE order is for 46 turbines and will provide 2.7 gigawatts of electricity, enough to supply 2.5 million homes.

At current rates of growth, Egypt’s capacity will have to rise to 50 gigawatts by 2025 to meet the country’s needs, GE forecasts.

Last September, Egypt’s electricity and energy department said it also aims to garner 20 per cent of Egypt’s energy from renewable sources, 12 per cent of which would be from wind power.

Yesterday, the German engineering firm Siemens said it had reached a deal with Egypt to build a 4.4GW combined-cycle power plant and install wind power capacity of 2GW.

Siemens said it will build a factory in Egypt to manufacture rotor blades for wind turbines, creating up to 1,000 jobs and therefore nearly trebling the company’s footprint in the country.

Siemens said it also had an initial agreement to build additional combined cycle power plants with a capacity of up to 6.6GW and 10 substations for reliable power supply.

“Egypt has great potential for wind power generation, especially in the Gulf of Suez and the Nile Valley,” said Markus Tacke, the head of Siemens’s wind and renewables unit.

In an effort to secure more investment in its gas sector, Egypt last year began to reach deals with companies including BP, BG and the Sharjah-based Dana Gas, to pay back billions of dollars in arrears that had accumulated during the country’s political crisis.

It agreed an umbrella deal to pay a total of $1.5bn toward the more than $5bn owed.

The Dana Gas chief executive Patrick Allman-Ward said at the Egypt summit that arrears have been reduced from about $300m last October to $185m.

The company has agreed to invest $270m to drill 37 new development wells, which it expects to increase its production by 50 per cent and extend plateau production – expected to reach 250 standard cubic feet a day – by several years.

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