Egypt is close to joining the club of unconventional gas producers after Shell and Apache announced their local joint venture was ready to start work on a pilot project in the Western Desert, involving hydraulic fracturing, by the end of this month.
For Shell, this project represents an expansion of its presence in the gas industry of the North African country, which used to be a net exporter of the fuel before the revolution. It has substantial reserves of gas, including the biggest deposit in the Mediterranean, the Zohr Prospect, and much of these are awaiting development. In other words, Egypt’s gas industry has growth potential that the Anglo-Dutch company has not failed to overlook.
This expansion, which builds on the already solid presence of BG Group in Egypt, is part of Shell’s efforts to maintain its position as a leading global supplier of gas, as stated in its annual report.
And getting at Egypt’s gas through hydraulic fracturing is relatively easy—at least in terms of environmental opposition to the process. Egypt is in no position to block gas development as the nation is energy-starved and in urgent need of new sources of supply.
Shell and Apache together control half of the enterprise that will develop the Western Desert field, which is part of the North East Abu Gharadig oil and gas deposit, the other half in the hands of Egypt’s General Petroleum. Shell is the operator, with a 52 percent interest in their half. Three wells will be drilled at the field by June, when Shell and Apache will discuss the full-scale development of the project with the Egyptian government.
A Wood Mackenzie report last year noted Shell’s focus on gas, especially on LNG, as a major growth driver for the company. Now, after the acquisition of BG Group, itself with a solid gas portfolio, the Anglo-Dutch firm has practically become the largest player in the global LNG field.
Over the near-term, this might not be a reason to cheer, given the bearish gas market at the moment; but over the medium- and long-term, a focus on gas may well prove to the be the smartest move. According to the International Energy Agency (IEA), global gas demand will continue to climb over the next five years, albeit not at a terribly significant rate. Growth drivers will be markets in Latin America, the Middle East, and Africa, where demand currently outstrips supply.
With its gas portfolio and this latest addition to its gas operations, Shell is among the companies in a very good position to benefit from this demand growth.
But then again, Egypt is not the most stable environment to work in, and security concerns are mounting. In August 2014, an American employee of Apache Corp. was killed in an apparent carjacking in the Western Desert. While this particular type of incident was a one-off, energy security experts see a growing problem with everything from militant bombings to organized crime.
According to University of Oxford energy expert Justin Dargin, “the chaos following Mubarak’s ouster has caused terror attacks aimed at the energy sector—especially of the natural gas sector—to increase dramatically.”
With exception to the Sinai, however, militant attacks far have been focused largely on urban centers and security forces, and not really on oil and gas installations. The fear, however, is that eventually oil and gas could become a primary target because of its importance to the future stability of the Egyptian government.
By James Burgess of Oilprice.com