The challenges facing the oil and gas industry in North Africa in the aftermath of the Arab Spring are many, ranging from the impact of the struggles on the relationships between international oil companies and the local NOCs to efforts to identify further much needed resources.
Egypt: Supply and Transport Issues
The power struggle that is smoldering in Egypt at the moment is clearly having knock-on effects on the oil and gas industry in that country.
Although gas production is expected to continue growing, a rise in domestic consumption (the country’s population is already at 80 million) will result in a net decrease in the amount available for export. Oil and gas subsidies have increased ten-fold, from US$875 million in 1999 to US$8.7 billion in 2009, and are unlikely to be removed by any newly elected government clamoring for votes. Although in 2007, Mubarak’s government increased the gas price from some Mediterranean Sea fields from US$2.6 to US$4.5 per MMBTU, around US$7 per MMBTU is the price needed to boost deepwater projects, so a number of projects were put on hold. With more discoveries needed to support the delayed projects, such as the Dammietta LNG Train 2 which was initially planned for 2009, Egypt’s gas price and output is unlikely to change any time soon.
Egypt’s appetite for oil may have increased; however, its production is declining. In 1993/94 the country exported 500,000 bopd, but with no major oil discoveries in 2009/10 (the average size of discoveries is around 20 MMbo) the country passed from being an exporter to an importer, and its slow decline in export is expected to continue.
There are also gas transport issues. The 1,200 kilometer-long, 35” Arab Gas Pipeline (AGP) exporting gas from Egypt to Jordan, Syria and Lebanon is planned to be extended the final 60 km from Homs, Syria to link up with the Syrian and Turkish pipeline network and ultimately on to Europe. However, the unrest in Syria is expected to delay the supply from reaching the European market in the immediate future. Egypt has been selling its gas for US$2 per 1,000 cubic feet, less than half the market price, although negotiations to increase this to $6 have started with Jordan. And with recent major discoveries having been made in Israel and Cyprus, competition for gas markets in the region is likely to increase.
Egypt provides around 40% of Israel’s gas imports through the Arish-Ashkelon pipeline. This has created a sensitive issue, with acts of sabotage halting exports for extended periods and general disapproval within the country. EMG and EGPC/EGAS have submitted a dispute for international arbitration whereby former Oil Minister, Sameh Fahmy, and five ex-officials are under investigation because of agreements to sell gas to Israel.
Although there has been no major impact on the international oil company’s relationships with Egypt’s NOCs, it is hoped that the departure of Sameh Fahmy and other long-serving managers at the top of the oil and gas sector within Egypt will create more transparency within the industry. For example, the new oil minister has proposed merging EGPC (Egypt General Petroleum Company) and EGAS (Egyptian Natural Gas Company) under one roof in the hope of decreasing bureaucracy for the IOCs. However, bid round processes and decision-making slowed down whilst the country awaited the election of a new government and the closing date has been extended to give IOCs more time for bidding. Ultimately, Egypt needs foreign investments, and efforts are being made to speed up the process.
There are still potential resources to be explored in Egypt. Onshore, there are the deep Jurassic and possibly Paleozoic resources in the Western Desert, while offshore exploration continues in the Ultra Deep Nile Delta. In addition, potential offshore resources exist in the Levant Basin and the Red Sea. No significant shale gas potential has been discovered so far, although more studies are needed.
Libya: Security Major Concern
Post-Gadhafi Libya is a small gas producer relative to its neighbors, Algeria and Egypt, despite its ambitions. Its only pipeline for export is ‘Greenstream’, jointly owned by Eni North Africa and the Libyan NOC, which goes from the Libyan coast to Sicily (see map on page 64).
Unlike Egypt, Libya has suffered a full-scale war, so its issues are more logistical than political. Security is still a big concern – the Greenstream pipeline was stopped for eight months until operations resumed in November 2011 – and it continues to keep expatriate workers away. At the moment, there appears to be two possible scenarios that could play out within the country. The most likely (and favorable) scenario has fighters in the new army and police of Libya involved in the industry and the oil revenue fairly managed and distributed. A less likely (and worst case) scenario would be civil war breaking out in the country, with tribes fighting for power.
Before production can be resumed, the facilities need to be re-established. For example, the personnel camps need to be rebuilt, along with their telephone and Internet connections, and secure transport for expatriates to field locations also needs to be set up, as the old 4x4s, vital for moving around the desert, were all either confiscated by the rebels or destroyed by Gadhafi’s army.
Previously, Libyan bid rounds were set essentially through competitive bidding for blocks every couple of years. Awards were based on getting the best financial deal for Libya whilst giving opportunities to worldwide IOCs, whose take was about 10%. It is unlikely that there will be changes in the terms of the agreements already signed by IOCs, because it will be against Libya’s interest, which will upset the Libyan people. However, for the next round Libya may improve the terms, with lower bonuses and more stakes for IOCs in areas where drilling operations were unsuccessful, such as South Murzuq, Kufra, East Sirte, Gulf of Sirte and Cyrenaica.
Libya’s shale gas potential resources are estimated at 1,145 Tcfg risked in place (290 Tcfg technically recoverable). There are potential onshore opportunities within the East Sirte Deep Gas Paleozoic play and offshore in the Pelagian Basin, the Gulf of Sirte and the Cyrenaica Basin.
Tunisia: Little Impact on Oil Industry
Tunisia, the birthplace of the Arab Spring during December 2010, has suffered heavily from the unrest. Tourism, which employs more than a million people, has more than halved since the revolution. The country has also suffered from the unrest in Libya, which is a substantial market for and employer of Tunisians.
However, the oil and gas Industry has experienced little impact. Although protesters disrupted production at the Hasdrubal, Franig and Cercina fields, 2011 oil production (70,000 bopd) was only down 10% compared to 2010 and the impact on the relationship with local NOCs is minimal. Fiscal terms that are among the best in Africa have also meant competitive profit margins, even though there are limited hydrocarbon resources in the country.
That being said, there are large unexplored areas in the offshore Pelagian Basin, with drilling expected to commence in 2013, and the complex Sud-Tellian zone has recently (re)attracted majors such as Shell and Repsol. Shale gas is also a possibility, with the Ghadames Basin resource estimated at 61 Tcfg in place, with technically recoverable resources estimated at 18 Tcfg.
Algeria and Morocco: No Significant Unrest
Hydrocarbons represent 60% of Algeria’s income. Fearing an uprising similar to its neighbors’, Algeria’s government successfully initiated a number of reforms to avoid large protests. This meant that, apart from a few limited strikes, there was no significant unrest. The government plans to make changes that will bring more investors into the country and increase the role of the government-owned NOC, Sonatrach, in delayed projects. Correct incentives should attract investors, boosting the economy and hopefully avoiding more social unrest, although a recent corruption scandal involving Sonatrach’s senior executives has added to the bureaucracy of this, delaying the decision-making process on some projects. This, combined with the domestic demand for gas increasing by 5–6% per year (from 988 Bcf in 2009 to an estimated 1.5 Tcf in 2019) may affect their ambitious projects for gas export. So, under pressure, Sonatrach are pushing for IOCs to complete projects.
Algeria needs to find more gas for its multiple export projects. At the moment there are potential resources in lower Paleozoic plays (Infra-Cambrian, Ordovician, Silurian, Devonian) in the Reggane/Tindouf Basin and Mediterranean Offshore. There are also potential resources for shale gas in the Silurian and Frasnian. Sonatrach estimate these resources to be 2,500 Tcfg (using Sonatrach geochemical modeling) although IHS estimates that less than 1,000 Tcfg is recoverable. These resources are located at the marginal zones of the Illizi, Ahnet-Mouydir and Reggane Basins, where the Hot Shale interval is more than 100m thick at a depth of between 1,000 and 3,000m, and displays TOCs over 10%. Potential prospective zones have been identified from preliminary regional mapping. Sonatrach is also drilling its first shale gas well in the Ahnet Basin.
Although there was some unrest in Morocco, it was something of a ‘Quiet Revolution’. King Mohammed VI is still popular and little has changed since the Arab Spring.
Morocco has one of the most attractive petroleum legislations in the world and there has been a revival of exploration in the last five years, revealing resources both offshore (Miocene, Lower Cretaceous, Triassic and Jurasssic ) and onshore (Triassic and Paleozoic). Shale gas resources are also estimated at 108 Tcf risked gas-in-place (18 Tcfg technically recoverable) with Repsol and Anadarko exploring for shale gas in the Paleozoic basins. However, the country still imports about 95% of its energy needs.