Since 2011, political instability and regional insecurity have plagued Egypt’s economy, and the energy sector has not been spared. Until recently a net gas exporter, Egypt turned into a net importer in 2014 after political turmoil plunged the country into continued energy shortages, with domestic demand outstripping supply. In addition, shattered investor confidence and several devaluations of the local currency deterred foreign companies from investing in Egypt.

But Cairo’s fortunes may have turned in August 2015, when Italy’s oil and gas major Eni SpA discovered Zohr, the largest gas field in the Mediterranean ever to be discovered.

Now Eni, as well as UK’s supermajor BP, are betting big on the Egyptian gas exploration and production, and will be making Egypt their top investment destination in the coming years, pouring billions of dollars in their projects there.

Eni plans to invest US$10 billion in Egypt over the next five years, chief executive Claudio Descalzi said at an industry event in Cairo on Tuesday. Egypt will become Eni’s primary investment target in the next two years, the manager added.

BP, for its part, invested more in Egypt than anywhere else last year, CEO Bob Dudley said at the same industry event.

“In 2016-17 we’re investing more money in Egypt than any country in the world, so this is important for us, we have confidence in the government,” Bloomberg quoted Dudley as saying. Related: Total Going On The Offensive

According to Hesham Mekawi, North Africa Regional President, BP, as posted on the website of the Egypt Petroleum Show, “BP’s plan is to invest US$13 billion in Egypt by 2020”.

While in Egypt, the CEOs of the two oil giants also finalized the deal in which Eni sold 10 percent of the Shorouk concession, where the Zohr field is located, to BP. Eni’s Descalzi confirmed that production would begin this year. Zohr has total potential of 850 billion cubic meters of gas in place, the Italian company says.

Both Eni and BP – with decades of presence in Egypt – are now saying that projects involving Egypt’s gas would be their priorities in the short-to-medium term. While Eni is pinning its hopes on the largest gas discovery in the Mediterranean, BP – apart from partnering with Eni at Zohr – has included two West Nile Delta projects in its major plans for projects set to come on stream this year. The two West Nile Delta projects are “expected to develop 5 trillion cubic feet of gas resources and 55 million barrels of condensates from two BP-operated offshore concession blocks”, BP says.

Apart from Eni and BP, Shell also has operations in Egypt.

In the second quarter this year, Shell will begin drilling in the West Delta Deep Marine phase 9B gas field, according to the chairman of state-run Egyptian Natural Gas Holding, Mohamed El Masry.

Shell had stopped drilling activities in the Nile delta in March last year because of delayed payments. But Egypt expects to soon draft a repayment schedule to pay US$3.5 billion in arrears it owes to foreign oil and gas companies, Petroleum Minister Tarek El Molla said earlier this week. Related: Are Oil Markets Ignoring Demand?

So while oil majors are still cautious and not splurging on investments following the downturn, Eni and BP are betting on Egyptian gas, and they have financial reasons to do so.

According to Adam Pollard, an upstream analyst at Wood Mackenzie, who spoke to the Financial Times in December last year: “Egypt it is different, because the gas price for newer contracts is relatively high and you are insulated because there is a price floor and a ready market. EGAS [the state gas company] is willing to negotiate the price to encourage investment, meaning that Egypt is bucking the global trend of reduced spending.”

According to a report by the International Monetary Fund (IMF) from January this year, the new fields discovered and developed in the Nile delta and in the Mediterranean will help Egypt to increase its gas output from around 4 billion cubic feet per day now to 7.7 billion cubic feet per day over the next three years. This would exceed the country’s domestic needs – currently at 5.2 billion cubic feet per day – and would offer “an excellent opportunity to save excess quantities for future generations and/or export gas to other countries in the region and elsewhere”.

By Tsvetana Paraskova for Oilprice.com

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