Egypt’s oil and gas future has been looking bleak for years, as the impact of the Arab Spring, the emergence of a Muslim Brotherhood government and a military coup by current president Sisi brought the country’s economy to a standstill.

But a much needed reshuffle of the economy, removal of subsidies on food and energy and the “luck” of a giant offshore natural gas discovery, Zohr, have changed the situation dramatically.

After more than a decade of being a major energy importer, Egypt’s upstream and downstream sectors are flourishing as they never have before. The European Union, seen by most analysts as the only viable energy customer available to Egypt, is also showing an increased interest in the ongoing and future upstream oil and gas development projects in the North African nation.

A visit by EU Energy Commissioner Miguel Arias Cañete highlights the interest of Brussels. The EU official already stated that “there is much to gain, in terms of access to new sources of energy and market opportunities, for European and Egyptian citizens and businesses alike".

A new strategic energy partnership between Cairo and Brussels will soon be signed, addressing the options for Cairo to become a major gas supplier to Europe, as the latter is fighting an uphill battle on several fronts to cope with its energy demand and supply.

As Cañete noted, Egypt has become an important gas and electricity hub, able to improve the EU’s energy security situation. On behalf of the Commission, Cañete is expected to sign a memorandum of understanding with the Egyptian government that will last from 2018 to 2022.

According to Egyptian sources, the MOU will entail six priorities, such as further assistance to the development of the oil and gas sector, continued support for electricity sector reforms, and the “development of the energy hub’’. Additional focus will be on renewable energy. Cañete will meet Egypt’s Prime Minister Sherif Ismail, Minister of Electricity and Renewable Energy Mohamed Shaker, and Minister of Petroleum and Mineral Resources Tarek El-Molla. Related: Oil Majors Are Abandoning Venezuela

After years of difficult relations between the EU and Egypt, a thaw seems to have set in. Europe’s criticisms over the perceived military coup by general Sisi, Egypt's human rights record and the power of the Muslim Brotherhood had been a major issue. This now seems to have changed due to several major offshore gas finds in the Mediterranean and the growing cooperation between Cairo, Israel and Cyprus. The discovery and development of the offshore Zohr field, estimated to hold 30Tcf of gas, has been a major factor in the relationship. Not only is Zohr being developed by Italy’s oil and gas major ENI, but other European majors such as Shell and BP also have a stake in the megaproject.

For Egypt, the relationship with the EU is very important. Not only is the EU its only viable gas customer for the coming years, but technology transfer and financing by European partners of the upstream and downstream oil and gas sector, in combination with renewables, is of the utmost importance. A vibrant renewable sector will not only relieve some of the pressure on the domestic energy markets in the country, but also will free up additional volumes of gas and oil to be exported for foreign currency.

For Europe, the Egyptian role in the natural gas sector is important, not only due to the fact that Brussels still wants to increase its security of energy supplies via diversification of sources, but also as a reaction to an exponential decline in European onshore gas production, as the Dutch Groningen gas field is facing a complete shutdown by 2030. Related: What Is A ‘Fair’ Price For Oil?

At the same time, an underlying factor is that Egypt is playing a pivotal stabilizing role in the Eastern Mediterranean, where European Union member Cyprus is facing an increased militarized conflict with its neighbor Turkey, while Israel’s gas supplies are also looking for an outlet option. A combined Egyptian-Cypriot-Israeli export approach to the EU would be the viable and commercially attractive option, while also increasing stability in the region.

In a reaction this weekend, Egypt’s Minister of Petroleum Tarek El Molla already stated that his country aims to boost foreign investment in its oil and gas sector. Targeted investment levels are around $10 billion in the 2018-2019 fiscal year. To support increased oil and gas production the coming years, Molla also stated on April 17 that 10 or 11 oil and gas exploration blocks in the Mediterranean will be auctioned. Most projects will target foreign investment, expected to come from oil and gas majors and new parties such as Russian, Chinese and Arab operators. Egypt aims to increase its gas production from newly discovered fields, which include the mammoth Zohr asset discovered by Italy’s Eni in 2015. New exploration projects will not exclusively take place in the Mediterranean. After the sea-border delineation with Saudi Arabia, increased focus is going to be on offshore Red Sea exploration in the coming years. The prospectivity of the latter region is known but has not been addressed at all until now. International interest and willingness by oil and gas companies to invest again in Egypt is expected to increase this year.

By Cyril Widdershoven for Oilprice.com

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