Egypt Promotes Gas Projects

Oil Not the Only Commodity

Of course, oil is not the only commodity Apache is tapping in Egypt. The firm has sizable natural gas reserves, and as part of the deal to acquire Repsol's interests at Khalda the firm has a 49 percent stake in the Western Desert Pipeline System.

The Khalda group and Shell commenced construction of the 300- kilometer long pipeline in 1997 and first gas production began during the summer of 1999.

Apache's net interest in the project during construction was $145 million, which included two processing plants and the 300-million-cubic-feet-a-day and 16,000 barrels of condensate per day pipeline.

The pipeline runs parallel to the coastline to an LNG facility where the liquids are stripped out. From there the gas is sent into the national grid for consumption in Cairo and the delta region.

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Of course, oil is not the only commodity Apache is tapping in Egypt. The firm has sizable natural gas reserves, and as part of the deal to acquire Repsol's interests at Khalda the firm has a 49 percent stake in the Western Desert Pipeline System.

The Khalda group and Shell commenced construction of the 300- kilometer long pipeline in 1997 and first gas production began during the summer of 1999.

Apache's net interest in the project during construction was $145 million, which included two processing plants and the 300-million-cubic-feet-a-day and 16,000 barrels of condensate per day pipeline.

The pipeline runs parallel to the coastline to an LNG facility where the liquids are stripped out. From there the gas is sent into the national grid for consumption in Cairo and the delta region.

Natural gas has become an important revenue source for companies in Egypt since the government instituted a plan to expand its natural gas markets. About 10 years ago the Egyptian government changed its production sharing agreements so that foreign operators could actually own the natural gas.

"Egypt is trying to encourage the use of compressed natural gas for automobiles to reduce the air pollution in Cairo," said Rodney Eichler, Apache's regional vice president for Egypt. "Also, the government is developing local distribution companies to bring natural gas to cities for industrial use."

Natural gas also is becoming the fuel of choice for electrical power generation; about 85 percent of Egyptian electrical power generation is gas fired.

"That's a lot of growth in demand in just five years," Eichler said. "There are around 50 million people living in the 125-mile region between Cairo and Alexandria, which translates to an enormous potential customer base in the concentrated area."

The most significant natural gas developments in Egypt have been concentrated in the offshore Nile Delta Basin in the Mediterranean Sea, where companies have moved out to water depths up to 1,000 meters. British Gas has been a leader in this effort with a 100 percent success rate at several new field discoveries on its West Delta Deep Marine concession.

To date British Gas has proved up 12 to 15 trillion cubic feet of gas.

The government has announced a strategic move to boost natural gas reserves to bridge the gap from declining oil production, Eichler said.

Three quarters of Egypt's oil production comes from the Gulf of Suez Basin — fields that have been on production for 35 years and, despite efforts to maximize recoveries, are declining.

"Even though operators like Apache have substantially increased production in the Western Desert, it's not enough to make up for the decline from the Gulf of Suez," Eichler said. "Oil production peaked in 1992-93 at about 900,000 barrels of hydrocarbon liquids per day, and today production is in the 700,000-barrel range.

"Consequently, the government is looking at natural gas," he added, "especially the export opportunities of these big finds in the Nile Delta into the European markets via liquefied natural gas or to neighboring countries via land pipelines."

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