By Mohamed Adel
The increased share price of $3 to $4 per million BTUs, negotiated by the government with foreign partners under new natural gas agreements, has been determined in accordance with production costs, according to former Petroleum Minister Osama Kamal.
The price being negotiated by the government with the partner is preferable for Egypt than importing gas at a rate that ranges between $15-17 per million BTUs, he added.
Kamal pointed out that negotiations continue between the ministry and foreign partners, but no decision has been made yet, noting that a price adjustment is very important for partners and will allow them to bear the debts owed by the Egyptian government, according to Kamal.
The government has not recently adjusted the price of gas for partners’ shares, and natural gas production rates in Egypt will continue to decrease due to a lack of field development and the addition of new wells to production.
If the gas price is adjusted, the partner will add 2m cubic feet per day to production during the six months of the price agreement by executing research and development operations that have recently slowed, according to Kamal.
The stable gas price that the government has obtained from foreign partners for 14 years alongside an increase research, exploration, production, and development costs has led to a lack of economic feasibility. This has crippled Shell Egypt in terms of natural gas production ventures according to Shell Egypt Chairman Jeroen Regtien.
“Shell will not be able to continue exploring and developing gas fields under current prices,” said Regtien.
He pointed out that there are three factors that negatively affect foreign partners of the Egyptian government. The first is the price of gas, the second, the partner’s share in production sharing, and third, recuperating company expenditures.
He stressed that if the share remains stable and expense recuperation continues to be an obstacle, the government must adjust the price of gas for foreign partners very soon.
Regtien added that Egypt enjoys numerous sources of gas and oil production on its soil, but that it is becoming increasingly difficult for investors to begin operations. Partners are engaged in ongoing discussions with the government regarding investment in the sector, but costs have continued to skyrocket over the past few years, he added.
Investment in Egypt is contingent upon the opportunities available and the nation’s competitiveness compared to other countries, and Egypt’s economic situation continues to confront difficult circumstances, according to Regtien. He expressed his hope that stability will be achieved in the near future.
According to Medhat Youssef, former vice president of the Egyptian General Petroleum Company (EGPC), foreign partners bear all the risks of research and excavation, so the government must consider re-pricing gas in new agreements, as increasing the price of a share of natural gas that Egypt receives from the partner is preferable to importing it.
Egypt requires approximately $12bn to import gas just to supply power stations over the next four years according to Petroleum Minister Sherif Ismail.
Egypt’s production has decreased noticeably over the past two years, down to 4.65bn cubic feet per day compared to 5.9bn in 2012, according to Youssef.
Youssef pointed out that the Egyptian negotiating team is in a weak position compared to foreign partners and cannot oblige them to carry out the research and development required in light of accumulating debts owed by the Egyptian government, as well as a lack of price adjustments in new agreements.