British Petroleum (BP, Financial) is embarking on yet another expansion spree and has signed a $12 billion energy deal with Egypt to develop 5 trillion cubic feet of gas resources and 55 million barrels of condensates in the west Nile delta region. This deal was signed at an International investment conference in the Sharm El-Sheikh resort and raises hopes for Egypt which is going through its worst energy crisis.
Egypt’s energy situation
Egypt is going through a tough energy crisis and apparently has become an importer of energy from once being the top exporter. A rise in population, temperature changes and blow to infrastructure due to frequent terrorist attacks in the country have all together led to a 20% gap between demand and supply of energy. As much as 6 power cuts a day lasting up to 2 hours per power cut has led to widespread frustration among civilians alike.
Despite being the largest non-OPEC oil producer in Africa and second largest dry natural gas producer in the continent, Egypt is facing a tough time in meeting the energy demands of the country. In fact, Egypt is now looking for foreign investors who could help to overcome the situation. The ballooning population has led to a 3% increase in oil consumption over the past 3 years, and since 2010 the situation has further worsened. As a result, Egypt needs to import petroleum to make up for the net short fall.
The country serves as a chief transit route for oil ship through Persian Gulf to Europe and U.S., but due to decreased output that is well below its normal production capacity it has to eye for partners to meet the lingering energy demand.
BP’s viewpoint
BP believes that energy challenge would be the top concern globally with an increase in population and technology that demands higher use of energy. Despite climatic policies and shifting to energy-saving equipment worldwide, the figures are going to be as high as 41% between 2012 and 2035 for energy demand. BP proposes a lower carbon economy which will not only reduce threat to environment but will also ensure national and global security.
What the deal offers
West Nile Delta, being the first operated project of BP in Egypt, has assured coverage to 5 fields in North Alexandria and West Mediterranean deep water concessions. The new infrastructure put together by BP will connect the previously running 21 wells to the newly built ones. They’ll focus on gas and condensate in the Giza, Fayoum, Raven, Taurus and Libra fields situated between 65 and 85 kilometers offshore, into 750-meter waters. Not only will WND meet the increased gas demand in the country by contributing to the national gas grid, but will also create humongous job opportunities for thousands of people during its construction phase.
On the second day of the Egypt Economic Development conference, BP signed a $12 billion deal with Egypt spun over 4 years, and this has been termed the biggest single foreign investment in Egypt’s history. This deal is one among several deals Egypt signed with other companies to get out of the current deteriorating situation in the country.
As per the deed, BP will develop 5 trillion cubic feet (TCF) of gas resources and 55 million barrels (MMBBLS) of condensates within an estimated investment of $12 billion in Egypt. Production from WND is expected to reach up to 1.2 billion cubic feet a day (BCF/D) equivalent to about 25% of Egypt’s current gas production. BP intends to fulfill the country’s daily local demand for energy through this deal. Production is expected to take off by 2017. BP plans to produce gas from their two offshore concession blocks vis-a-vis North Alexandria and West Mediterranean Deep Water.
Presently BP, ENI (E, Financial), Bunge (BG, Financial) and Apache (APA, Financial) are the major oil and gas players in Egypt.
BPs position in Egyptian market
BP has investment relations with Egypt over the past 50 years. So far, BP has invested more than $25 billion in the country becoming one of its largest foreign direct investors. BP has over 500 employees in Egypt currently. It has witnessed the first revolution in Egypt and now is contributing actively to their second revolution through this deal. BP has also contributed socially in Egypt’s history by offering scholarships to more than 170 meritorious students and by being an active supporter of several local non-governmental organizations and staff volunteers in Egypt’s state schools.
The WND deal will help further in BP’s expansion by adding 5-7 TCF which will subsequently boost WND production. If everything goes as per the set plan, BP expects to double its current gas supply in Egyptian market within a decade. BP is simultaneously also investing in oil operations in the Gulf of Suez (through GUPCO) and gas operations in East Nile Delta (through Pharaonic Petroleum Co.). The company is also looking forward to bring out more employment options in Egyptian market through the above mentioned projects.
Conclusion
BP plans to increase investments in WND and thereby expand its footprint in Egyptian energy market. It is simultaneously running other businesses through several other impressive deals. WND in particular is quite strategic; where BP has 65% equity in the project partnership.
Other oil companies like Exxon Mobile Corporation (XOM, Financial) are also investing hugely in Egypt; however, BP claims to be among the top foreign investors in the country. So, let’s stay tuned and keep an eye how BP carves a niche in Egypt through this billion dollar deal in the coming days.
