(Bloomberg) -- Egypt will stop importing liquefied natural gas in 2018 and may eventually export gas after it starts producing this year at the giant Eni SpA-operated Zohr field off the country’s Mediterranean coast, Oil Minister Tarek El-Molla said.
Zohr’s output will mostly supply the domestic market, and the nation’s two existing gas-liquefaction facilities are large enough to process any available surplus into LNG for international sale in 2019, El-Molla said Tuesday in an interview in Abu Dhabi. If Zohr and other gas fields generate enough supplies, Egypt may consider adding a third LNG-exporting terminal, he said. Israeli gas stocks dropped on the news.
Zohr marks a turning point that would spell an end to the tenders that suppliers from Glencore Plc to Trafigura PTE Ltd. have won in past years. The field will also help ease pressure on the economy of the most populous Arab nation, which has been plagued by a shortage of foreign currency since a 2011 uprising. Egypt currently imports liquefied gas at high costs to meet its energy needs. However, Eni’s discovery of Zohr in August 2015 promises to satisfy much of this local demand and may even transform the country back into a gas supplier in the eastern Mediterranean region.
Development of Zohr shows “all multinationals that we can do extremely well when we talk about giant discoveries -- big projects to be developed and brought on stream in a relatively very short period of time,” El-Molla said.
The country expects Zohr to start producing this year at about 350 million cubic feet a day, he said. The government will issue another tender for LNG in early 2018 to cover needs for the second quarter, and it plans to stop importing the fuel by the end of next year, El-Molla said.
Egypt exported gas until 2014 but had to forego those sales to meet local demand and because sporadic sabotage attacks on its main pipeline in the Sinai Desert throttled shipments. With Zohr expected to begin producing this year, the North African nation targets re-starting exports in 2019. The field has a potential 850 billion cubic meters of gas in place, according to Eni’s website.
The first phase of Zohr’s development is almost finished, with drilling operations of the phase’s wells completed, the oil ministry said in an Oct. 29 statement. Russia’s state-owned producer Rosneft PJSC closed a deal to acquire 30 percent of the field in October. BP Plc bought a 10 percent stake in Zohr last year.
“It shows there’s an international appetite,” El-Molla said. “We want to have our plate full of big and important players.”
Under a law that President Abdel-Fattah El-Sisi signed in August, the government is setting up a regulatory authority that will devise a plan to open Egypt’s gas market to competition. The new law allows private businesses to transport and trade gas using the country’s pipeline network and infrastructure, according to the law as published in Egypt’s Official Gazette.
“The executive regulations of the law will be ratified within the coming days,” El-Molla said.
The law, more than two years in the making, is the government’s latest push to spur investment in the economy. Over the past year, authorities have enacted sweeping reforms, backed by the International Monetary Fund, that have included floating the currency, cutting subsidies and approving legislation to attract foreign currency.
The country has also adopted a flexible gas-pricing formula to encourage investment and boost supply, El-Molla said. Egypt previously paid a fixed price of $2.65 per thousand cubic feet, Paul Welch, chief executive officer of London-based SDX Energy Inc., said in a Nov. 3 interview. SDX is in talks to price the gas it hopes to start producing at the South Disouq field at $4 per thousand cubic feet.
“In the past, we had a fixed price and there was no work at offshore fields,” El-Molla said. “When we started putting in a flexible formula, we have seen more encouraged and interested upstreamers, and hence we have been able to have lots of discoveries.”
(An earlier version of this story corrected the volume of field’s initial production)
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