Recent data has shown a significant decline in the production of the Zohr natural gas field, with an average output of about 2 billion cubic feet per day over the past five months. This is the lowest level since the field’s discovery in 2015, raising increasing concerns about the future of natural gas supplies in Egypt, especially given the heavy reliance on this field to meet growing domestic needs.
The noticeable decline in the amounts of gas discovered at Zohr—representing the largest percentage drop in nine years, with its production reaching about 1.9 billion cubic feet per day over the last five months—has led to a decrease in Egypt’s total natural gas production for the sixth consecutive quarter. The field recently lost production of more than 2 billion cubic meters compared to its output during the same period in 2023, which itself had already decreased from 2022.
The Joint Organizations Data Initiative (JODI)—an international collaboration to improve the availability and reliability of petroleum and natural gas data—reported a significant drop in Egypt’s total natural gas production in 2023 to 59.285 billion cubic meters, compared to 66.96 billion cubic meters in 2022, marking an 11.46% year-on-year decrease.
Optimistic voices suggested potential improvements in Egypt’s gas production by 2024. However, the situation worsened, with total natural gas production in the country falling to 13.429 billion cubic meters in the first quarter of 2024, compared to 15.537 billion cubic meters in the same quarter of 2023.
Ras Al-Hikma Deal and Debts
Despite recent inflows of billions of dollars into Egypt’s treasury from the Ras Al-Hikma deal and the conclusion of an agreement with the IMF for a new loan, the state has only managed to pay about $1.5 billion to foreign oil and gas companies operating in the country, with significant debt still outstanding. Egypt plans to settle 20% of the total debt, amounting to $4.5 billion, by June, according to statements from Presidential Spokesman Mohamed El-Homossani in March. He stated after a meeting attended by Egyptian Prime Minister Mostafa Madbouly that the government had already begun implementing a plan to repay overdue payments to foreign partners involved in petroleum projects in Egypt according to a regular repayment schedule.
In statements made by Hamdy Abdel Aziz, a spokesperson for the Ministry of Petroleum, he confirmed that the Italian company Eni had not withdrawn the Santorini drilling vessel from Egypt’s largest discovered gas field, as was circulated in the media. He clarified that the vessel had been drilling a well in the North East Hapi area of the Mediterranean and had completed its work before moving from the region.
He also emphasized that the drilling program at Zohr Field would resume later in the last quarter of this year according to the planned drilling schedule with Eni, using another drilling rig. He pointed out that development operations at Zohr Field had not stopped, and efforts to intensify development and improve operational efficiency were ongoing.
Reasons for the Decline
Reports from Egyptian and international media indicate that the primary reason for the decline in Zohr Field’s production is a natural phenomenon in all gas fields over time, where reservoir pressure decreases, affecting the amount of gas that can be extracted. Other reports suggest water leaks in the Zohr Field, which could partially explain the production drop.
A source at the Egyptian Ministry of Petroleum, who preferred to remain anonymous, confirmed that the most significant reason for the decline in Zohr Field’s gas production is the mounting debt owed to the Italian company Eni, the field’s developer, which has reached $1.7 billion. The company refuses to continue operations without receiving its dues.
The source indicated that targeted development operations at Zohr Field are currently completely halted. Eni was supposed to correct or redirect two wells in the largest field in Egypt and develop two other wells, Noor 2 and Narges, but the company stopped work due to overdue payments.
The source mentioned that Petroleum Minister Tarek El-Molla did everything possible to persuade the company to resume work, especially given the state’s urgent need to restore production to its previous capacity. However, the company received only $270 million of its dues, leaving about $1.7 billion unpaid. The minister also attempted to convince the company to resume work and split the payments into installments, but his request was rejected.
Gas and Electricity Load Shedding
Engineer Ahmed Youssef Amara, an expert in drilling oil and gas wells who works in Kuwait, emphasized that European countries are currently seeking alternative sources of gas due to the reduced flow of Russian gas into European pipelines due to the Ukrainian crisis. Therefore, some European countries have turned to importing gas from Egypt and other Middle Eastern countries, prompting Egypt to boost its exports to provide alternative sources of foreign currency that have significantly declined in recent years.
Amara told Zawia3 that the state had expected domestic consumption rates to remain constant, allowing it to meet local needs and export the surplus to Europe. However, unexpected heat waves led to unprecedented increases in domestic consumption, resulting in a gas shortage instead of a surplus for export.
He noted that this impact on consumption drove the state to implement electricity load-shedding plans. He stressed that all indicators show that Egypt’s gas production has significantly diminished, adding that the government needs to expedite cooperation with the private sector and remove obstacles for international companies, including timely payment of dues, to restore production to its previous levels.
Declining Energy Sources and Hard Currency
Sayed Khodr, an economic expert and director of the Al-Ghad Center for Strategic and Economic Studies, expressed concern over the impact of the declining production at Zohr Field on the Egyptian economy. He warned that this decline poses significant challenges at multiple levels, requiring proactive solutions and prudent economic policies to address them.
Khodr pointed out that the Zohr Field was a cornerstone of the Egyptian economy, providing a crucial energy source and substantial foreign currency support. However, declining production due to reduced extractable gas quantities hinders Egypt’s ability to meet its local energy needs.
He argued that the rising costs of extracting the remaining gas negatively impact profit margins and put pressure on the public budget. This also leads to a decline in natural gas exports, reducing foreign currency inflows and weakening the balance of payments. Additionally, the gas shortage threatens industries that rely heavily on it, such as fertilizers, electricity, and petrochemicals, leading to higher prices and reduced competitiveness, affecting exports and foreign currency.
Khodr warned that the depletion of gas in the Zohr Field would lead to job losses in the energy sector, particularly with declining exploration and production activities. This would inevitably increase reliance on costly natural gas imports, adding financial burdens and threatening Egypt’s energy security.
The economic expert proposed several proactive measures to address the implications of declining production at Zohr Field, including investing in alternative energy sources like solar and wind energy to reduce dependence on natural gas, implementing programs to enhance energy use efficiency across various sectors to lower demand, intensifying efforts to explore new gas fields to boost reserves, and developing transportation and distribution networks to increase Egypt’s capacity to export surplus gas. He also suggested offering incentives for investors to increase funding in the energy sector, especially in exploration and production, cooperating with neighboring countries for energy exchange and regional integration, and keeping pace with modern technological developments as advancements in extraction and storage technologies reduce costs and increase production rates in Egypt.
Limited Impact and Quintet Dominance
Economic and political researcher Ilhami Al-Mirghani believes that the recent decline in Egypt’s gas production has limited global impact since five major countries dominate the global gas market: the United States, Russia, Iran, China, and Qatar, with Egypt ranking thirteenth. Therefore, its effect on global gas prices is minimal. Generally, there is a global trend of decreasing natural gas prices. He confirmed that this shortage has affected the country, prompting a return to importing gas from Tel Aviv, liquefying it, and then using and re-exporting it.
Regarding the impact of the decline in Zohr Field’s production on foreign investments in Egypt’s energy sector, Al-Mirghani believes it will not be significantly affected. Egypt is rich in natural gas reserves, which attract search and exploration companies regardless of the Zohr Field and its current state. He stressed that Cairo needs to exert more effort in marketing and attracting foreign investment for gas exploration and production under fair contracts that do not infringe on Egypt’s rights and help achieve more natural gas discoveries.
Al-Mirghani told Zawia3 that natural gas has become a primary energy source for public transportation, cars, factories, and power plants. Therefore, Egypt’s shift from exporting to importing gas must impact the economy and the public budget because converting gas-powered units to other energy sources is costly.
International economic and energy consultant Amer Shobaki warned of the risks of mismanagement and lack of investment on Egypt’s energy security, urging long-term strategies to ensure the country’s sustainable energy future.
Shobaki told Zawia3 that there is ambiguity surrounding Zohr Field’s reserve figures. In 2017, a confirmed reserve of 30 trillion cubic feet of gas was announced, but some estimates now suggest the figure may be lower. This discrepancy could indicate gaps in assessment or mismanagement in extraction processes.
Shobaki confirmed that the decline in Zohr Field’s production is due to mismanagement and insufficient investment by Eni. He revealed that the company has focused on profit-making at the expense of sustainable investment, neglecting the drilling of new wells necessary for sustainable production. He mentioned the phenomenon of water mixing with gas in the field, which, if true, could result from injecting large quantities of gas or pressurizing the well with a specific gas to increase short-term production. He warned that these practices could harm the field in the long term.
Shobaki cautioned that the decline in Zohr Field’s production
may negatively impact Egypt’s energy security, leading to power outages and higher energy prices. It could also delay Egypt’s plans to achieve energy self-sufficiency. He called for exploring alternative gas sources, such as other discovered fields in Egypt, to compensate for the decline in Zohr Field’s production. Additionally, he emphasized the need to diversify energy sources away from natural gas and develop nuclear energy projects, such as the Dabaa project, to ensure long-term energy security.
Zohr Field
Zohr Field is the largest natural gas field in Egypt and one of the most significant ongoing natural gas development projects in the country. Discovered in 2015, it represented a significant leap for Egypt’s economy, providing a massive energy source and contributing to its energy security.
The Zohr Field saw rapid development stages, which some believe have caused its gradual production decline since 2022. Production started to increase gradually from December 2017, when initial production reached 350 million cubic feet per day, to 2 billion cubic feet per day by August 2018, after completing the first and second phases, with 10 wells on production and five onshore production facilities units and four offshore pipelines.
According to the Egyptian Ministry of Petroleum, production reached 2.7 billion cubic feet per day by August 2019 during the third phase, with three onshore production facilities units, four new wells, and two offshore pipelines. This is approximately the field’s maximum production capacity. The total investment in developing the field has amounted to about $15.6 billion, highlighting the importance of this project for Egypt.
Cairo has attempted to reduce reliance on energy imports, creating thousands of jobs for Egyptians. The discovery of Zohr Field also encouraged foreign investment in Egypt, enhancing its attractiveness as an investment destination. By late 2018, Egypt transformed from a net importer to a net exporter of gas, thanks to the rapid growth in its gas supplies, supported by the discovery of the largest gas field in the Mediterranean. Egypt’s natural gas exports reached a record level of eight million tons in 2022.
