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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Western Alliance Moves Fast On New Middle East Gas Supplies

  • The U.S. and its European allies have moved fast to replace lost Russian gas supplies.
  • The significance of Egypt in the new global oil and gas market order cannot be underestimated.
  • Chevron, BP, Shell, and Italy’s Eni have acted as the vanguard of Western efforts to secure a big and steady supply of gas from reliable new suppliers.
Egypt LNG

From the moment on 24 February 2022 when Russian troops first moved into Ukraine, liquefied natural gas (LNG) became the key swing energy resource without which the Western response to Russia’s latest act of war would have been as impotent as its response to the annexation of Crimea in 2014. In the decades leading up to 2014, several of Europe’s great powers – especially its de facto leader Germany – had built their economic growth on the foundations of cheap oil and gas supplies from Russia, and they did not want those supplies to end. In order to finally make a stand against further Russian advancement into Europe after it moved into Ukraine, it was clear that the U.S. would have to arrange massive new supplies of energy that could quickly be delivered into Europe to compensate for lost supplies from Russia. LNG, unlike gas or oil delivered through pipelines, does not require years of laying pipelines and building out corollary supportive infrastructure. It also does not require extensive, time-consuming negotiations over complex contracts. Instead, it can be picked up quickly in the spot market and shipped expeditiously to wherever it is required. The way in which the U.S., and its core allies – especially the U.K., France, and Italy – dealt with that immediate crisis, and continue to provide an energy platform through which the Western Alliance can do without oil and gas from Russia and its allies, forms a key part of the new global oil market order, and is analysed in full in my new book of the same name. One of its new core elements is Egypt, with major developments seen in the past week or so.

Related: Hedge Funds Returning To Oil Markets With Most Bullish Wagers

The significance of Egypt in the new global oil market order is fourfold. First, it has big gas reserves. Official estimates dating back to 2021 cite around 1.8 trillion cubic metres, which would make it the third-largest natural gas producer in Africa, following Algeria and Nigeria. However, recent indications from European and US companies active in the country are that these estimates are extremely conservative. As a senior source in the European Union’s (E.U.) energy security complex exclusively told OilPrice.com last week: “The more we [European companies] and our U.S. colleagues drill there, the higher the factor of the underestimates becomes.” Second, Egypt controls the major global shipping chokepoint of the Suez Canal, through which around 10 percent of the world’s oil and LNG is moved. It also controls the vital Suez-Mediterranean (SUMED) Pipeline, which runs from the Ain Sokhna terminal in the Gulf of Suez, near the Red Sea, to Sidi Kerir port, west of Alexandria in the Mediterranean Sea. This is a crucial alternative to the Suez Canal for transporting oil from the Persian Gulf to the Mediterranean. The Suez Canal is one of the very few major transit points that is not controlled by China. Specifically, China already has effective control over the Strait of Hormuz through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and also analysed in full in my new book. The same deal also gives China a hold over the Bab al-Mandab Strait, through which commodities are shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. This has been achieved as it lies between Yemen (the Houthis having long been supported by Iran) and Djibouti (over which China has also established a stranglehold). Third, China wants control over Egypt because, as highlighted above, it is the key transit point from the Bab al-Mandab Strait to the Mediterranean. And fourth, Egypt holds a special place in the Arab world. 

For decades, Egypt was seen by the Arab world as the leading proponent of the ‘Pan-Arab’ ideology that believes enduring strength can only be found in the political, cultural, and socioeconomic unity of Arabs across the different countries that emerged after the two World Wars. The philosophy’s most powerful recent proponent was Egypt’s President from 1954 to 1970, Gamal Nasser. Arguably his ideological successor was Syria’s President from 1971 to 2000, Hafez al-Assad. Among the most palpable signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighbouring Israel over the period, and then the 1973/74 oil embargo, all of which are analysed in full in my new book. By bringing this leader of the Arab world on side, the U.S. hopes to offset – at least in part - the negative geopolitical impact of long-term ally Saudi Arabia having been lost to the China-Russia bloc. Politically and historically, Egypt is at least as much of a leader in the Arab world as Saudi Arabia has ever been. This had not been lost on China, which through its chief ally in the Middle East, Iran, has long been seeking to draw Egypt into its unified power grid concept.

At the forefront of the move of the U.S. and its core allies into Egypt has been a set of companies – the U.S.’s Chevron, the UK’s BP and Shell, and Italy’s Eni - that have acted as the vanguard of their efforts to secure a big and steady supply of gas from reliable new suppliers, following Russia’s 2022 invasion of Ukraine. France’s TotalEnergies has been as significant in this role but has concentrated its efforts so far on the central Middle East, most recently with the strategically critical US$27 billion four-pronged megadeal in Iraq. In the last couple of weeks, though, BP has said it will invest US$3.5 billion in the exploration and development of Egypt’s gas fields in the coming three years. This amount could be doubled if the exploration activity yields new discoveries, according to BP’s chief executive officer, Bernard Looney. The British oil and gas giant intends to drill four new exploratory wells for natural gas in offshore Mediterranean in the fourth quarter of this year, comprising two wells in the Raven field in North Alexandria, and two wells in North King Mariout and Northwest Abu Qir fields. A 3D seismic survey for the North El Tabya area extension in the Mediterranean has also been completed and data processing and evaluation is underway.

This will augment the huge advances of Chevron, which together with its European partner in the site, Eni, earlier this year discovered a potentially huge offshore gas field in its concession area in the Red Sea focused on the Nargis-1 well and is set to drill the first oil and natural gas exploration there in the first half of 2024. This discovery follows the announcement in December 2022 that Chevron had hit at least 99 billion cubic metres of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula. Chevron also now operates the huge Leviathan and Tamar fields in Israel and the Aphrodite project offshore Cyprus. In the same vein, British oil and gas giant Shell is to begin the development of the tenth phase of Egypt’s Nile Delta offshore West Delta Deep Marine (WDDM) concession in the Mediterranean Sea. Shell and its partners have developed the WDDM concession across nine development phases, according to company statements. The concession comprises 17 gas fields, located at water depths ranging from 300 metres to 1,200 metres and spanning approximately 90-120 kilometres from the shore. Underlining the broader energy and political implications of these recent deals, Egypt’s Minister of Petroleum and Mineral Resources, Tarek El-Molla, said: “This is a significant step towards unlocking further hydrocarbon potential in Egypt’s rich Nile Delta region […] We are pleased to strengthen our longstanding partnership with Shell, which plays a crucial role in developing Egypt’s energy resources and supporting the country’s ambition to become a regional energy hub.”

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 13 2023 said:
    While the involvement of Chevron, BP, Shell, and Italy’s Eni in the development of Egypt’s vast gas reserves will benefit the Egyptian economy very significantly in coming years, the amount of gas and LNG that Egypt can export to the EU and the Asia-Pacific region will be limited by rising domestic consumption. The maximum LNG Egypt can export to the EU can’t at best exceed 14 million tons.

    And while Egypt will play a major role in the global gas market for the next decade or two, the West is deluding itself by exaggerating Egypt’s future contribution to the market.

    The EU’s economies have been built since the 1970s on cheap and plentiful Russian piped gas. They have no alternative but to resume importing Russian gas once the Ukraine conflict is settled if they want to rebuild their emaciated economies.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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