ENI’s announcement of the discovery of a large gas field that could hold around 30 tcf of natural gas off the coast of Egypt puts the Egyptian gas sector on the road to recovery, provided reforms are pursued.
Egyptian gas production peaked in 2010 and has started to decline since, turning Egypt from a gas exporter to a net importer. The discovery, which still needs to be appraised, is a boon for Egypt and its president Abdel Fattah al-Sisi. Gas shortages and frequent power cuts have nurtured political instability over the past few years by amplifying popular discontent and worsening social unrest, which Sisi’s predecessors were unable to contain. Any hope for controlling economic discontent would have to pass by reforming the energy sector. By early 2014, the Egyptian gas sector was making the headlines for a series of crisis and lawsuits. With production unable to keep up with demand, exports dropped cutting revenues and delaying payments for international companies. Containing social discontent inevitably passes by improving economic conditions, and this, in turns, relies largely on the performance of Egypt’s energy sector. After his accession to power in 2014, Sisi made it a priority to boost production and reduce reliance on imports over time, by attracting investments. He initiated a series of reforms, including cutting down subsidies by about a third (with a view to phasing them out completely within five years), reducing Egypt’s debt to foreign companies and introducing pricing reforms. For years, Egypt imposed a ceiling of $2.65 per mmBtu, considered as far too low to motivate new exploration and the development of certain projects. These measures have contributed to restoring confidence in Egypt’s gas sector.