Egypt, Iran Are Building Up 30M T/Y In LNG Export Ventures; The US Is Target.

In each of Egypt and Iran, major Western players are building up LNG ventures for 15 million tons/year to reach markets on both sides of Suez within the next five to six years. Both groups are targeting the US as one of their main markets, with each of Egypt and Iran having lined up four different LNG projects.

In terms of proven recoverable reserves of natural gas, Iran is by far the leader in the Middle East as these are the second largest in the world next to the reserves of Russia. But Iran trails far behind Egypt in terms of getting along with Western partners for gas projects to be implemented on time (see following pages).

In Egypt the reserves of natural gas have been discovered and proven at an amazing speed since 1996, with the Nile Delta and its extremely long Mediterranean Sea extension to the north having become a world class gas province. At end-2000, Egyptian Petroleum Minister Sameh Fahmi put the country's proven gas reserves at 51 TCF, compared to some 12 TCF in 1986 when Cairo introduced a gas clause into its concession agreements with international oil firms (IOCs). He said another 69 TCF were probable reserves yet to be discovered.

In 2000, the Egyptian government allocated one third of the proven reserves, 17 TCF, to meet domestic market requirements for 25 years. The second third was reserved for the country's future. The remaining 17 TCF were booked for export. But it was also decided that most of the gas discoveries from 2001 to 2005 will be for export as well.

Geologists at APS Energy Group forecast that, based on the potential of the Plio-Pleistocene formation which extends from the Nile River to areas beyond Egypt's 180-km Economic Zone in the Mediterranean, the country's proven gas reserves would exceed 71 TCF by 2005. So gas reserves to be dedicated for export by then should be more than 35 TCF, with 28 TCF sufficient to feed 24m t/y of LNG for up to 25 years.

The Egyptian petroleum industry has been transformed from oil to gas. With gas production having doubled to about 2,700 MCF/day over the past 15 years, total output of hydrocarbons is higher than it has ever been. A new state holding company for natural gas is being formed to take charge of production, purchasing of gas from IOCs, transport and distribution, which will be transferred to it from the Egyptian General Petroleum Corp. (EGPC).

There are six export projects in Egypt, four for LNG and two for pipeline gas - one offshore to Israel and Turkey and one to Jordan, Syria and Lebanon. The following are profiles of the four LNG ventures, their leaders and their potential markets:

British Petroleum, the biggest oil producer in Egypt and the second biggest gas producer, is leading the first LNG project ever to be conceived in this country. BP is the main investor in Egypt's petroleum sector, in which it has spent more than $9 bn over the past 40 years (the bulk having been invested by Amoco, the biggest oil producer in Egypt which was absorbed by BP in 1999)

BP's partners in this are ENI, the biggest gas producer in Egypt, and EGPC. The $2.5 bn joint venture (JV) is to have two LNG trains built at Damietta port, with each to have a capacity of 4 BCM/year. ENI, like Amoco operating in Egypt since the early 1960s, formally joined the venture on March 1, 2001, when the final commercial framework for plant construction and ownership was agreed. Basic engineering for the plant is being done by ABB group together with the local ENPPI and Petrojet. The JV's financial advisor is Citibank. The first train will be on stream in 2004. The gas feed will be purchased from the state's gas company. The LNG will be purchased by the inhouse gas trading units of BP and ENI, with first deliveries scheduled for 2004. The second train will be built as soon as demand for its output has been developed by the trading units, which will be marketing the gas in Italy, Spain and other Mediterranean markets and on the American continent.

BP has developed inhouse gas marketing points on both sides of Suez. It has gone as far as the Dominican Republic, where it has recently signed a 20-year deal to supply 100 MCF/day of LNG to a unit of US power company AES for its local power generation projects. This is typical of the major's brand sales deals not linked to a specific supply source but to what it says "BP's ability to provide flexible, green and innovative solutions in LNG supply" - as Shell has done and British Gas International (BGI) and others are beginning to do. But BP has a major share in the Atlantic LNG business in Trinidad and Tobago, a rapidly expanding venture with a fourth 4.5m t/y train to be built, which is likely to be the main supplier for this and the rest of the emerging Caribbean market. BP is to build a $200m LNG import terminal in the port of Tampa, Florida, as part of its rapidly growing gas network in the US - where the strength of demand for LNG now is unprecedented and gas prices are high. BP is to take 30% in a 3m t/y LNG import terminal near Shenzhen in southern China, as part of its thrust into the Asian/Pacific markets. In Jan. 2001 BP signed an MoU with the government of Andhra Pradesh, India, to have a stake in an LNG terminal and an IPP at Kakinada. With ENI's gas unit Snam to follow in its footsteps on both sides of Suez, BP is targeting important niche markets for LNG that lack scale but have specific needs. BP is also leading one of Iran's LNG export projects, with the US market to be targeted.

In Egypt's upstream, BP is engaged in a race with BGI and Shell for the rank of second biggest gas producer next to ENI's Agip. Earlier in June 2001, BP announced a gas discovery in Fayyoum L-1x well in the North Alexandria block, 35 km off the Nile Delta, in which the UK major holds 60% and RWE-DEA of Germany has 40%. The well, in 400 metres of water, flowed at 21 MCF/d in the main target zone. A secondary target tested 6 MCF/d. The rig was then moved 45 km to the north-east to drill the Libra-1 well. Fayyoum was the second find on the block, one of several gas-rich tracks operated by BP, after Taurus-1 successfully tested gas in 2000. BP's other drilling off Egypt in 2001 will include a well in the West Mediterranean Deepwater Block.

Union Fenosa, one of the big Spanish power utilities venturing into the gas business, was the first to sign a gas purchase agreement with EGPC in June 2000. This was sealed at a meeting in Madrid between Egyptian President Mubarak and Spanish Premier Jose Maria Aznar. UF's $1.6 bn LNG project is a JV with Egyptian Arab Trading Co. (Eatco), with UF hoping BP or another major will join in as well. This is to have two trains in Damietta each with a capacity of 4 BCM/y. The first train is to be on stream in mid-2004. UF will take the LNG for its power plants, which have a total capacity of 2,400 MW. UF is the first power utility in the world to lead a large-scale LNG business

The foundation stone for the project was laid on June 1, 2001. Two groups are preparing to bid for the EPC contract: Chiyoda Corp. of Japan with Dragados & Construcciones of Spain, and MW Kellogg of the US with Tecnicas Reunidas of Spain. Parallel front-end engineering and design (FEED) studies have been done by Chiyoda and Kellogg. Barclays Capital and Citibank have been competing for the mandate to act as financial advisor.

As part of its Damietta project, UF has chartered two 140,000 cubic metre LNG tankers from Spanish-based ship-owners F. Tapias and Marpetrol-Knutsen. The two ships will be available to UF from mid-2004 under a 25-year contract.

BGI's Idku LNG Project: BGI, which has made the biggest gas discoveries in Egypt since 1996, is to turn Idku (east of Alexandria) into one of five gas hubs it is developing around the world. BGI is also aiming to turn itself into an integrated company delivering gas and power directly to customers. It is targeting attractive markets in southern Europe and the US. But, like BP, it is also leading in one of Iran's LNG export projects targeting markets on both sides of Suez including the US.

BGI signed the final deal for this with EGPC in April 2001. The first of its two to four LNG trains, to cost about $900m, is to be on stream in early 2005 with a capacity of 4 BCF/y. The gas feed will be produced from the super-giant Scarab/Saffron fields on the BGI-operated West Delta Deep Marine Block, which boasts the largest gas finds ever made in Egypt. BGI is developing the fields at a cost of $600m, with its partner being Edison Int'l of Italy which is also its partner in the LNG project together with EGPC, and this will be producing 530 MCF/d from 2003.

BGI also operates the offshore Rosetta field, which came on stream in Jan. 2001 and is building up output to a contracted volume of 275 MCF/d, with its partners in this being Edison, Shell and EGPC. Its output is being processed at a plant in Idku which will also process Scarab/Saffron gas.

The Idku LNG venture is owned 40% by each of BGI and Edison and 20% by EGPC, with the latter equity to be transferred to the planned state gas holding company later this year.

BGI in May 2001 signed a 22-year agreement with CMS Energy Corp., which operates the Lake Charles LNG terminal in Louisiana, to take over the facility. This is the largest LNG terminal in the US. From Jan. 1, 2002 to Aug. 31, 2005, BGI will take 80% of the terminal's capacity, as the remaining 20% had already been contracted out and the entire facility will be handed over on Sept. 1, 2005.

The terminal can receive about 4.6m t/y of LNG, store, vaporise LNG and deliver an average send-out of 630 MCF/d of gas. It has access to 15 major inter-state gas pipelines, with BGI having several options for the use of the terminal including physical trading of LNG cargoes. It will use it own LNG shipping resources. It will sell into the US market its equity LNG produced in Trinidad & Tobago and a major part of its share of Egyptian LNG. (BGI holds 26% in the Atlantic LNG venture, in which BP is also a major partner).

Some experts say BGI paid too much for the use of Lake Charles and that in this deal the British company has assumed that the price of natural gas in the US will remain in the $4.50-5/m BTU range for many years. They doubt that gas prices in the US will remain so high for too long.

BGI, as leader of the Idku LNG project, will develop markets for its part of Idku production in Europe and the Mediterranean as well. Edison Int'l is to market its share of the LNG mainly in Italy, where it is having an offshore terminal off the Po Delta built in partnership with ExxonMobil. It will have a 4-6.3 BCM/y capacity and will be located 12 km off Porto Levante in the province of Rovigo. BGI has equity in one of India's combination of ventures for an LNG terminal and IPP, for which it would take liquefied gas from Iran and Yemen. (See BGI's Iran LNG project following).