Global Insight Perspective | |
Significance | BP and Eni have identified large reserves of gas in the Satis field, which has been drilled to Egyptian record depths, surpassing 6.500 metres, in 90-metre-deep water. The reservoir has not yet been fully appraised, but Eni said it now aims to proceed with constructing a second train at the Damietta LNG facility. |
Implications | Egypt's offshore potential continues to draw the interest of majors and mid-sized IOCs and the new find—at record depths—opens up yet another frontier in the East Mediterranean in general and the Nile Delta in particular. |
Outlook | Securing significant amounts of gas, Eni—together with its partners in the SEGAS Damietta venture—is seeing the opportunity for a second LNG train to be constructed, signifying further growth for Egypt as a key LNG exporter and possible direct equity participation by BP and RWE in SEGAS. |
Bigger, Farther, Deeper
U.K. major BP and its partner, Italy's Eni, yesterday announced having made a "significant" gas discovery at the extreme depth—by Mediterranean standards—of over 6,500 metres. The Satis field's reserves, located in the BP-operated North El Burg Concession in the offshore part of the Nile Delta Basin, 50 km north of Damietta, have not yet been officially quantified and will be appraised in the coming months by the companies. Eni holds a 50% stake in the field and was quick to state yesterday that this find, together with other recent finds by itself and its partners in the Damietta venture, is deemed sufficient to sustain the operations of a second liquefaction train at the plant.
The Satis discovery is the first ever "high-pressure, high-temperature offshore Oligocene discovery" in Egypt, BP said in a statement, opening up a new frontier in Egyptian offshore exploration and possible in other oil- and gas-prone areas in the south-east Mediterranean. The discovery is BP's third deep gas discovery in the offshore Nile Delta, following on from large fields such as Raven (discovered in 2003) and Taurus Deep (discovered in 2007).
The Damietta Connection
With several sizeable gas discoveries having been made offshore Egypt in the recent years, the hopes for securing sufficient gas reserves to construct a second train at SEGAS's Damietta gas liquefaction facility seems to have been fulfilled. Eni said yesterday in a press statement that "based on the positive result at the Satis well and the other discoveries over the last two years, Eni and its partners in Damietta Train 2 LNG plan to start the development of the project by 2008." Damietta's current one-train facility has a LNG capacity of 5.5 mmt/y, and consumes 310 mmcf/d of gas supplied by BP and state-owned Egyptian Natural gas Holding Company (EGAS) as feedstock, with the second train being planned according to the same specifications.
The SEGAS venture is owned by Eni (40%), Spain's Union Fenosa (40%), and the Egyptian government (20%), through EGAS and the Egyptian General Petroleum Corporation (EGPC). Given BP's large new gas discoveries during the past years and its position as core supplier to Damietta's first train, the company has been understood to be eyeing a more direct stake in the SEGAS venture as a whole, or in just the second train. Germany's RWE-Dea has also expressed its interest in a direct equity participation in Egyptian liquefaction, given its 40% stake in the BP-operated North Alexandria A concession, where the large Raven and Taurus Deep fields were discovered.
Outlook and Implications
Egypt has been hoping to secure sufficient gas reserves to continue a build-up of LNG export capacity, as well as supply gas to its Arab neighbours, Turkey, and possibly Europe through the Arab pipeline extending across Jordan and Syria to Turkey. While further strengthening its long-term role as a leading gas exporter in the Mediterranean, this is also needed to address spiralling domestic gas demand as the Egyptian economy has faced strong population and industrial growth. Egypt has successfully been phasing out oil as the main feedstock in its electricity production, as a method of sustaining as high export levels as possible from its declining mature crude production.
Egypt has also been keen to get as much development under way as possible before neighbouring Libya secures sufficient gas reserves for its planned liquefaction facilities and itself emerges as a large-scale exporter to the Mediterranean region and beyond. Yesterday's confirmation of the sizeable Satis discovery has given Egypt a further growth advantage and an ability to secure long-term contracts at a time of robust LNG demand.
Satis has been rumoured to be a large discovery for well over a month, although no reserve estimates are official yet as more appraisals need to be made (see Egypt: 7 December 2007: BP Suspects Large Discovery Offshore Egypt, Awaits Final Result). Eni's confidence in now having secured sufficient reserves to sustain a second Damietta LNG train indicates that the SEGAS venture might move ahead swiftly to get work started on constructing the plant. BP's large—and increasing—supply role and the potential interest from RWE-Dea to take a stake is a good sign that sufficient investor interest exists to see the expansion go ahead, even in a global climate of spiralling construction costs. As Eni has also secured additional gas reserves on its own in recent years, Union Fenosa might have to accept a watered-down stake in the SEGAS venture if BP and RWE-Dea invest, as especially BP might want to take a stake in the venture as a whole rather than in just the second train.
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