Global Insight Perspective | |
Significance | This is the first significant co-operation initiative between the two North African players, who together have considerable expertise at the macro level, but more limited exposure to focused commercial-style operations. |
Implications | The new company will give both countries a chance to develop a more flexible flank to buttress state energy champions, something which Egypt has already started to pursue with the creation of the Tharwa exploration company last year. |
Outlook | This represents part of a wider trend among producing countries to develop their own interests in the hydrocarbon economy outside monolithic state giants. In the near term this is likely to demand technical and financial support from private players, although the longer-term hope is to create companies that can hold their own in upstream competition. |
North African gas giants, Egypt and Algeria, have signed a hydrocarbons co-operation agreement, part of which paves the way for the creation of a joint upstream exploration company.
The company will take on exploration opportunities in both Egypt and Algeria, for both oil and gas, and will divide profits and revenues equally. The companies will implement two agreements, according to KUNA news, although no details have been given on this. The agency did, however, report that the two countries will also study a proposal to set up a gas marketing company in Egypt to sell Algerian gas in the Mediterranean region.
Despite their geographic proximity, co-operation between the two North African gas players has been relatively limited so far, although strong demand for gas from Europe and rising exploration expenditure by IOCs has helped ease the sense of competition to some extent.
Outlook and Implications
This move is representative of economic reform trends in both Egypt and Algeria, with both countries seeking to put their hydrocarbon industries on a more commercial footing in order to attract investment and make the most out of available reserves.
In overall terms, Algeria is further ahead in this drive, having passed hydrocarbon legislation last year that will pave the way for greater competition in the domestic market and release state-owned Sonatrach from some of its more onerous responsibilities. Egypt, on the other hand, has only dipped a toe in the water so far, preferring to set up new entities, such as Tharwa Petroleum, to explore the commercial E&P business, rather than reform the state giants, EGPC and EGAS.
Preferential treatment can be expected to follow in terms of exploration awards to this new entity, although it will also likely seek out foreign investor support for technical and financial backing in the early stages, with the intention of creating a stand-alone player at a later stage. Shell, Petronas and Sinopec are all participating in support roles for Egypt's Tharwa, and a similar IOC-NOC mix is likely to be sought to nurse the new Algo-Egypt entity to greater independence.