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Egypt has enough resources to survive, but wary investors fear unrest

February 5, 2014 at 9:56 am

British Petroleum announced earlier this month that it has found gas resources estimated to be around 1.2 trillion cubic feet, or more, in the Salamat well in the Nile Delta, some 7 km under the seabed and in 649 meters of water.

According to Reuters, the offshore gas resource is “strong new evidence that Egypt has the resources to end power cuts and get export income flowing again.” But the challenge is persuading wary international oil companies to develop such resources.

Reuters reported that while this discovery is not enough to end the problem, available information suggests that there are indeed vast resources at these extreme depths.

“What’s significant about this discovery is that it was really expensive at about $380 million to drill. Despite the high cost, BP clearly believes in the potential of some of the deeper plays,” Martijn Murphy of Wood Mackenzie told Reuters.

But the political unrest in the country will make it difficult to encourage investors to develop these resources and offer good prices. According to Reuters, energy sector investors are currently less tolerant of politically risky oil and gas investments than they were in previous years.

Reuters also stated that many international companies have pulled out of Egypt’s oil industry. For example, last month the American Apache Corp sold a 30 percent stake in a top quality Egyptian oil asset to the Chinese state group Sinopec.

Fears of investors are also increasing because of Egypt’s worsening economic situation. Reuters noted that Egypt owes about $6 billion to companies working on projects in the country, the equivalent of over six months worth of payments or more in some cases.

This is one reason why long-term investors such as Britain’s BG Group are facing some difficult questions from shareholders today. Egypt, which accounts for 15 per cent of BG’s production, is struggling to pay its bills.

In addition to these debts, gas contracted to BG and French group GDF Suez for export as liquefied natural gas is being diverted for domestic use to keep the lights on and replace expensive fuel imports.

Reuters reported that while all of these production issues are normal oil and gas industry problems, Egypt’s instability has magnified their importance in the eyes of investors.

BP made another gas discovery called Satis more than a year ago, but has yet to do anything with it.

One BP insider told Reuters that, “Salamat is a great find too, but until we have an agreement with the government, it’s just a hole in the ground we are rather pleased with.”