By Jason Rosychuk
Recent landmark government oil and gas contracts could transform the industry across the Middle East
The Egyptian government’s landmark oil and gas deals with five global oil majors has been pegged as a turning point for emerging markets hydrocarbons. Amid the publicity and excitement, will these contracts be a game changer for global oil players and for indigenous energy supply in the Middle Eastern country?
While news of the new contracts does not necessarily signal an oil market turnaround, it does demonstrate a renewed appetite for exploration in emerging markets, particularly for those in which established infrastructure exists.
Amid the continued oil price volatility, the reality of the ‘lower for longer’ environment has forced those across the oil and gas industry to rethink financial support for the large-scale developments of the future. Egypt’s move to invite global oil players to explore for hydrocarbons provides optimism for an industry grappling with tough market conditions.
The underlying message is positive — lucrative and compelling global oil and gas opportunities remain. But the conditions must be right. For example, governments in producing countries now look beyond revenue generated by the export of oil and gas to the value added by engaging with global oil players. Know-how, technology and security of domestic supply are appealing to say the least.
Shielded from market fluctuations, government supported oil and gas projects are proving to be a safer bet, shaped by politics as much as by global economics. This is particularly true of gas projects, where long term off-take agreements are often negotiated in advance of exploration, and where the government (or a government agency) is chiefly the buyer.
This dynamic yields results for global players with gas prices set at a premium. This favourable pricing is generating a renewed interest from international oil companies in countries like Egypt. Governments, on the other hand, are willing to pay the premium not only to secure the foreign investment, but to ramp up gas access for power generation and industrial development. Such a move boosts the local economy and improves quality of life for Egyptian citizens.
For Egypt the new contracts could be transformational. Blighted by a severe supply shortage, overhauling the country’s indigenous energy supply is critical. The desire to see domestic value add, particularly for power and industrial development is driving a sustained and ambitious programme of state support.
Looking further afield, officials across the GCC have a renewed vigour to refresh its energy industries and wean itself off oil-fired power generation.
Much like Egypt, Omani officials have put their weight behind gas production developments in recent years for these reasons. In addition to Bahrain, Jordan and Kuwait are all looking to either develop domestic production or build the infrastructure for liquefied natural gas (LNG) imports.
From a geo-political perspective, renewed attention on the Eastern Mediterranean as a potential oil and gas basin offers the promise of largely untapped resources. Existing seismic surveys show the potential for significant reserves up and down the eastern Mediterranean coast line. The huge economic impact this could have on all countries in that region should not be underestimated.
Egypt’s news contracts signal the direction for the energy companies seeking out investment opportunities. Competitive pricing, untapped resources and a government willing to entice oil majors with the lure of favourable commercial terms, Egypt is showing the way to beat the market in oil and gas investment.
It would be helpful to understand exactly which contracts the author is referring to.