Due to major recent discoveries, natural gas is likely to be the primary growth engine of Egypt's energy sector for the foreseeable future. Natural gas production in Egypt averaged 3.6 billion feet per day (Bcf/d) in 2004 (the latest year for which figure are available), while, according to the Oil and Gas Journal, Egypt’s estimated proven gas reserves stand at 58.5 trillion cubic feet (Tcf), or roughly 1 percent of world reserves. Production is expected to rise to roughly 5.0 B cf/d by 2007, with much of the increased volume being exported as LNG.

Beginning in the early 1990s, foreign oil companies began more active exploration for natural gas in Egypt, and very quickly found a series of significant natural gas deposits -- in the Nile Delta, offshore from the Nile Delta, and in the Western Desert. Today, Egypt's natural gas sector is expanding rapidly, with production having increased over 220 percent between 1999 and 200 4 . Estimates for 2006 production at 5.5 Bcf/d, if correct, would represent a further 150 percent increase since 2004 . Major foreign companies involved in natural gas exploration and production in Egypt include BG, BP, Eni, and Shell. Apache also produces natural gas from its concessions in the Western Desert.  The Egyptian government formed a new state-owned entity in August 2001 to manage the natural gas sector, Egyptian Natural Gas Holding Company (EGAS), separating those assets out from EGPC.

In order to support its goals of doubling natural gas exports by 2010-11, the government aims to add 30 Tcf to its proven gas reserves by 2010. Plans are for most of this increase to come from new natural gas discoveries offshore from the Nile Delta, and some finds in the Western Desert. In the Nile Delta, recent offshore field developments include Port Fuad, South Temsah, and Wakah. In the Western Desert, the Obeiyed Field is an important natural gas area currently under development.

The International Egyptian Oil Company (IEOC), a subsidiary of Eni, is Egypt's leading natural gas producer, operating in the Gulf of Suez, the Nile Delta, and the Western Desert regions. In cooperation with BP, IEOC has been concentrating its natural gas exploration and development efforts in the Nile Delta region. On November 4, 1997, BP announced plans to develop the giant Ha'py gas field in the Ras el-Barr concession of the Nile Delta region at an estimated cost of $248 million. The field came online in February 2000, and has reached an output of 280 million cubic feet per day (Mmcf/d). In September 1997, IEOC tested the Temsah gas field (located offshore from the Nile Delta) at 11.6 Mmcf/d.  In October 1998, BP (25 percent owner) and Eni signed a natural gas sales agreement with EGPC (50 percent owner) and IEOC (25 percent owner) for Temsah. Temsah's gas reserves are estimated at 4.3 Tcf, and the field is expected to reach production of 550 Mmcf/d in 2006 after a 2004 blow-out cut production and forced redrilling. IEOC also operates several other smaller natural gas fields.

Two areas in the Western Desert -- Obeiyed and Khalda -- have shown great potential for increasing Egypt's natural gas production in the near future. This area is appealing as it has both lower development and operating costs than in the Mediterranean region and an expanding network of pipelines and processing plants by which to quickly transport production upstream. Obeiyed, with probable natural gas reserves estimated at 5 Tcf, is producing 300 Mmcf/d.  Production in the Khalda concession is currently around 275 Mmcf/d. Apache reported two new natural gas discoveries in Khalda in 2003, and signed an agreement with EGAS in 2004 for development and sales of the output. Output from Obeiyed and Khalda is transported to Alexandria by a 180-mile pipeline. Apache also had one offshore concession, the West Mediterranean block, but it sold its 55 percent stake to Amerada Hess in order to focus on its onshore assests where development costs are relatively low. All of the offshore wells completed thus far have shown commercial quantities of natural gas, with reserves in the Western Mediterranean block estimated at around 3 Tcf.

The Scarab/Saffron finds began commercial production in early 2003 and currently has a production capacity of 700 Mmcf/d. Edison's stake in the fields was sold to Petronas of Malaysia in April 2003. The Simian/Sienna fields, with a production capacity of 565 Mmcf/d, began production in April 2005, and are linked into the same pipeline to the Egyptian coast as the Scarab/Saffron fields. Shell has announced that probable reserves in its Northeast Mediterranean (NEMED) concession are 15 Tcf.  BP and the IEOC also are preparing to bring several fields off the Nile Delta coast into production. 

Natural gas demand has grown rapidly in Egypt, mainly driven by increased demand form thermal power plants. Domestic natural gas consumers are to be served by several private distributors, franchises for which were awarded in late 1998. One of the franchises, awarded to a team headed by BG and including the Egyptian construction firm Orascom and Petronas, built distribution infrastructure in Upper Egypt as far south as Asyut, where no piped natural gas had been available.

The rapid rise in natural gas reserves has led to a search for export options, which has become particularly important to Egypt's future international balance of payments due to the decline in oil exports. However, in 2005, concerns about maintaining adequate future reserves for domestic production led the government to further limit gas reserves available for export to 25 percent, down from a third under previous regulations.

The export of natural gas to Israel, which has been under discussion since the mid-1990s, was finally agreed upon in June 2005. The deal calls for the East Mediterranean Gas Company (a consortium of EGPC, Merhav of Israel, and Egyptian businessman Hussein Salem) to supply $2.5 billion worth of natural gas to Israel. The natural gas will travel via a new pipeline to be operational by late 2007.

A natural gas export pipeline to Jordan began commercial operation in July 2003, making possible Egypt's first exports of natural gas.  Egypt was responsible for building the section from the existing pipeline terminus at El-Arish to Aqaba in Jordan, with a subsea section in the Gulf of Aqaba bypassing Israeli waters. A second section from Aqaba to northern Jordan became operational in January 2006, with an overall capacity of 1 Bcf/d. Egypt, Jordan, and Syria agreed in principle in early 2001 to extend the pipeline into Syria, with eventual natural gas exports to Turkey, Lebanon, and possibly Cyprus.  As part of the above Arab Gas Pipeline project, Egypt and Turkey have signed an MOU with the intent to set up a Turkish-Egyptian joint venture, Tergas. It would pipe roughly 100-400 Mmcf/d a year of gas to Turkey and an additional 203-608 Mmcf/d to Eastern Europe, possibly through links with the planned Nabucco pipeline or through Romania or Bulgaria.

Egypt's other option for exports is LNG, for which it already has three operating trains. With LNG exports having already risen to 1.55 Bcf/d by 2005, Egypt has jumped into sixth position in global LNG production, with further expansions expected when reserves are located.

The Spanish firm Union Fenosa built a single-train liquefaction facility at Damietta, which shipped its first cargo in January 2005. In June 2006, partners Eni, BP and Union Fenosa signed a framework agreement for the expansion of the plant to 1.4 Bcf/d from current levels of 770 Mmcf/d by 2009. Unlike most previous LNG projects, this one is not tied directly to an upstream natural gas project. Union Fenosa has contracted with EGPC for the supply of natural gas from its distribution grid, and will take 60 percent of the LNG output itself for use at the company's power plants. Eni also has become involved in the project, purchasing a 50 percent stake in Union Fenosa's natural gas business in December 2002. BP signed an agreement for sales of natural gas from its offshore fields to supply the second train at Damietta in July 2004.

The second LNG export project called Egyptian LNG, at Idku, was built by BG in partnership with Petronas. The project is tied in to natural gas production from BG's Simian/Sienna offshore fields, and the two 500 Mmcf/d trains began production ahead of schedule in March 2005, with the second train becoming operational in September 2005. In February 2006, BG announced plans to increase production at Train 1 and Train 2 by 5-10 percent over the next three years. Gaz de France is to be the main offtaker for the Idku LNG project's first train. An agreement to purchase LNG from the second train was signed in September 2003 by BG LNG Services. The LNG will initially be delivered to the Lake Charles, Louisiana import terminal for the U.S. market in mid-2006. Later, BG plans to switch the output from Idku to an import terminal at Brindisi, Italy. BP and Shell both are also contemplating potential LNG projects in Egypt. BP appears likely build a second train at the Damietta complex and is reported to be evaluating a field that would be sufficient to support a third train at the Idku facility.

Another potential use for Egypt's natural gas reserves is gas-to-liquids (GTL) projects. Shell has proposed a 75,000-bbl/d GTL plant to be co-located with its planned LNG export terminal using natural gas production from its offshore NEMED field. GTL discussions had stalled but, in October 2005, plans for a facility were restarted when Canadian firm Ivanhoe signed a memorandum of understanding with EGAS for a feasibility study for a plant.