Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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• Western energy giants like Chevron, Shell, BP, and Eni are ramping up investments in Egypt’s gas sector.
• Egypt holds a unique strategic advantage with its LNG infrastructure and control of vital transit routes like the Suez Canal and SUMED pipeline.
• Despite debt concerns, international support—including IMF and EU financing—continues to flow into Egypt.

The race has been on between the world’s leading powers to secure as much of the globe’s current and future liquefied natural gas (LNG) supplies ever since Russia invaded Ukraine on 24 February 2022. Oil and gas prices started to rise quickly from that point, driving inflation higher across the West and threatening economic slowdowns as interest rates began to rise to curb the spiralling prices. As sanctions hit Russia’s previously huge energy supplies to Europe, LNG became the swing energy source to substitute for these lost resources, as analysed in depth in my new book on the new global oil market order. Unlike oil and gas moved through pipelines, LNG does not require years and vast expense to build out a network of supporting infrastructure, nor the complex political and economic negotiations with the governments of all the countries whose territory those pipelines cross. Instead, LNG can be bought quickly in the spot market if required and moved fast on ships to wherever it is wanted.  In the immediate aftermath of Russia’s invasion of Ukraine, the West found it had been wrong-footed by China which had sewn up enormous LNG supplies in very long-term contracts from major supplies, including Qatar, having evidently received warning of such an event from the Kremlin around one year before, as also detailed in the book. It was at this point that the West’s focus shifted to Egypt, and a slew of recent deals confirm that the efforts to turn the country into one of the world’s leading LNG hubs remain as strong as ever.

In recent days, various local news reports have flagged the likely award of another major set of oil and gas exploration rights to U.S. supermajor Chevron for the West Star site in Egypt’s northeastern Mediterranean region. The firm was one of the early leaders in the West’s move into Egypt’s oil and gas sector, along with the UK’s BP and Shell, and Italy’s Eni. Most recently, Chevon and Eni discovered a potentially huge offshore gas field in its concession area in the Red Sea focused on the Nargis-1 well in the eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula, which followed the announcement in December 2022 that it had hit at least 99 billion cubic metres of gas in the same exploration well. Chevron also now operates the huge Leviathan and Tamar fields in Israel and the Aphrodite project offshore Cyprus. In the same vein, British oil and gas giant Shell is to begin the development of the tenth phase of Egypt’s Nile Delta offshore West Delta Deep Marine (WDDM) concession in the Mediterranean Sea. In the meantime, BP recently said it will invest US$3.5 billion in the exploration and development of Egypt’s gas fields in the coming three years, with the amount subject to a doubling in size if the exploration activity yields new discoveries. This looks distinctly possible, as Egypt holds a very conservatively estimated 1.8 trillion cubic metres (Tcm), although the final figure could be considerably more than this, according to E.U. energy security sources spoken to by OilPrice.com in recent months. According to global energy analysis firm Wood Mackenzie, the net present value of the remaining East Med sites is US$19 billion.

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Egypt is also the only country in the Eastern Mediterranean gas hotspot region with operational LNG export capacity, which dovetails into the West’s ambitious plans to expand this capability.  Crucially, as well is that its geographic positioning means that it controls the major global shipping chokepoint of the Suez Canal, through which around 10% of the world’s oil and LNG is moved. It also controls the vital Suez-Mediterranean Pipeline, which runs from the Ain Sokhna terminal in the Gulf of Suez, near the Red Sea, to Sidi Kerir port, west of Alexandria in the Mediterranean Sea. This is a crucial alternative to the Suez Canal for transporting oil from the Persian Gulf to the Mediterranean. The Suez Canal's importance to the global energy sector is further boosted by the fact that it is one of the very few major transit points that is not controlled by China. More specifically, Beijing already has effective control over the Strait of Hormuz through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in my latest book on the new global oil market order. The same deal also gives China a hold over the Bab al-Mandab Strait, through which commodities are shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. This has been achieved as it lies between Yemen (the Houthis having long been supported by Iran) and Djibouti (over which China has also established a stranglehold through debts connected to its multi-generational power-grab project - the ‘Belt and Road Initiative’).

More broadly, from a geopolitical perspective, Egypt occupies a uniquely influential position in the Arab world. For decades, it has been seen by the Arab world as the leading proponent of the ‘Pan-Arab’ ideology that believes enduring strength can only be found in the political, cultural, and socioeconomic unity of Arabs across the different countries that emerged after the two World Wars. The philosophy’s most powerful recent proponent was Egypt’s president from 1954 to 1970, Gamal Nasser. Among the most palpable signs of this movement at the time were the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighbouring Israel over the period, and then the 1973/74 oil embargo. By bringing this leader of the Arab world on side, the U.S. hopes to offset, at least in part, the negative geopolitical impact of long-term ally Saudi Arabia having been lost to the China-Russia bloc. Politically and historically, Egypt is at least as much of a leader in the Arab world as Saudi Arabia has ever been.

Given these factors, Egypt’s intertwined debt and currency problems that were in large part caused by this enormous wave of gas sector development will continue to be addressed by the West, according to a senior source in the European Union’s (E.U.’s) energy security complex. “[Egypt’s] ability to pay down its debt to Western [oil and gas] developers deteriorated in the aftermath of the 2022 invasion of Ukraine, but several support mechanisms have been put in place to alleviate this, and there is more to come if required,” he said. Most notable here is the 6 March 2024 facility granted to Egypt by the IMF to expand its US$8 billion financial support package. The fourth review of this Extended Fund Facility (EFF) arrangement was completed this March, allowing Egypt to draw about US$1.2 billion. Additionally, there remain further offers of financial aid open from the World Bank and from the E.U.

By Simon Watkins for Oilprice.com

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