Egypt Talks with Foreign Firms for Gas Price

Source: Reuters 12/12/2013, Location: Africa

Egypt is still in talks with foreign energy companies to change the amount the government pays them for natural gas produced in the country and there is no timeline for when negotiations will finish, an oil ministry spokesman said.

Officials have said they hope revised prices will encourage investment and future production in Egypt, notably offshore where costs are high, to avoid shortages on the domestic market.

Oil Minister Sherif Ismail was quoted as saying, about three weeks ago, that state-run Egyptian Natural Gas Holding Company (EGAS) would sign seven new contracts and modify seven others within two weeks.

Ministry spokesman Hamdy Mohamed Abdel Aziz said that talks with foreign companies are being conducted by EGAS and by Egyptian General Petroleum Corporation (EGPC), which is also a state-run firm.

Egypt pays offshore gas producers on average around $2-$3 per million British thermal units, according to industry estimates. Comparable payments for gas in Britain are currently above $10 and for Asian supply above $17.

Exploration companies are hesitating to develop untapped gas finds in Egyptian waters partly because the amount the government pays them barely covers their investment costs.

The government has also been late with payments to foreign oil companies, but last week the oil minister promised to pay back $1.5 billion of the $6 billion owed.

This has caused domestic gas shortages, another potential spark for unrest in the Arab world's most populous nation, which has experienced near constant upheaval since the 2011 uprising that toppled autocrat president Hosni Mubarak.

Abdel Aziz said there was no set timeline for when the talks would conclude and that new prices would depend on the specifics of each contract.

Egyptian officials have suggested pricing arrangements should be changed to reflect the high costs of offshore exploration in deep water, arguing that such reform would spur new investments.

Abdel Aziz did not specifiy which firms were involved in the talks. He could not immediately be reached for further comment.

Foreign firms involved in exploiting gas in Egypt include British majors BP and BG Group and Italy's Eni.

Egypt's Oil Minister Sherif Ismail told business executives that the government was in talks about changing gas pricing arrangements, without elaborating.

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