Anglo-Dutch Major Shell will begin drilling work on Phase 9B development of its West Delta Deep Marine (WDDM) project in the Egyptian Mediterranean in the coming weeks.
The Noble Globetrotter-1 drillship is currently en route to Egypt from the Gulf of Mexico. It will drill 10 wells in total, two exploration and eight production, with total investment of $807mn.
Three of the production wells are slated to come online by the end of 2018 as the firm aims to reverse precipitous output decline at the fields, which prior to Eni’s Zohr and BP’s West Nile Delta long dominated Egypt’s offshore gas output. Work is set for completion in 2019. Shell says peak output from WDDM 9B development will be 60,000 boe/d (around 340mn cfd).
It is a measure of how far WDDM output has fallen that by the time Phase 9B is fully onstream it will likely near double output from the Shell-led Rashpetco JV which operates the fields (also includes Malaysia’s Petronas and Egyptian state firm EGPC). Shell inherited the asset from BG as part of its takeover of the UK firm at the start of 2016
From 1.2bn cfd as recently as 2012, WDDM output fell to just 526mn cfd for the 2016-17 Egyptian financial year (to June 2017) and to 486mn cfd for the second half of 2017. Shell’s net Egypt gas output fell to just 335bn cfd for 2017, with the WDDM share falling below that provided by the Shell/EGPC Bapetco JV which produces from the Western Desert (see chart).
Speaking on the sidelines of last month’s EGYPS conference in Cairo, an Egyptian official with Petronas said that output had since fallen further to stand at just 400mn cfd. Shell representatives at the same event refused to comment.
This reflects the sensitive nature of the standoff with EGPC, which dates from 2013, well before Shell’s takeover of BG.
BG (now Shell) operates the 7.2mn t/y ELNG liquefaction plant at Idku as well as the WDDM fields supplying it. But, suffering an acute domestic gas shortage, Cairo in 2013 begun diverting increased volumes of WDDM output to the domestic market. This left next to no gas for BG to export. BG declared force majeure on LNG sales in early 2014, writing off over $1bn in revenue for 2013 (MEES, 31 January 2014). It exported just one LNG cargo in 2014.
EGPC and BG did reach a provisional agreement in 2016 under which the Egyptian firm pledged to provide the gas for a resumption of LNG exports in return for Shell sanctioning the next phase (9B) of WDDM development (MEES, 7 October 2016). But, whilst Shell has been able to export occasional cargoes since (around a dozen for 2017), it had until now blown hot and cold as to whether it deemed this sufficient to sanction 9B development.
Shell’s 2017 annual report, released just last week, blames a continued inability to fulfil ELNG export commitments on “a shortfall of 445 thousand million scf [1.22bn cfd] of natural gas.” “The diversion of gas from the offshore West Delta Deep Marine fields to domestic use is expected to continue in the near future, leaving our commitment to deliver liquefied natural gas under force majeure,” it adds.
This is somewhat disingenuous: the 1.22bn cfd figure is based on original planned WDDM output of around 1.9bcm year. But rapid decline rates and a failed compression project meant output was already on the slide well before the stand-off: it was 1.3bn cfd for 2013 (MEES, 7 February 2014). And EGPC would surely argue that further declines since are largely due to BG/Shell’s decision to halt investment. Shell in turn has often pointed to the large amount of money it is owed by EGPC in receivables as an additional factor behind years of underinvestment in the fields. Shell was owed $1.35bn at the end of 2016, the last time an official number was given, although this has likely fallen since (the absence of a figure in Shell’s 2017 report also suggests this).
In any case the key thing that has changed the mood music over the past year has been nothing that Shell or EGPC have done. Rather rival majors BP and Eni have spearheaded a revival in Egyptian gas output to 5.5bn cfd now and an expected 6bn cfd by mid-2018. Egypt stands a good chance of becoming ‘long’ gas by later this year, a development that takes the heat out of the EGPC/Shell stand-off (though Shell’s desire to export LNG seemingly clashes with Cairo’s pledge to export gas to Jordan – MEES, 23 March).
Shell also has ambitious plans to tie back output from Israel’s 22tcf Leviathan field and Cyprus’ 5tcf Aphrodite field (where it has a 35% stake) to the Idku LNG plant. Cyprus Energy Minister Giorgos Lakkotrypis told the East Mediterranean Gas Conference in Nicosia this week that discussion to sell Aphrodite gas to Idku were at “an advanced stage.” Getting a deal finalized necessitates that Shell and Cairo are on the same page.
Shell/BG* Net Egypt Gas Production (Mn Cfd): Wddm Output Is Down 80% Over Past 5 Years
ENI EYES EGYPT LNG FOR EAST MED GAS
Egypt’s two idle LNG export terminals at Idku (operated by Shell) and Damietta (Eni-led Union Fenosa) remain the best options for any exports from the region, Italian firm Eni says. It certainly feeds into Egypt’s plans to become a regional energy hub ( MEES, 23 February ).
“We should prioritize the liquefaction capacity that we have already present in Egypt and that is idle or partially idle. And then the gas from the liquefaction plant in Egypt can go to Europe. This is the simple, faster, logic way of monetizing East Med gas,” exploration chief Luca Bertelli said in Nicosia this week.
The two plants have been near-idle since late-2013. Though Shell hopes an increase in its output offshore Egypt will re-boot exports from the 7.7mn t/y ELNG plant at Idku, the shipment of Israeli and Cypriot gas promises much higher medium-term volumes. US firm Noble, operator of Israel’s 23tcf Leviathan field, has a provisional deal to supply 7bcm/y to Idku.
