One of the largest Western investors in Egypt’s energy sector, Italy’s Eni, has announced that it is to drill new wells in the country’s flagship Zohr field, the largest gas field in the Mediterranean. This aligns with the West’s energy development strategy in the aftermath of Russia’s 24 February 2022 invasion of Ukraine.
At that point, three things became much clearer to the core Western NATO members of the U.S., U.K., and France. First, short-term gas supplies would have to be secured urgently so that Russia would not be allowed to get away with yet another invasion in Europe by dint of its long-running cheap supplies of gas into Europe, as analysed in depth in my new book on the new global oil market order. Precisely this had happened after its invasion of Georgia in 2008 and its invasion of Ukraine’s Crimea region in 2014 (President Vladimir Putin’s test-run for the all-out invasion of 2022), as key European countries – most notably the region’s de facto leader, Germany – refused to do anything that might jeopardise their key energy supplies. Second, given the high possibility that Russia would continue to push westwards once it had secured Ukraine, and that China might take advantage of NATO’s military focus on Europe to invade Taiwan, the West would have to cultivate new relationships with countries that offered the prospect of long-term gas supply partnerships. And third, following former President Donald Trump’s dialing down of the U.S.’s presence in the Middle East, many of the major global gas suppliers were already working within the anti-Western China-Russia bloc.
One country that looked like it might tip into this bloc was Egypt. China and Russia through its main ally in the region, Iran, had been attempting to inveigle the country into a Middle Eastern ‘unified power grid’, as also detailed in my latest book on the global oil markets. Setting the stage for this, 2022 saw an announcement that Egypt and Jordan were increasing their cooperation in gas delivery projects inside Jordan with Egyptian expertise through specialised petroleum sector companies. Just prior to this, it was announced that Iraq had agreed to re-start the export of crude oil from Iraq’s Kirkuk to the refinery at Zarqa in Jordan. Given the enormous crossover between the oil sectors of Iraq and Iran, this would tie Egypt indirectly into a closer relationship with Tehran. Additionally, electricity supply originating from Iran was also factored into this deal, given that it has historically supplied Iraq with 30-40 percent of all its electricity needs, and had just signed the longest-ever single deal between it and Iraq to continue to do the same at that point. At around the same time, Iraq’s then-Electricity Minister, Majid Mahdi Hantoush, announced that plans had been finalised for the completion of Iraq’s electricity connection with Egypt within the next three years. This network was to be bolstered by the parallel network connections that Iran had consolidated in terms of direct electricity and gas exchanges. These, said Iran’s then-Energy Minister, Reza Ardakanian in 2019, would be part of the overall project to establish a joint Arab electricity market.
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It is critical note here that the China-Russia bloc and that of the West are fully aware that Egypt holds an additional significance in the Arab world and in the Islamic one that can be used to leverage greater power across the Middle East as a whole. For decades, the country has been seen by the Arab world as the leading proponent of the ‘Pan-Arab’ ideology that believes enduring strength for the Arab people can only be found in their political, cultural, and socioeconomic unity across the different countries that emerged after the two World Wars. The ideology’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 was the formation of the United Arab Republic union created by 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, as also detailed in my latest book on the new global oil market order. For the West’s key power, the U.S., Egypt’s additional importance is that it is seen in the Arab world as at least as great a power as Saudi Arabia has ever been and bringing it into any sort of meaningful alliance with the West would go some way to counterbalancing the loss of Saudi Arabia to the China-Russia bloc.
Logistically as well, Egypt has much more importance to the global gas and oil market than its gas and oil reserves. For a start, it controls the major global shipping chokepoint of the Suez Canal, through which around 10 percent 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 remains one of the very few major transit points that is not controlled by China. Specifically, China already has effective control over the Strait of Hormuz through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’. 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’).
Consequently, even if Egypt had zero gas and oil reserves, the West would have been looking to dramatically increase the scale and scope of its relationship with the country following Russia’s 2022 invasion of Ukraine. That said, Egypt does have very sizeable gas reserves - officially conservatively estimated at around 2.1 trillion cubic metres - making it a key part of the potentially huge Eastern Mediterranean gas hub. Chevron was the key U.S. operator from the start, with an announcement in December 2022 that it had hit at least 99 billion cubic metres of gas with its Nargis-1 exploration well in Egypt’s eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula. Following that, an announcement came of the discovery with Italy’s Eni of a potentially huge offshore gas field in its concession area in the Red Sea focused on the Nargis-1 well. This augmented its already significant presence in the broader Eastern Mediterranean through its operation of the massive Leviathan and Tamar fields in Israel and the Aphrodite project in offshore Cyprus. According to the president of Chevron International Exploration and Production, Clay Neff: “The East Mediterranean has abundant energy resources, and their development is driving strategic collaboration in the region.”
This entry point effected into Egypt’s gas sector by the U.S. has since been used by several other of its allies’ major international oil companies, including Italy’s Eni, and the U.K.’s Shell and BP. The latter said recently that it will invest US$3.5 billion in the exploration and development of Egypt’s gas fields in the coming three years. This amount could be doubled if the exploration activity yields new discoveries. Meanwhile, Shell began the development of the tenth phase of Egypt’s Nile Delta offshore West Delta Deep Marine (WDDM) concession in the Mediterranean Sea. This came after the British firm and its partner had developed the previous nine development phases of the WDDM concession which comprises 17 gas fields, located at water depths ranging from 300 metres to 1,200 metres and spanning approximately 90-120 kilometres from the shore. News emerged last week, that the same Shell-led consortium have agreed to begin the 11th phase of the WDDM. Eni has also been notable for its entrepreneurial and aggressive approach to finding and safeguarding new oil and gas supplies across the Middle East, with the Italian firm looking at consolidating and expanding its presence recently in Libya and the UAE, among others. In this context, it has been working alongside Chevron on the latest Nargis discovery, with Eni stating that the Nargis-1 well find confirms the validity of its focus on Egypt offshore: “[…] which [we] will further develop thanks to the recent award of exploration blocks North Rafah, North El Fayrouz, Northeast El Arish, Tiba and Bellatrix-Seti East”. This all follows Eni’s discovery of the huge Zohr field in the East Mediterranean in 2015 and is in line with the company’s aim of completely replacing gas imports from Russia by 2025.
By Simon Watkins for Oilprice.com