BP to invest $12 billion in Egypt gas deal

Mar 06, 2015, 1:01 PM EST
Abdel Fattah el-Sisi, president of Egypt attends the 24th Ordinary Session of the African Unions Heads of State and Government Summit in Addis Ababa, Ethiopia on January 30, 2015.
Anadolu Agency/Getty Images

Oil giant BP will invest $12 billion with its partners in Egypt to supply the country’s rapidly growing domestic gas market. The oil company, based in London, said it would develop a large quantity of offshore gas, equivalent to about one-quarter of Egypt’s output, and bring it onshore to be consumed by customers, writes the New York Times. Gas from the project, called West Nile Delta, is expected to begin flowing in 2017. BP said that additional exploration might lead to a doubling of the amount of gas available.

“The project underlines BP’s commitment to the Egyptian market and is a vote of confidence in Egypt’s investment climate and economic potential,” the company said in the announcement. The deal is a potential boon for the government of President Abdel Fattah el-Sisi, the former military chief who has been in power since 2013. BP is also taking a very different approach to the Egyptian market than rivals like BG, another British company.

Reuters reports that the deal is to develop 5 trillion cubic feet of gas resources and 55 million barrels of condensates. The supply deal will help Egypt as it tackles its worst energy crisis in decades. Rising energy consumption and decreasing production have turned it from a net energy exporter to a net importer in the last few years and caused persistent blackouts. BP said gas would be produced from two BP-operated offshore concession blocs, North Alexandria and West Mediterranean Deepwater. The firm said it believed there was the potential for future exploration to add a further 5-7 tcf which could boost West Nile Delta production with additional investments. BP also said that production from its Taurus and Libra gas fields would be channeled via BG Group’s existing offshore pipeline network, serving its Burullus concession, into the Egyptian grid. The head of BG had told Reuters in December that the company was in advanced talks that could boost supplies to power-hungry Egypt by allowing rival BP to use its pipelines.

Fortune notes that the deal will reunite BP with its troublesome old partners in Russia. The WND project is 33% owned by Germany’s DEA, but DEA’s owner RWE AG has just agreed to sell it to Luxembourg-based LetterOne. L1 is the firm that the tycoons Mikhail Fridman, German Khan, Alexey Kuzmichev and Petr Aven set up mainly with the billions they got from selling their 50% share in TNK-BP to state-owned Rosneft in 2013. BP might have mixed feelings about getting back into bed with the oligarchs with whom it had a notoriously difficult (but wildly profitable) relationship for 11 years. A BP spokesman declined to comment on what would happen if their once and future partners do find themselves on the sanctioned list. But as of yesterday, it will at least have the comfort that it can work with one other familiar, and more friendly, face: L1’s new chairman is none other than BP’s old CEO, John (now Lord) Browne.