In a surprising development that underscores the technical and economic challenges facing Egypt's energy sector, official sources have announced the withdrawal of three major international companies from gas exploration projects in the Red Sea. This decision follows disappointing results from seismic surveys conducted in the region.
According to a statement reported by Bloomberg from a senior Egyptian official, Shell, Chevron, and Mubadala informed the South Valley Egyptian Petroleum Holding Company, a subsidiary of the Ministry of Petroleum, of their decision to cease operations in the second phase of exploration. The companies concluded that the areas they had acquired do not present clear economic viability.
A Shell Egypt official elaborated, stating, "The decision to withdraw comes as part of the company's strategy to redirect investments towards the Mediterranean Sea, where it sees greater opportunities following previous successes in gas exploration." The official added that the seismic survey results in the Red Sea had not met expectations.
This withdrawal represents a significant shift in Egypt's aspirations to become a regional energy hub, as it highlights the real technical and geological difficulties inherent in the Red Sea. The Egyptian government has been striving to narrow the gap between domestic gas production and consumption, which currently stands at approximately 1.6 billion cubic feet per day.
The government is now looking to reassess the geological and technical situation of the exploration areas in the Red Sea, with plans to potentially offer them again in new global tenders in the near future. The official source indicated that other companies have expressed interest in participating, contingent upon the availability of clearer data regarding exploration opportunities.
The initial granting of exploration rights stemmed from the first global tender launched by Egypt in the Red Sea back in 2019. This tender resulted in the three companies winning exploratory areas exceeding 10,000 square kilometers, with initial investments projected at $326 million, which could have escalated to billions if commercial discoveries were made.
Among the agreements, Shell secured exploration blocks 3 and 4, planning to drill two exploratory wells with a budget exceeding $120 million. However, the project has not progressed beyond the initial exploratory phase.
Despite the Egyptian government's ongoing efforts to attract foreign investments through attractive incentives, including allowing the export of a portion of production and raising the prices of shares, the withdrawal of these companies poses a significant challenge to its ambitions of diversifying natural gas sources.
This development opens the door for a strategic review of exploration and investment approaches, potentially enhancing the sector's appeal while mitigating risks for companies. The government remains committed to its goal of establishing Egypt as a regional energy hub, but the exit of these companies raises questions about the viability of its gas exploration initiatives in the Red Sea.
