Egypt: Igniting the Red Sea Hydrocarbon Potential
Geologists consider the Red Sea as one of the world’s most promising areas for hydrocarbon exploration. There are nine countries that border the Red Sea: Saudi Arabia, Egypt, Yemen, Israel, Jordan, Djibouti, Eritrea, Somalia, and Sudan. Some of these countries, mainly Saudi Arabia and Sudan, started exploration activates in the area years ago.
Following the recent bilateral maritime-demarcation agreement signed with Saudi Arabia, Egypt is finally able to begin exploring its Red Sea waters, beyond the Gulf of Suez. The Red Sea offers exciting opportunities for potential stakeholders. The United States Geological Survey (USGS), using a geology-based assessment methodology, estimated in 2010 that the Red Sea Basin Province contains a mean volume of 5 billion barrels of undiscovered technically recoverable oil and 112 trillion cubic feet (tcf) of recoverable natural gas.
Egypt on Track
After many years of limiting eastern offshore exploration and production (E&P) activates in the Gulf of Suez, in April 2016 both countries inked the bilateral agreement, allowing Egypt to announce exploration plans for the Red Sea, which took place in July 2017, one month after the ratification of the maritime-border-demarcation agreement.
“The agreement allowed Egypt to start its exploring activities in this area of the Red Sea, since it determined Egypt’s limits in exploring oil,” the Minister of Petroleum and Mineral Resources, Tarek El Molla, said in an official statement; further noting that there are two similar maritime-demarcation agreements currently under negotiation with Greece and Cyprus.
With the new demarcation agreement in place, state-owned South Valley Egyptian Petroleum Holding Company (Ganope), signed contracts worth $750 million with Schumberger and TGS. Under the terms of the contracts, the companies began collecting geo-science data from Egyptian territorial waters in the Red Sea in preparation for E&P activities. After finalization of the project, the ministry will be prepared to receive bids for oil and gas exploration in Egypt’s territorial waters in the Red Sea and southern Egypt, according to Ahram Online. “The survey will be limited between 22° and 28° in [the] Red Sea, to cover 55 km²,” El Molla specified, according to Egypt Today.
Noting the importance of the seismic survey agreement, Tamer El Daker, an Exploration Manager at Dragon Oil, stated that “the new seismic technology used will help a lot in collecting new data to attract oil companies to start exploring in the Red Sea. Egypt did [not] have the chance to do that before due to some financial problems, while Saudi Arabia did a lot of successful exploration [on its] side of the Red Sea.”
When asked about the cause of the delay, Mohamed Ghanim, a senior geologist, noted that the agreement for delineating the marine border between Saudi Arabia and Egypt was only finalized in 2017—much later than Saudi Arabia’s agreement with Sudan. Aziz Abd El Salam, Senior Exploration Geologist at Badr Petroleum Company (Bapetco), countered, however, that the attention to oil and gas discoveries in the Western Desert and GOS areas are the main reason for the Egypt’s delay in exploring the Red Sea.
While views vary on why exploration has been delayed, not everyone even agrees that a delay has occurred. “I don’t think there is any delay from Egypt to explore oil and gas in the Red Sea,” Dr. Maher H. Ayyad, Professor of Petroleum Geosciences at Cairo University, said. He noted that areas both in and near the Red Sea have been explored “with modest success” for a long time. Affirming Ayyad’s opinion, Ahmed Shohdy, Development and Operation Geologist at Saudi Aramco, noted that exploration of the Red Sea has not been delayed, however, due to geological factors, exploration and development was easier within Saudi Arabian territory due to the presence of source and reservoir rocks in shallow water. Sudan, he noted, is currently exploring shallow water locations and has already discovered a delta-shaped structure, encouraging additional exploration despite current low production rates.
Promising Potential
Egypt’s Ministry of Petroleum and Mineral Resources has not stated whether Egypt’s exploration of the Red Sea will extend beyond the 55 square kilometers contained between the 22° and 28° boundaries mentioned by the minster. Ghanim believes the exploration could extend beyond this area. If the initial surveys indicate a high potential for discoveries, exploration activities “should cover all the Red Sea because the geological setting is very similar,” he said.
Giving an in-depth comparison, Ayyad explained that “in [the] early 1950s, the GOS was considered as [an] exploration heaven in Egypt where giant oil and gas fields started to be uncovered. The Red Sea, on the other hand, is quite different from the GOS in many aspects […] This, however, does not mean that the Red Sea [has] less potential than the GOS. It is still way under explored and requires huge efforts—financially, technically, and logistically—to prove itself a viable replacement to or extension of the GOS operations.”
Since 1974, a total of 28,350 km of 2D seismic data and 4,360 km of 3D seismic data has been collected and 12 test wells have been drilled in various concessions in the GOS area. The heavily explored area and the natural oil seeps surrounding the Red Sea prove a working multi-petroleum system at the northern and southern ends of the Red Sea Province with a syn-rift to post-rift petroleum system in between, according to Sherif Sousa, former CEO of Ganoub El-Wadi Petroleum Holding Company, according to Abdelghani Henni in an article about oil and gas in the Red Sea.
Furthermore, Ayyad noted that “the Red Sea area is divided into shallow-water ‘Pan-handle’ area to the north of Hurghada and the larger deep-water regional area to the south with a narrow strip of a shallow shelf along the coast. The area is generally characterized by a relatively higher Geothermal Gradient, which might have an effect on the Hydrocarbon System. In addition, the shallow areas in the north have been operated [in] by several oil companies including Mobil, Conoco, [and] GPC, with small oil and gas finds, such as undeveloped Hareed, Felfel.”
“Saudi Aramco was the first to use a deep-water rig in the Red Sea region after a 15-month seismic study in 2009 indicated the presence of natural gas. As a result, the company discovered three oil and two gas fields in 2013 and started developing the gas fields. However, work was halted in 2015 due to several factors, including environmental issues, costs, and the need for further studies to minimize risks,” according to Henni.
In 2016, Saudi Aramco awarded the Norwegian firm Magseis and BGP, a subsidiary of China National Petroleum Corporation (CNPC), to perform a 3D transitional-zone seismic exploration in the Red Sea. “We continue our program to explore the shallow waters of the Red Sea, completing our largest single survey of the seabed encompassing Saudi Arabian territorial waters,” Saudi Aramco stated in an annual report quoted by Henni. In May, Magseis announced the completion of the initial survey and began work on a contract extension. Saudi Aramco has yet to release any official estimates on the hydrocarbon potential in the Red Sea, curbing speculation that reserves under the seabed could amount to as much as 50 bb, according to The National. Many experts doubt that proven reserves will realize the 50 bb estimate.
In a similar action to Saudi Arabia’s, Sudan started drilling its first offshore exploration well in the Red Sea with the help of CNPC in 2010. The well is located in Area 15, which is operated by the Red Sea Petroleum Operating Company. The company is a consortium comprised of CNPC, Petronas, Sudapet, Express Petroleum, and High Tech Group. Petronas and CNPC each have a 35% interest in the block, according to Sudan Tribune.
Many geologists argue about whether Egypt can rely on Saudi and Sudanese reserve estimates in the Red Sea as a guide for predicting Egyptian reserves. “It should be considered because [the] geological setting is very close,” stated Ghanim. Moreover, Ayyad explained that “In reference to Saudi Arabian and Sudanese potential reserves in the Red Sea and whether we rely on them, all I can say is that these finds represent [a] good sign that we have a vast basin with a hydrocarbon working system that needs much more investment.”
On the other hand, both Abd El Salam and Shody think that Egypt can use the potential Sudanese reserves, but not the Saudi Arabian ones, in the Red Sea to predict its own potential reserves. The Saudi Arabian reserves “may differ” but the Sudanese reserves “may be the same structure and stratigraphy” as Egyptian geological formations, stated Abd El Salam. Explaining why Egypt can’t rely on estimated potential reserves in Saudi Arabian waters, Shohdy said that “we can rely on Sudan’s potential since it could be considered in the same structural regime in the southern part of Egypt, but the potential is not as promising. While for [the] Saudi side, it could be considered as a different block with a rift action, such as the case of the Western Desert in Egypt and Sinai.”
Exploration Challenges
Although the Red Sea area is very promising, there are some challenges facing E&P activates in the area due to its rough seafloor topography; complicated geology under thick, salt deposits; and its pristine ecosystem. “It is [a] deepwater and remote area with little geological information” that will require the use of the “best experts” and technology to manage risk, Ghanim said.
Abd El Salam expressed a similar opinion, “the main challenges may be the reserves in the area.” Shohdy explained that the main deepwater challenges are the lack of source and reservoirs rocks, such as cretaceous deposits, and the salt problem, as it thick and movable. He further mentioned that expensive drilling costs in deepwater could prove the main challenge to E&P activities in the area.
With the average cost of a deepwater rig at approximately $600 million, drilling costs could be a serious deterrent. Saudi Arabia, which already has vast petroleum resources, has been slow to tap its Red Sea potential although the basin may be one of the last great exploration frontiers for the kingdom. Still, the Red Sea is on the government’s radar, according to Henni.
The main challenges confronting exploration activities in the seared Sea, Ayyad concludes, are “high Geothermal & Geo-pressure gradient, thick salt deposits that may cause drilling hazards; seismic data quality, particularly, beneath the salt, that require special processing techniques to enhance data quality; unexpected hazardous shallow gas pockets which require close attention while drilling; excessive deepwater render drilling very much costly; and distance from onshore facilities.”
After many years of overlooking it, Egypt—following Saudi Arabia and Sudan—has decided to unleash the oil and gas potential of the Red Sea. The ongoing seismic data collection is the first step in the exploration for oil and gas in the Red Sea. This road, however, despite its promise, holds significant technical, financial, and logistical challenges for E&P.
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