The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Ratings update: Eni, Egypt

A decision tool for senior executives and investors, Critical Resource’s LicenseSecure™ model assesses the likely level of political and stakeholder risk (or the health of the ‘socio-political license to operate’) for resource projects. This ratings update provides a rapid overview of a new or updated asset in the LicenseSecure ratings database, with a focus on projects in the news.

Please note that the ratings below are provisional, based in part on open source analysis and are not from client projects. (Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.)

Capture

Key development

  • In August, Eni discovered a “supergiant” natural gas field off the coast of Egypt. The Zohr field is the largest ever gas discovery in the Mediterranean. The company says it holds a possible 30tn cubic feet of gas. Eni CEO, Claudio Descalzi, suggests the field will be able to meet Egypt’s natural gas demands for at least a decade.
  • Eni started exploring at Zohr after receiving its licence in January 2014. The company aims to fast-track development and start production in 2017, a year ahead of schedule. It expects to invest between $6bn and $10bn to develop the field.

Evaluation

  • Zohr could provide multiple potential benefits for both Egypt and the region. The Egyptian government sees Eni’s discovery as an opportunity for the country to meet domestic energy demand, and to potentially become a net exporter.
  • The discovery could help attract renewed foreign investment in the Egyptian gas sector, which President Abdel Fattah al-Sisi has sought to reinvigorate following years of poor management. Attempts by previous governments to keep domestic energy prices artificially low discouraged investment in exploration. Recent reforms by Mr Sisi (including the lifting of domestic energy subsidies) have been successful at attracting foreign oil and gas investment which, following the discovery of Zohr, is expected to increase by $1bn this year.
  • Some analysts suggest that the discovery could contribute to political stability in a country which has been marred by unrest in recent years. The find will likely bolster support for Mr Sisi. A stable domestic supply of gas could serve to reduce civil unrest that has been exacerbated by regular power outages – a problem that Mr Sisi’s predecessor Mohamed Morsi could not contain. These factors together set the scene for widespread political and public support for Zohr.
  • However, uncertainties remain. For example, the discovery could impact unfavourably on regional relations, especially between Egypt and Israel. A spike in domestic production of the scale promised by Eni will significantly hit demand for Israeli gas. This could threaten to upend US efforts to use energy diplomacy to improve the historically strained relationship between Egypt and Israel. Mr Descalzi is optimistic and hopes that the two countries, as well as other regional gas exporters like Cyprus, can collaborate to form an “eastern Mediterranean hub” for natural gas. Another potential issue for Eni is that international NGOs may see the company as too close to what is widely seen as a repressive government.
  • Islamist extremism continues to be a major threat, as evidenced by the recent suspected targeting by militants of a passenger plane departing the country. While Zohr is offshore, Eni also has a presence in Cairo, the Western Desert and the Sinai Peninsula. In August 2014 an oil and gas worker was killed in the Western Desert during a carjacking reportedly undertaken by a militant group and on multiple occasions pipelines have been blown up in the Sinai peninsula. There is a reasonable likelihood of foreign firms continuing to be a target for militants, particularly as efforts against ISIS and affiliated groups are scaled up.
  • Eni knows Egypt well, having first entered the country over 60 years ago. It is therefore relatively well-placed to manage the significant challenges posed by the development of such a major discovery in an uncertain context. Even so, the risks will require extremely careful management and proactive engagement of stakeholders at the national and regional level.

 

Recent LicenseSecure ratings

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