Regulation of natural gas production

Ownership and organisation

What is the ownership and organisational structure for production of natural gas (other than LNG)? How does the government derive value from natural gas production?

All gas concessions are concluded with the Minister of Petroleum and Mineral Resources (MOP), represented by the Egyptian Natural Gas Holding Company (EGAS).

Under a model concession agreement, after the contractor recovers all the costs incurred as a result of exploration, development and production, the remaining produced gas is shared under a production sharing agreement between the contractor and EGAS on a quarterly basis. Additionally, the terms of the concession agreement set out the method of recovery for any taxes and customs required.

Regulatory framework

Describe the statutory and regulatory framework and any relevant authorisations applicable to natural gas exploration and production.

According to article 32 of the 2014 Egyptian Constitution, natural resources belong to the state. As such, the state retains control over its resources and may grant a party the right to exploit them through a concession agreement for a period that does not exceed 30 years. Concession agreements have the force of law and, therefore, conditions pertaining to the exploration and exploitation of natural gas in such agreements become part of the regulatory framework. The natural gas sector in Egypt is also regulated by the new Gas Market Activities Law. 

The MOP regulates the production, transmission, distribution and supply of natural gas through EGAS and the newly established Gas Regulatory Authority (GRA).

EGAS is in charge of offering bid rounds for rights to explore and develop new concession areas. Once an investor or contractor enters into a concession agreement, it is granted an exploration licence that usually lasts anywhere between seven and nine years in its specified area. If there is a commercial discovery, that licence may be extended for the purpose of production.

The GRA was established by the Gas Market Activities Law. It is an independent body responsible for regulating downstream gas activities, encouraging new investments and supervising the gas market. It is responsible for issuing licences, regulating gas market activities and resolving disputes. The authority is also entrusted with examining and inspecting gas networks and facilities to ensure that the licensees are complying with the relevant laws, regulations, licence conditions and GRA decisions. Where the GRA finds that a licensee has violated any of the aforementioned provisions, the GRA grants the licensee a timeline to rectify the commited violation. Failing to rectify or remove the violation, the GRA has the discretion to suspend or cancel the licence.

Unconventional gas production

Are there different rules for, or any restrictions on, unconventional natural gas production (including fracking)?

There are currently no particular rules for unconventional natural gas production (eg, fracking). However, now that Egypt has grown to become an emerging gas hub, we expect that there will be more rules and regulations concerning fracking in the near future.

Formerly, the first gas fracking contract was signed in 2014 with Apache and Shell Egypt in the Northeast Abu El Gharadig area of the Western Desert – the Apollonia pilot project. However, this was at a time when Egypt was going through an energy crisis, with high demand and low production levels. Since then, Egypt’s energy resources and production have strengthened, with seemingly no need to further explore Egypt’s shale potential.

The Egyptian Environmental Affairs Agency is responsible for ensuring that any drilling practices performed abide by Environmental Protection Law No. 4/1994 and its Executive Regulation to protect from water contamination.

Required security and guarantees

Are participants required to provide security or any guarantees to be issued with a licence to explore for or to store gas?

Contractors are required to provide evidence that they satisfy the required financial and technical capacities necessary to carry out their obligations under a concession agreement. As such, typically a financial guarantee is submitted by the contractor to the government prior to signing the concession, guaranteeing the performance of the contractor’s obligations during the concession's term.