Egypt's natural gas law supports energy development

The Natural Gas Regulatory Act, or Law No. 196 of 2017, which was approved by the House of Representatives in the summer of 2017, is the culmination of a long legislative effort by the government. The drafting of the law began shortly after the election of President Abdel Fattah El Sisi in 2014, and the completion of this process followed thereafter in October 2015. By that time, the proposed legislation had become the centre of international attention due to the Italian company Eni’s discovery of new Egyptian gas reserves estimated at 30trn cu feet. The exploitation of the newly discovered Zohr field is expected to make Egypt self-sufficient in terms of gas supply, and allow the country to regain its status as a gas exporter.

The framework according to which this transformation is to take place was therefore of significant interest to global energy giants, investors and a domestic private sector which has hitherto enjoyed only limited access to the downstream gas market.

In December 2016 the draft legislation was submitted to the Parliament, and in August 2017 the president signed the Natural Gas Regulatory Act into law. The issuance of the law’s executive regulations in February 2018 completed the legislative framework for the development of Egypt’s gas industry.

PUBLIC TO PRIVATE: The primary significance of the new law is that, after decades of state domination of the industry, the private sector has at last been granted an opportunity to participate in downstream gas activity. Activities which might potentially be undertaken by private players include transmission, distribution, storage, liquefaction, regasification, shipping and supply – all of which have historically been carried out by state organisations such as the Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS). Under the new law, private companies are permitted to import natural gas directly, a measure that will provide a useful boost to supply. Private sector companies will enter the market under the law’s third-party access policies, and this process will be overseen by a new supervisory body: the Gas Market Regulatory Authority. The regulator has been mandated to grant licences to gas market parties, ensure the competitiveness and transparency of the sector, set tariff schedules for the use of transfer and distribution grids, and settle any disputes that might arise between competitors.

LOOKING AHEAD: The introduction of the natural gas act promises to radically alter the structure of the market over the coming years. EGAS and EGPC, currently the only bodies involved in gas transmission, will be joined by newly licensed transmission system operators, which will own and operate the main pipelines that feed into distribution hubs. A number of new local distribution companies will build and operate the networks that supply end users, as well as the government, with useful data on gas consumption. Both pipeline operators and distributors can set their pipeline usage fees, a liberty which will engender greater market competition. Elsewhere in the system, the regulator is expected to issue licences to storage providers, whose business model will be based on charging gas producers for their services.

By August 2017 EGAS had already granted three companies preliminary approvals to import natural gas and deliver it through the national network. The passing of the law’s executive regulations means that the new regulator is able to issue licences to these companies. The speed at which the regulator grants further licences will determine the rate of transition from a public sector-operated market to one in which the government’s role is largely limited to a supervisory function. In the interests of supply stability, this process is likely to be incremental. In November 2017 the Ministry of Petroleum and Mineral Resources indicated that it was aiming for a fully deregulated market by 2022, an outcome which would bring the process that began in 2014 to a successful conclusion.