The nutrient-rich waters of the Nile River have nourished Egypt for countless centuries. But it is only now dawning on Egyptians that the river which has allowed agriculture to flourish in the Nile Delta is also the source of large reserves of natural gas, the sheer size of which are only now becoming apparent.

Government and international oil company officials say Egypt is on the cusp of becoming a significant exporter of natural gas to the fast-growing energy markets of the Mediterranean rim.

A string of recent discoveries in the waters off the Nile Delta have confirmed Egypt's potential to develop a new source of export revenue.

Earlier this year, Sameh Fahmy, the petroleum minister, spoke of reserves as great as 120 trillion cubic feet, an amount that could not only meet Egypt's domestic needs for decades to come, but which could also support substantial export volumes. The projected revenue that the government could realise from a gas export scheme varies according to the size of the project, but it is estimated to be in the range of $1.5bn-$3bn a year.

International companies operating in Egypt concur with such optimistic forecasts: "In terms of potential we agree," says David Nagel, who oversees BP Amoco's gas business in the country. "Everybody is excited about what's out there," echoes Peter Dranfield, president of BG Egypt. "There are buckets of the stuff."

The emergence of Egypt as a potentially significant regional gas exporter illustrates the sometimes tortured process by which gas industries are built up. Although Egypt has long been an oil producer and exporter, exploration for gas was dormant until the government introduced fiscal incentives aimed specifically at developing new sources of gas to meet domestic needs.

But the speed and high success rate with which the discoveries have been made has taken the government by surprise, although geologists say it should not have come as a shock. In geological terms the Nile Delta and its adjacent offshore area is analogous to other hydrocarbon rich deltas, such as the Niger River Delta in West Africa and the Mississippi River Delta and the Gulf of Mexico.

But discovering gas even in large quantities does not guarantee the swift development of a successful gas export industry. And in the case of Egypt the swift success rate has even caused some surprising problems.

The idea that Egypt has a potentially world-class gas resource is only now beginning to be appreciated. And there are still lingering worries in some political quarters about the wisdom of exporting an energy resource that some say should be reserved for future generations, although government officials say a political consensus is taking shape that could allow for approval of an export scheme within the next year.

Foreign companies say such a time frame is desirable if Egypt is to take advantage of what could be a relatively brief window of opportunity to establish itself in the increasingly competitive Mediterranean gas market.

The sense of urgency to choose between competing gas export schemes has been exacerbated by the fact that sometime this year the domestic gas market will be saturated.

Although BG and its partners in the Nile Valley Gas Company has ambitious plans to send large volumes to upper Egypt for use mainly in power stations and industrial plants, the pace of converting users from other fuels is likely to be measured, and depend in part on fiscal incentives from the government to do so.

If "clarity" about exports is not forthcoming in the near future, foreign companies say the delay could undermine the momentum to explore for new reserves, thus weakening Egypt's overall ability to establish itself in the markets as a credible gas supplier.

Some of the main foreign companies involved - which include BG and BP Amoco of the UK and Eni and Edison International of Italy, Repsol of Spain and Royal Dutch/ Shell - are promoting various export schemes, with Turkey - and more specifically the region around Izmir - widely seen as the potential launch customer, although Spain, Portugal, Italy and Greece are also deemed as possible customers of Egyptian gas.

There are a number of export proposals on the table. These include an onshore pipeline to Turkey running along the Mediterranean coast. This would be the cheapest alternative, but politically it would be the trickiest, given that it would run through Israel. The recent discovery of gas reserves off that country poses a possible complication, as the commercial logic behind the scheme depends in part on supplying customers along the route, although Egyptian and Israeli officials continue to confer over possible purchases by Israel of Egyptian gas.

Liquefied natural gas projects are being touted by both BP Amoco and BG International and its partner Edison International, which recently signed an agreement with the Egyptian General Petroleum Corporation that could pave the way for Egypt's first LNG plant. But BP Amoco is also working hard to secure a launch customer for a separate LNG scheme which is has proposed.

BG and Edison say their scheme, which could be operational as early as 2004, is especially attractive because it could piggyback on work already being done to develop relatively shallow - and thus less expensive - fields for the domestic market, whereas BP Amoco's plans depend on developing reserves from more expensive deep-water fields.

any industry observers envision an Egyptian gas export industry that could eventually support four of more LNG trains - or separate large-scale processing units - as well as a pipeline export scheme. But converting that vision to reality in a fast evolving and increasingly fluid Mediterranean gas market will be tricky, and there is no guarantee of commercial success to match the incredible string of exploration success in the waters off the Nile Delta.


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