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Egypt is a significant oil producer and a rapidly growing natural gas producer. Projects currently under construction will likely make Egypt an exporter of liquefied natural gas (LNG) by early 2005. The Suez Canal and Sumed Pipeline are strategic routes for Persian Gulf oil shipments, making Egypt an important transit corridor.
Note: Information contained in this report is the best available as of January 2003 and can change.
Several of Egypt's key sources of hard currency revenue have been negatively impacted as a result of regional tensions and fears of war and terrorism. The tourism sector has been hit hardest, and revenues from the Suez Canal also have declined. In a normal year, tourism revenues account for about 5% of Egypt's GDP, and are among the country's five main sources of hard currency inflows (the others being remittances from Egyptian workers abroad, oil exports, Suez Canal tolls, and foreign aid). Over the longer term, Egypt's macroeconomic prospects may be more favorable, provided progress is made on such structural issues as privatization, trade liberalization, and deregulation. Egypt's main challenge is matching employment growth to the nearly 800,000 new job seekers coming into the labor market each year. Unofficial estimates put Egypt's unemployment rate in the 15%-25% range, roughly twice the official figure. To lower unemployment, Egypt needs to maintain a high rate of GDP growth and to bring in more foreign investment.
Egypt's government plans to accelerate its program for the privatization of state-owned enterprises (SOEs), though to date the privatization program has moved slowly due to the large debts of SOE's and severe overstaffing (layoffs are still difficult due to labor regulations). In recent years, the private sector percentage of overall Egyptian GDP has been growing by around 1.5% per year, with 110 SOEs having been privatized since 1994. In the future, the government plans to target "strategic" areas for privatization, including telecommunications and other utilities, including the Egyptian Electricity Authority, although the Egyptian General Petroleum Corporation (EGPC) and the new natural gas entity, Egypt Gas (EGAS), remain off limits.
Energy will continue to play an important role in Egypt's economy in coming years. While oil exports have been declining as production has fallen at mature oilfields and domestic consumption has risen, natural gas exports are expected to become a major source of hard currency revenues over the next decade.
Oil from the Gulf of Suez basin is produced mainly by Gupco (Gulf of Suez Petroleum Company), a joint venture between BP and the Egyptian General Petroleum Corporation. Production in the Gupco fields, with most wells in operation since the 1960s and 1970s, has fallen in recent years. Gupco is attempting to slow the natural decline in its fields through significant investments in enhanced oil recovery as well as increased exploration. BP is undertaking a program to invest $450 million over six years (starting in 1999) in technology to prolong the productive life of Gulf of Suez fields. Egypt's second largest oil producer is Petrobel, which is a joint venture between EGPC and Agip of Italy. Petrobel operates the Belayim fields near the Gulf of Suez, and also is undertaking an upgrade program to stem declining production. Other major companies in the Egyptian oil industry include Badr el-Din Petroleum Company (EGPC and Shell); Suez Oil Company (EGPC and Deminex); and El Zaafarana Oil Company (EGPC and British Gas -- BG). A new oil find was reported in October 2001 in the Gulf of Suez. Canada's Cabre Exploration reported a drilling success in the offshore East Zeit block which tested at around 8,000 bbl/d, with reserves estimated at 60 million barrels. A new concession was awarded in August 2002 to Dover Petroleum of Canada for the East Wadi Araba area in the Gulf of Suez. Dover announced in January 2003 that its initial well had shown oil, though assessment of the well is still underway.
Egypt's overall oil production has declined more slowly than in the Gulf of Suez fields, due to new output from independent producers like Apache and Seagull Energy at smaller fields, especially in the Western Desert and Upper Egypt. Crude oil production in the Qarun block in southern Egypt reached around 60,000 bbl/d by early 2000, but has since fallen to 36,000 bbl/d. Apache and Seagull have developed the Beni Suef IX field in the East Beni Suef concession in Upper Egypt, which produces over 5,000 bbl/d. The field is said to contain around 100 million barrels of crude oil. A joint venture between EGPC and Agip also is producing about 50,000 bbl/d from an area in the Qattara Depression in the Western Desert, in the Meleiha and West Razzaq blocks.
Offshore oil production possibilities in the Mediterranean are beginning to be explored. The largest concession awarded went to Shell, in February 1999, for a large deepwater area off Egypt's Mediterranean coast. BP Amoco and TotalFinaElf also were awarded a large offshore block from the same bidding round. A smaller offshore concession was awarded to Italy's ENI-Agip. While most discoveries offshore from the Nile Delta have been natural gas, it is believed that there may also be large quantities of oil in the area. Shell reportedly is optimistic about the prospects for its North East Mediterranean Deepwater concession, and its first two test wells have been successful.
Suez Canal / Sumed Pipeline
The SCA is continuing enhancement and enlargement projects on the canal. The canal has been deepened so that it can accept the world's largest bulk carriers, but it will need to be deepened further to 68 or 70 feet, from the current 58 feet, to accommodate fully laden very large crude carriers (VLCCs). The SCA has attempted to reach an agreement with its main competition for northbound crude traffic, the Sumed pipeline. Such an agreement could bar any tanker small enough to traverse the canal from transporting oil through the pipeline. The SCA offers incentives for tankers to off-load a portion of its cargo through the Sumed, allowing for passage through the canal, and reloading at the other end of the pipeline.
The Sumed pipeline is an alternative to the Suez Canal for transporting oil from the Persian Gulf region to the Mediterranean. The 200-mile pipeline runs from Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean. The Sumed's original capacity was 1.6 million bbl/d, but with completion of additional pumping stations, capacity has increased to 2.5 million bbl/d. The pipeline is owned by the Arab Petroleum Pipeline Company (APP), a joint venture between Egypt (50%), Saudi Arabia (15%), Kuwait (15%), the U.A.E. (15%), and Qatar (5%). The APP also has been increasing storage capacity at the Ain Sukhna and Sidi Kerir terminals.
The new 100,000-bbl/d MIDOR (Middle East Oil Refinery Ltd.) refinery in Alexandria commenced operation in April 2001. While it had originally been planned as a primarily export-oriented project, most of its products are now sold locally. The Israeli company Merhav, which had been the largest Israeli investor in Egypt, sold its 20% stake in the refinery to the National Bank of Egypt in June 2001. Negotiations are reportedly underway with several potential Arab investors, including the Libyan government, for the sale of the Bank's ownership stake.
Egypt's government released a revised estimate of proven natural gas reserves in October 2002, which put the figure at 58.5 trillion cubic feet (Tcf), based on several new finds. Probable reserves are believed to be around 120 Tcf. Most of this increase has come about as a result of new natural gas discoveries offshore from the Nile Delta, and some finds in the Western Desert. In the Nile Delta, which has emerged as a world-class natural gas basin, recent offshore field developments include Port Fuad, South Temsah, and Wakah. In the Western Desert, the Obeiyed Field is an important natural gas area currently under development.
The International Egyptian Oil Company (IEOC), a subsidiary of Italy's ENI-Agip group, is Egypt's leading natural gas producer, operating in the Gulf of Suez, the Nile Delta, and the Western Desert regions. In cooperation with BP Amoco, IEOC has been concentrating its natural gas exploration and development efforts in the Nile Delta region. On November 4, 1997, BP (along with its partners EGPC and IEOC) announced plans to develop the giant Ha'py gas field in the Ras el-Barr concession of the Nile Delta region at an estimated cost of $248 million. The field came onstream in February 2000, and has reached an output of 280 million cubic feet per day (Mmcf/d). In September 1997, IEOC tested the Temsah gas field (located offshore from the Nile Delta) at 11.6 Mmcf/d. In October 1998, BP (25% owner) and ENI-Agip signed a natural gas sales agreement with EGPC (50% owner) and IEOC (25% owner) for Temsah. Temsah's gas reserves are estimated at 3.9 Tcf, and the gas sales agreement was for 35 Mmcf/d initially in 2000, increasing to 480 Mmcf/d by 2003. ENI reported another find in its East Delta Deep Marine concession, which may hold as much as 1 Tcf of additional reserves. Canadian independent Centurion Energy reported a new discovery in the El Manzala concession, onshore in the Nile Delta, in August 2001. Centurion signed a contract in October 2002 with the Egyptian government to begin natural gas deliveries from El Manzala of 35 Mmcf/d in mid-2003.
Two areas in the Western Desert -- Obeiyed and Khalda -- have shown great potential for increasing Egypt's natural gas production in the near future. Obeiyed is producing 300 Mmcf/d, after the completion of a pipeline linking it to Alexandria. Production in the Khalda concession is currently around 200 Mmcf/d. Apache reported another gas discovery in Khalda in August 2001. Output from Obeiyed and Khalda is transported to Alexandria by a 180-mile pipeline.
Much of the growth in natural gas production in the next decade, however, will be from areas offshore from the Nile Delta. Several major new natural gas finds currently are under development. In May 1999, the Italian firm Edison and the BG Group made a large find ("Scarab/Saffron") in their West Delta Deep Marine concession, which tested at 45 Mmcf/d, followed by another ("Simian") which tested at 44 Mmcf/d in October 1999. The two companies announced in July 2000 that their second and third wells at the field also had tested successfully at a similar flow rate, which was contrained by the capacity of the equipment. Another successful test well drilled on another structure within the same concession also was announced in September 2000. The Scarab/Saffron finds are currently under development, with commercial production of 600 MMcf/d to begin in 2003. Bids were solicited in November 2002 for the development of the Simian field, which is to link into the same pipeline to the Egyptian coast as the Scarab/Saffron fields. BP Amoco and Shell also have concessions offshore from the Nile Delta, and initial seismic survey work and exploratory drilling has indicated significant probable reserves. Shell has announced that probable reserves in its Northeast Mediterranean (NEMED) concession are 15 Tcf. ExxonMobil also holds a 25% stake in this concession. BP and the IEOC also are preparing to bring several fields off the Nile Delta coast into production. BP reported a new find estimated at 500 Bcf in the offshore North Alexandria Concession Area in July 2001.
Natural gas demand has grown rapidly in Egypt as thermal power plants, which account for about 65% of Egypt's total gas consumption, have switched from oil to gas. Domestic natural gas consumers are to be served by several private distributors, franchises which were awarded in late 1998. One of the franchises, awarded to a team headed by BG and including the Egyptian construction firm Orascom and Edison of Italy, is developing distribution infrastructure in Upper Egypt as far south as Asyut, where no piped natural gas had been available. After the initial phase, valued at $220 million, a possible later phase may extend the natural gas grid south to Aswan.
The rapid rise in natural gas reserves has led to a search for export options, which has become particularly important to Egypt's future international balance of payments due to the decline in oil exports. In late 1999, the Egyptian government stated that natural gas reserves were more than sufficient for domestic needs, and that foreign firms producing gas in Egypt should seek export customers. In early 2000, the government announced a moratorium on new purchase agreements by EGPC for domestic consumption, as previously signed agreements will meet projected demand over the next several years. It also announced in September 2000 a new pricing policy which includes ceiling and floor prices, designed to protect both consumers and producers from the risks of prices indexed to oil.
The idea of exporting natural gas to Israel had been under discussion for several years, but appeared by mid-2001 to have been sidelined for the time being by the deterioration in Egyptian-Israeli relations as a result of renewed violence between the Palestinians and Israel. The most ambitious version of the scheme would have involved the construction of an offshore pipeline from El-Arish in Sinai up the coast of Israel, with a possible extension onward to Turkey. The East Mediterranean Gas Company (a consortium of EGPC, Merhav of Israel, and Egyptian businessman Hussein Salem) had been set up to pursue the project. ENI completed a pipeline up Egypt's Mediterranean coast to El-Arish, which could have served as a starting point for the export pipeline. All these plans are now on hold.
A smaller export pipeline to Jordan is currently under construction, and set for completion in late 2003. Egypt is building the section from the existing pipeline terminus at El-Arish to Aqaba in Jordan, with a subsea section in the Gulf of Aqaba bypassing Israeli waters. Egypt, Jordan, and Syria agreed in principle in early 2001 to extend the pipeline into Syria, with eventual natural gas exports to Turkey, Lebanon, and possibly Cyprus. The feasibility of this option is questionable, though, as Turkish demand probably would not support another source of piped gas (beyond agreements in place with Russia, Azerbaijan, and Iran).
Egypt's other option for exports is LNG. Two LNG projects are currently underway. The Spanish firm Union Fenosa is building a two-train liquefaction facility at Damietta, which is scheduled to begin commercial production in late 2004. Unlike most previous LNG projects, this one is not tied in directly with upstream natural gas production. Union Fenosa has contracted with EGAS for the supply of natural gas from its distribution grid, and will take all of the LNG output itself for use at the company's power plants and distribution to other users in Spain and elsewhere in Europe. ENI also has become involved in the project recently, having purchased a 50% stake in Union Fenosa's natural gas business in December 2002. The second LNG export project, at Idku, is to be built by BG in partnership with Edison of Italy. The project is tied in to natural gas reserves from BG's Simian/Sienna offshore fields, and is scheduled to begin production in 2005. Gaz de France is to be the main offtaker for the Idku LNG project, having signed a contract in October 2002 for 127 Bcf per year beginning in 2005.
Egypt has several privately-owned power plants currently under construction which were financed under Build, Own, Operate, and Transfer (BOOT) financing schemes. BOOT projects are used to fund large-scale public infrastructure without affecting the country's debt profile. Private developers are allowed to recover their costs of construction through ownership and operation of the plant for a fixed period before handing it over to the state. The first BOOT project was a gas-fired steam power plant with two 325-megawatt (MW) generating units, located at Sidi Kerir on the Gulf of Suez, which began commercial operation in late 2001. The plant cost $450 million. Electricity from the plant is priced at 2.54 cents per kilowatthour. This competitive price stems largely from the availability of cheap natural gas -- to be supplied by Egypt's Gasco -- as a feedstock. U.S.-based InterGen (a joint venture of Bechtel Enterprises and Shell Generating Ltd.), along with local partners Kato Investment and First Arabian Development and Investment, have the 20-year BOOT contract for Sidi Kerir. The second BOOT power project award went to Electricite de France (EDF), for two gas-fired plants to be located near the cities of Suez and Port Said. Each plant will have an installed capacity of 650 MW, and the project cost will total around $900 million. The price for power from the EDF plants will be 2.4 cents per Kilowatt hour (Kwh), the lowest price yet offered for a BOOT plant. The project reached financial close in April 2001. The future of BOOT financing in Egypt is unclear, however, and recent government statements indicate that no new BOOT projects are likely in the near future.
Planned future projects are two 750-MW plants planned for Nubariya in the western Nile Delta near Alexandria, a 750-MW addition to the Cairo North power complex, and smaller hydroelectric projects at Nag Hammadi and Asyut. The addition to Cairo North finally is moving forward after several years of delays, now that funding has been secured from multilateral donors. The new generating units will be owned by EEHC. The 64-MW Nag Hammadi hydropower project also is slated to begin construction this year, with European Investment Bank financing.
Egypt also is planning to build a part-solar power plant at Kureimat as a BOOT project, which will have 30 MW of solar capacity out of a total planned capacity of 150 MW. The World Bank will provide a financing package from its Global Environmental Facility which will offset the cost difference between the solar capacity and thermal capacity. A Netherlands-funded project is building 60 MW of wind power units in the Suez Canal area. Egypt also has a 22-MW nuclear research reactor at Inshas in the Nile Delta, built by INVAP S.A. of Argentina, which began operation in 1997.
Work has recently been completed on the interconnection of Egypt's electric transmission grid with other countries in the region. The Five-Country interconnection of Egypt's system with those of Jordan, Syria, and Turkey was completed by 2002. Egypt also activated a link to Libya's electric grid in December 1999.
Sources for this report include: CIA World Factbook 2002; CWC Africa Energy Alert; Dow Jones News Wire service; Economist Intelligence Unit ViewsWire; Global Insight Middle East Economic Outlook; Hart's Africa Oil and Gas; Middle East Economic Digest; Oil and Gas Journal; Petroleum Economist; Petroleum Intelligence Weekly; International Market Insight Reports; U.S. Energy Information Administration; World Gas Intelligence.
* The total energy consumption statistic includes
petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar,
wind, wood and waste electric power. The renewable energy consumption
statistic is based on International Energy Agency (IEA) data and includes
hydropower, solar, wind, tide, geothermal, solid biomass and animal
products, biomass gas and liquids, industrial and municipal wastes.
Sectoral shares of energy consumption and carbon emissions are also based
on IEA data.
OIL and GAS INDUSTRIES
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Egypt Economic Bulletin
by The Egyptian Cabinet, Information and Decision Support Center
(includes monthly Petroleum, Gas, and Electricity data)
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File last modified: January 23, 2003
Contact: Lowell Feld