Egypt is a significant oil producer and a rapidly growing gas producer. The Suez Canal and Sumed Pipeline are strategic routes for Persian Gulf oil shipments, making Egypt a focal point in world energy markets.
Note: Information contained in this report is the best available as of December 1999 and can change.
GENERAL BACKGROUND:
The Egyptian economy has made remarkable progress in the 1990's, as the government has implemented reforms under an IMF stabilization program since 1991. The government also has accelerated the privatization of state-owned enterprises, whose losses were a major drain on the state treasury, and liberalized rules for foreign investment, resulting in greatly increased foreign business interest in Egypt.
Subsidies have been cut (except for a few basic items such as staple foods), which has contributed to a reduction in the government's budget deficit to around 1 percent of gross domestic product (GDP).
Egypt's government plans to accelerate its program for the privatization of state-owned enterprises (SOE's). The privatization program moved slowly in the early to mid-1990's due to the large debts of SOE's and severe overstaffing (layoffs were largely prevented by regulations).
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 - remains off limits). Reliance on build-own-operate-transfer (BOOT) contracts, especially for power generation projects, seems to be increasing.
Egypt also has embarked on a program to develop infrastructure in uninhabited or sparsely inhabited areas of the country, especially the massive Toshka irrigation project in the Western Desert. The goals are to facilitate a move of population out of the crowded Nile Valley and to increase agricultural production.
Energy will continue to play an important role in Egypt's economy. Oil exports account for about 40 percent of the country's total export revenues. The government has been successful in curbing domestic demand for petroleum products by reducing subsidies and encouraging consumption of natural gas. New natural gas finds, especially in the Nile Delta region, will soon give Egypt enough production capacity to become a significant gas exporter.
OIL:
Egypt produced an average of 866,000 barrels per day (bbl/d) of crude oil during 1998. This is a decline from a high point of 922,000 bbl/d in 1996. With domestic oil demand increasing due to economic growth, there are fears that the country could become a net oil importer by 2005-2010.
Egypt is hoping that exploration activity, particularly in new areas, will discover sufficient oil in coming years to maintain crude oil production comfortably above 800,000 bbl/d. Egyptian oil production comes from 4 main areas: the Gulf of Suez (over 70 percent), the Western Desert (about 16 percent), the Eastern Desert, and the Sinai Peninsula. Egypt's proven crude oil reserves are estimated at 3.5 billion barrels.
Oil from the Gulf of Suez basin is produced mainly by the Gupco (Gulf of Suez Petroleum Company) a joint venture between BP-Amoco and the Egyptian General Petroleum Corp. (EGPC).
Production in the Gupco fields, with most wells in operation since the 1960's and 1970's, is falling rapidly, although it remains substantial at around 360,000 bbl/d. Gupco is attempting to slow the natural decline in its fields through significant investments in enhanced oil production as well as increased exploration.
BP Amoco has announced that it intends to invest $450 million over the next six years in technology to prolong the production life of Gulf of Suez fields. Besides Gupco, 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).
Egypt's total oil production has declined more slowly than Gupco's due to new output from independent producers like Apache and Seagull Energy at smaller fields, especially in the Western Desert. Crude production in the Qarun block, for instance, surpassed 40,000 bbl/d in mid-1997, up from 5,000 bbl/d in late 1995.
In October 1997, Apache and Seagull announced a "significant" oil discovery in the East Beni Suef concession (which they share 50/50), also located in the Western Desert. The field is said to contain around 100 million barrels of crude oil. Overall, Egypt now gets around 16 percent of its oil and 30 percent of its natural gas from the Western Desert.
Development of new fields in the Qattara Depression and the North Coast's El Alamein are expected to add 40,000 bbl/d in new production as they come online in the next few years. Recent discoveries in the Western Desert include: a find south of Dab'a (93 miles southwest of Alexandria), another at the Qaroun concession (43 miles southwest of Cairo), and one in the Meliha concession area (50 miles southeast of Mersa Matrouh).
Spain's Repsol is currently expanding its oil output in Egypt's Western Desert to 60,000 bbl/d (from 32,000 bbl/d in early 1997). A joint venture of Repsol (50%), along with Apache (40 percent), and Australia's Novus (10 percent), operates the Khalda concession, currently producing 35,300 bbl/d of oil.
In September 1998, the partners announced that they would double their investment to $100 million at Khalda over the next two years in order to increase oil production to 40,000 bbl/d by the end of 2000. In October 1999, a new test well in the central Khalda concession produced a flow of 3,000 bbl/d.
Suez Canal / Sumed Pipeline:
In addition to its role as an oil exporter, Egypt has strategic importance because of its operation of the Suez Canal and Sumed (Suez-Mediterranean) Pipeline, two routes for export of Persian Gulf oil. Tanker traffic and revenues have declined in recent years as a result of competition from oil pipelines and the alternate route around the Cape of Good Hope in South Africa. Suez Canal tolls in 1998 fell to $1.76 billion, from $1.79 billion in 1997, the fifth consecutive annual decline, despite efforts to win back market share.
In late December 1997, for instance, the Suez Canal Authority (SCA) announced that it would not raise canal transit fees for the fourth year in a row. The SCA also said it would offer a 35 percent discount to liquefied natural gas (LNG) tankers in 1998, as well as other discounts for oil tankers.
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 the Dashour pumping station, located south of Cairo, 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 percent), Saudi Arabia (15 percent), Kuwait (15 percent), the U.A.E. (15 percent ), and Qatar (5 percent). The APP also has been increasing storage capacity at the Ain Sukhna and Sidi Kerir terminals.
Source:United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)
