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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Egypt Attracts $8 billion to its Energy Sector

Egypt Attracts $8 billion to its Energy Sector

The final results of the Arab Spring’s impact on Egypt after more than two years of political turmoil remain to be seen, but Egypt’s Oil and Mineral Resources Minister Sherif Ismail is sounding an upbeat note about overseas investment, stating that foreign energy companies operating in Egypt have emphasized their commitment to research and exploration plans as well as development in Egyptian oil fields resulting in a 2013/2014 investment budget of more than $8 billion.

According to Ismail, China’s Sinopec is among the foreign firms seeking opportunities in the land of the pharaohs.

But even as relentless a flag waver as Ismail acknowledged that foreign firms working in Egypt showed an understanding of the country’s current difficult circumstances while denying reports that those companies were threatening to halt their production due to the ongoing turmoil. As proof that foreign investment interest remained firm, Egypt’s State Information Services reported that Ismail told journalists that he had signed nine energy agreements last week and this week initialed five new agreements worth $115.5 million with Canada’s TransGlobe Energy and Greece's Vegas Oil and Gas to explore oil and gas in Sinai and western and eastern deserts with more contracts to come, totaling 21 in all.

Too good to be true?

Related article: Energy Starved Jordan to go Nuclear

Egypt’s State Information Services recently reported the darker side of the country’s economic situation, noting that a recent seminar held by the Supreme Council of the Armed Forces under the title: “January Revolution and Horizons of Economic Growth” stated, among other things:  poverty rates currently stand at 70 percent; economic growth has dropped to between 1 percent and 2 percent; hard currency reserves have declined from $5.2 billion to $4 billion; foreign investments are down to zero; tourism proceeds are down by 40 percent and the Egyptian Stock Exchange has lost $2.9 billion.

Egypt’s energy sector should be a major contributor to the economy. Egypt serves as a major transit point for oil and liquefied natural gas from the Persian Gulf to Europe and Egypt is the largest non-OPEC oil producer in Africa and the continent’s second largest dry natural gas producer, exceeded only by Algeria. Egypt is the largest oil producer in Africa that is not a member of the Organization of the Petroleum Exporting Countries and according to the U.S. government’s Energy Information Administration “plays a vital role in international energy markets through the operation of the Suez Canal and Suez-Mediterranean (SUMED) Pipeline. The Suez Canal is an important transit route for oil and liquefied natural gas (LNG) shipments traveling northbound from the Persian Gulf to Europe and North America and southbound shipments from North Africa and countries along the Mediterranean Sea to Asia. The SUMED Pipeline is the only alternative route nearby to transport crude oil from the Red Sea to the Mediterranean if ships were unable to navigate through the Suez Canal. Fees collected from operation of these two transit points are significant sources of revenue for the Egyptian government.”

So, what’s the problem?

Related article: Markets Uncertain as Egypt Violence Waxes and Wanes

Political unrest. In a classic example of political turmoil shooting the national economy in the foot, the most visible effect of the 2011 revolution in the country’s energy sector has been a series of attacks on the Arab Gas Pipeline, which two years ago before political unrest unseated President Hosni Mubarak had transported natural gas to Jordan and Israel. Gas exports to both countries were significantly reduced in 2011 before grinding to a complete halt in 2012. Furthermore, growing domestic demand for oil and natural gas amid stagnant production levels has led to energy shortages, contributing to further political unrest.

If Egypt’s junta saved the country from rising Islamic political turmoil, it remains to be seen if the military can jumpstart the country’s moribund energy sector, leaving Ismail optimistically beating the drum over foreign investment while whistling in the dark.

By. John C.K. Daly of Oilprice.com




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