Egypt – part one:
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 November 2000 and can change.
The Egyptian economy made remarkable progress in the 1990's, as the government implemented reforms under an IMF stabilization program begun in 1991, 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.
Egypt's real gross domestic product (GDP) grew at a 5.0 percent pace in 1999, and growth for 2000 is projected at 4.5 percent. The slight slowdown in economic growth is in part attributable to the government's tight monetary policy to support the value of the Egyptian pound against the dollar, and real GDP growth is projected to climb back to 5.9 percent in 2001.
Tourism revenues account for about 5 percent 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).
Overall, Egypt's long-term macroeconomic prospects look favorable, with progress set to accelerate on such structural issues as privatization, trade liberalization, and deregulation. Egypt's main challenge is matching employment growth to the estimated 500,000 new job seekers coming into the labor market each year.
Unofficial estimates put Egypt's unemployment rate at 17 percent -19 percent, 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 (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).
In recent years, the private sector percentage of overall GDP has been growing by around 1.5 percent per year. 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).
Energy will continue to play an important role in Egypt's economy. While oil exports have been declining as production has fallen at mature oilfields and domestic consumption has risen, gas exports are expected to become a major source of hard currency revenues over the next decade.
Egypt produced an average of 852,000 barrels per day (bbl/d) of crude oil in 1999. This is a decline from a high point of 922,000 bbl/d in 1996. Meanwhile, domestic consumption of petroleum products increased from 501,000 bbl/d in 1996 to an estimated 573,000 bbl/d in 1999, in response to strong economic growth.
There are fears that the country could become a net oil importer by 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 (about 70 percent), the Western Desert, the Eastern Desert, and the Sinai Peninsula.
The Egyptian government released a revised estimate of probable crude oil reserves in early 2000, raising the figure to 8.2 billion barrels based on new finds and increased recovery ratios.
Oil from the Gulf of Suez basin is produced mainly by 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 1960s and 1970s, is falling rapidly.
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 is undertaking a program to invest $450 million over six years in technology to prolong the production 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).
Egypt's overall oil production has declined more slowly than 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 production in the Qarun block, for instance, reached around 60,000 bbl/d by early 2000.
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 48,000 bbl/d from an area in the Qattara Depression in the Western Desert, in the Meleiha and West Razzaq blocks.
Spain's Repsol currently is 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 percent), along with Apache (40 percent), and Australia's Novus (10 percent), operates the Khalda concession, currently producing 35,300 bbl/d of oil. The partners have announced a number of successful wells over the last year.
Offshore production possibilities in the Mediterranean are beginning to be explored. The largest concession awarded from the most recent bidding round went to Shell in February 1999, for a large deepwater area off Egypt's Mediterranean coast.
BP Amoco and Elf Aquitaine also have been awarded a large offshore block. A smaller offshore concession was awarded to Italy's ENI-Agip.
While most discoveries offshore from the Nile Delta have been gas, it is believed that there may also be large quantities of oil in the area. Shell reportedly is very optimistic about the prospects for its North East Mediterranean Deepwater concession, based on initial seismic survey data.
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 over the last decade as a result of competition from oil pipelines and the alternate route around the Cape of Good Hope in South Africa.
The decline seems to have stopped recently, with revenues rising slightly in 1999, in part due to new pricing offered by the Suez Canal Authority. The SCA offers a 35 percent discount to liquefied natural gas (LNG) tankers, with even deeper discounts for the largest LNG tankers, 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.
Refining and Petrochemicals:
Egypt's eight refineries are able to process more than 577,000 bbl/d of crude, with the largest refinery being the 145,000-bbl/d Mostorod refinery outside of Cairo.
The government has plans to increase production of lighter products, petrochemicals, and higher octane gasoline by expanding and upgrading existing facilities.
In addition, Egypt's Ministry of Petroleum plans to build five new refineries and petrochemical plants valued at $2.5 billion.
A contract for construction of the 100,000-bbl/d, Egyptian-Israeli joint venture MIDOR (Middle East Oil Refinery Ltd.) refinery in Alexandria entered into effect in July 1997.
The ultra-modern, environmentally-advanced facility is expected to cost about $1.3 billion and will include a 25,000-bbl/d hydrocracker. The original plan was for the facility to be mainly export oriented, with only 20 percent of production sold in Egypt, but recent reports indicate plans for 50 percent or more of the products to be sold locally, due to increasing domestic demand.
The project represents the largest Arab-Israeli joint venture to date. In January 1997, EGPC acquired an additional 20 percent equity from Israel's Merhav and from the local Hussein K. Salem Group to push its share in the venture to 60 percent. Each of the private investors retains a 20 percent share in the project.
Recent reports indicate that EGPC may intend to sell off some of its holding to foreign investors. Spain's Repsol is set to manage the plant when it comes online in 2001.
Expansions also are being planned for Egypt's petrochemical sector. The Oriental Petrochemicals Company, a local private venture, is planning to build a polypropylene plant in Alexandria that will utilize natural gas from Western Desert fields as feedstock. The plant is expected to cost about $80 million and to produce more than 120,000 metric tons of polypropylene annually.
The Egyptian Petrochemicals Company (EPC), a subsidiary of EGPC, has announced plans for two new petrochemical plants. The first is for an ethylene plant with the capacity to produce 331,000 tons annually.
A polyethylene plant with capacity of 220,000 tons also is planned, with the license for the plant having been awarded to BP Amoco Chemicals. Another polypropylene project is planned for Suez, with a 400,000 tons-per-year capacity. It will be a joint venture between EGPC, Oriental Weavers, and Persian Gulf investors.
Source:United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)
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- Egypt – Part one:
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