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| Christopher Coats |
Egypt's Natural Gas Looks For Stability
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Adding to the host of challenges for a post-Arab Spring Egypt, this week saw regional media reporting a sharp decline in natural gas exports, chipping away at vital revenue for a beleaguered economy in need of positive news. According to press reports, Egyptian gas exports saw a 73.4 percent decline July alone, citing the Information and Decision Support Centre (IDSC). That dramatic reduction meant about $70 million less in energy sector revenue compared to the same period in 2013. Not relegated to natural gas, the decline also hit crude oil exports, reducing it to $350.7 million for the summer month from $398.8 million the year before.
Egypt’s export decline can be traced to a damaging combination of increasing domestic consumption during the hot summer months, which made up 65.2 percent of local natural gas, and lower production levels that have plagued the country since the collapse of the government of Hosni Mubarak in early 2011. Vital foreign participation has been difficult to ensure since 2011 due to political uncertainty and unease about the country’s sizable energy sector debt, amounting to billions owed to the very firms Cairo needs to revive lagging production numbers.
Despite these dour numbers, Cairo appears sure if can address the country’s energy challenges with new exploration efforts. On September 19, Reuters reported that Egypt’s government had moved on an earlier pledge to auction concessions, announcing the signing of $187 million in exploration agreements with a number of Western firms, as well as a Tunisian company. In December, the Egyptian government announced plans to auction 22 oil and gas concessions through this month. Promoted by Egypt’s General Petroleum Corporation and Natural Gas Holding Company, the concessions are spread across the country, including opportunities in the “Suez Canal, Egypt’s western desert, the Mediterranean sea and the Nile Delta”. The announcement comes despite reports that exploration and production firms had been hesitant about entering into Egyptian projects because of unfavorable financial requirements.
Egypt has a long history of energy challenges, though they have grown especially daunting over the last three years. With the collapse of the long-standing government of Hosni Mubarak, the country of over 80 million found itself economically isolated, which served to reduce its foreign reserves and with it, the ability to keep up payments to oil and gas importers. Despite official efforts to draw down debts to foreign firms, Cairo still owes about $5.9 billion, with most owed to BG and BP.
The possibility of addressing the country’s energy needs through a possible trade agreement with Israel is an issue ripe with controversy. Over the last three years, the possibility of buying Israeli gas has become a political land mine as critics were quick to cite investigations that allege years of selling Egyptian gas to Israel for far less than market prices. Revealed in the weeks after the collapse of the Mubarak government, the allegations included payments to Mubarak officials in exchange for low cost gas, including a now-cancelled 20-year agreement.
Link to source: http://www.forbes.com/sites/christophercoats/2014/09/25/egypts-natural-gas-looks-for-stability/
