In the months since the collapse of the long-standing government of Hosni Mubarak, Egypt has struggled to stabilize their energy sector amid widespread shortages and a seemingly endless series of attacks on vital transport lines. Despite the uncertainty these setbacks have provided, Egypt’s oil and gas industries have seen some progress, making a needed return to stability an achievable, if still difficult goal.
Egypt’s energy sector began experiencing delays almost as soon as public protests forced military attention away from the Sinai Peninsula and towards volatile city centers. The military exit allowed rebel groups in the region to mount a series of attacks on natural gas pipelines serving customers in Israel and Jordan, halting exports and much needed revenue for the Egyptian government. The natural gas sector received another setback as allegations emerged detailing below-market deals for Israeli and Jordanian customers in exchange for payments to Mubarak officials. Both counties have begun exploring import alternatives as rising tension and repeated shutdowns have made Egyptian natural gas unsustainable.
Making matters more difficult, Egypt has experienced two massive fuel shortages brought on by panicked purchasing amid reports that the government will soon slash fuel subsidies to help deal with a mounting budget deficit. Currently, about two-thirds of Egypt’s total subsidies go towards fuel costs – an amount that is expected to increase 40 percent this year to reach $16 billion, according to the Council on Foreign Relations.
However, despite the steady stream of bad news, many oil and gas actors in the country are making strides towards sustaining and even expanding operations in Egypt’s new political and economic environment.
According to Market Watch, Houston-based Apache announced a 3 percent increase in production in Egypt’s Western Desert, reaching 203,000 barrels of oil and 880 million cubic feet of gas per day thanks to the development of seven new leases in the Faghur Basin.
Last week, Ukrainian Minister of Energy and Coal Industry Yuriy Boiko announced the country’s intention to boost production efforts in Egypt with the signing of two concession agreements for the development and operation of oil and gas fields in the Wadi El Mahareeth and South Wadi El Mahareeth oil blocks in the Eastern Desert in Egypt, according to a government release.
Meanwhile, the PetroSinai joint venture, which operates on behalf of the Egyptian Petroleum Company and MENA, announced the successful re-entry in the Lagia 6 oil field. The move is a part of a proposed development plan that will include up to 55 wells aimed at developing the Lagia Development Lease. Australia’s Beach also recently announced their intention to expand their Egyptian footprint with the development of oil finds in the country.
However, further progress in Egypt, especially among larger energy investors, could be hampered by an ongoing struggle over hydrocarbon E&P authority, which is currently under the control of the country’s military. According to Lebanon’s Daily Star, a holdover system from the Mubarak government places the final authority over exploration and production efforts in hands of generals and “military permits” that dictate when, where and how projects move forward.
The existing system was at the center of a meeting held late last month between the country’s oil ministry and representatives of companies active or interested in Egyptian projects, including BP and Enap Sipetrol.
“Egypt is investor friendly, but army restrictions make the lives of people harder,” said Marwan al-Ashaal of Enap Sipetrol, according to The Daily Star.
The meeting saw company representatives call for an overhaul of what they saw as dated production sharing agreements in order to spur needed investment and foreign partnerships.
Revising such dated systems related to the country’s energy sector could be vital to ensuring public support, but will also require a demonstration of shared benefits to the general public, not just select government officials, remarked a UN official close to energy development in Egypt last week.
In an effort to cope with the loss of revenue from severed ties with Jordan and Israel, the Egyptian government has pushed for greater trade cooperation with Sudan. Originally built on an export agreement signed in October of last year, this effort now requires Egyptian officials to take on a diplomatic role in hopes of calming tensions between Sudan and South Sudan over the disputed Heglig oilfield.
As for the capital’s struggle to deal with the now 14 attacks on natural gas pipelines in the Sinai, the government has announced a series of military efforts, stepping up their presence in the region to combat rebel groups and even collaborating with Israeli troops to address rocket attacks across the two countries’ border. The dual effort is especially difficult, as public sentiment has turned against stronger ties with Israel due to the natural gas controversy and the rise of political leaders strongly opposed to diplomatic ties of any kind between the two countries.
Despite these efforts, this week saw another attack on an oil facility in the town of El-Arish, resulting in the death of two policemen and injuring a third, according to the Associated Press.
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