Tag Archives: jordan

Egypt Sees Some Hope in Nat Gas Tenders, But Will it Be Enough?

Following earlier reports pointing to an expansion of Egypt’s energy exploration and production, Cairo announced last week that they would offer a tender for a collection of on and offshore blocks for natural gas efforts taken on by international partners. The tender was announced after winning approval from the country’s Defense Ministry, clearing the way for the Egyptian Natural Gas Holding Company (GASCO) to begin offering the tender this week and for the next several months.

The exploration effort follows in the footsteps of a number of regional neighbors who have launched similar offshore natural gas efforts, including Cyprus, Lebanon and Israel. Those blocks included in the tender will be located very near or on the country’s maritime border with Israel, offering access to an estimated 223 trillion cubic feet of reserves, according to a United States Geological Survey analysis of the area. Of the 15 total areas included in the tender, 13 are offshore and six are located in waters bordering Cyprus and Israel.

The announcement comes as the country tries to stabilize both their energy and political situation, the latter of which has received a blow in the last week after former president Hosni Mubarak was sentenced to life in prison. Further, the political void he left behind is expected to be filled by either a former Mubarak military official or conservative Islamic candidate  – neither of which appeals to the country’s center or the revolutionary groups the led last year’s protests.

Meanwhile, the country’s energy sector is still reeling from cuts in exports and production brought on by a series of attacks on pipelines in the Sinai and an investigation into corrupt sales practices under the Mubarak government. While Cairo has been able to get deliveries of customers in Jordan back on line, the situation led to an eventual suspension of natural gas deliveries to Israel.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales.

Concerns about that debt and the ability of Cairo to ensure the money to pay for it have been credited for three major fuel shortfalls so far this year, the latest of which saw petrol stations and other sources closed or facing substantial delays last week. According to the Ahram Online news site, the country relies on imports for only 10 percent of its energy needs but has consistently faces funding obstacles, made worse by the unstable environment that has followed the government hand-over.

According to a recent Bloomberg report, the situation has required the country’s finance minister to announce a planned $100 million injection to help the local market meet domestic needs.

The actual shortage has been linked to a number of explanations, from the high consumption of the agricultural sector to a more conspiratorial angle that points to former Mubarak officials planting seeds of instability before the country’s run-off election in mid-June, but the end result and solutions are the same. Egypt needs to increase domestic production and address their liquidity challenges and they need to do it fast. Until they do, suppliers will continue to be wary about signing on to provide for the Egyptian markets or take part in an upcoming $1 billion tender.

The country’s fuel situation reflects a much larger challenge on the part of the new government and whoever wins this month’s runoff to offer some assurance to international lending institutions.

“After the outcome of the first round (of the election), we are much more bearish,” an economist at a major foreign bank, who did not wish to be identified told Reuters. “We see a lot more instability, but the major risk is the long-term outlook. This result does not unlock the situation.”

The report went on to say that Egypt would need a minimum of $11 billion over the next year “to stave off a balance of payments crisis and a potential devaluation of its currency”, making any appeal to foreign investors all the more important to weathering the fiscal storm ahead.

While the active development of the country’s natural gas reserves would undoubtedly help alleviate some of that debt and ease the country’s domestic energy demand, it is far from clear whether foreign companies view Egypt as a safe bet. Lingering uncertainty about the county’s stability and ability to ensure a stop in attacks in the Sinai have continued to hinder interest as Cairo struggles to sell themselves as a reliable energy bet.

Image: Jafria News

Originally Posted at Newsbase’s Afroil Monitor. All rights reserved.

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Egyptian Energy Presses Ahead Despite Criticism

Despite extensive efforts, Egypt has struggled to get their economy back on track in the year since widespread public protests led to the ousting of long-standing president Hosni Mubarak. Political instability and uncertain investors have kept needed international funding at bay, as Cairo works to establish a solid foundation for the country’s first new government after decades of Mubarak leadership. The country’s coveted tourism sector remains weak and despite enormous reported potential, Egypt’s renewable industry has been slow to start as investors and international financing agencies adopt a ‘Wait-and-See’ attitude.

Still, despite the stagnate pace of growth and economic recovery, one sector of the country’s economy has continued to shows signs of life – Egypt’s oil and natural gas producers. According to United States National Public Radio report this week, the country’s General Petroleum Company, the government office charged with making final decisions on exploration and production agreements, has continued to add to the country’s 148 standing partnerships.

The continued rounds of licensing for both on and offshore efforts comes despite strong criticism aimed at how such efforts were carried out under the Mubarak government, with critics leveling complaints at a perceived lack of transparency about pricing and the amount of domestic reserves set aside for exporting.

The continued lack of transparency surrounding the natural gas deals has critics worried that even with Mubarak gone, the Egyptian government may still be allowing the kind of controversial agreements that led to a wave of protest earlier this year. The backlash came soon after an investigation uncovered payment agreements with Israel and Jordan for Egyptian natural gas that assured under-market prices in exchange for benefits for local government officials. While Jordan was quick to work out a renegotiated deal, contested trade agreements with Israel added to existing strain between new political leaders in Cairo and its eastern neighbor.  The situation was further complicated by a series of now 14 attacks on natural gas pipelines in the Sinai region of Egypt, halting exports again and again. Energy relations between the two countries showed little sign of improving after Cairo cancelled a 2005 export agreement with Israel, who currently depend on Egypt for 40 percent of their energy needs.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales. This comes despite the country’s own 78 trillion cubic feet of proven natural gas reserves. This debt has recently increased, according to the report, due to late payments as a result of the country’s recent political instability.

Further complicating the situation for the government and local partners, the country’s recent uncertainty and apparent high cost of operating in Egyptian territory has pushed some international firms to reassess their presence there. In November of last year, Royal Dutch Shell handed back an offshore block, stating that the high costs of operating there overshadowed the possible rate of return.

Still, many firms are looking past the country’s current predicament and ahead to a potentially calmer new year, including Houston’s Apache and the UK’s BP, who are hoping to capitalize on a 2010 offshore effort. In fact, it is the government’s willingness to pursue new deals despite the country’s current challenges that has Apache feeling confident about the months ahead.

“Our operation has continued [uninterrupted] and supported by government partners as evidenced by the issuance of new…leases,” Apache President and Chief Operating Officer Rodney Eichler said, according to a Dow Jones report. “We are optimistic for Apache’s future in Egypt.”

Given the financial limitations of the country’s current government, anything more than new licenses may be too much to hope for. Burdened by significant budget shortfalls, the Egyptian government will be unlikely to consider any price renegotiations with existing production partners, regardless of the additional risks now associated with operating in the country.

However, regardless of either company’s intentions or interests, existing deals could soon come under scrutiny should critics chose to build on the investigation that put a spotlight on the Israeli and Jordanian deals.

“Some terms that are now in question are part of the 2010 deal with BP for the extraction of deepwater Mediterranean gas,” reported NPR. “While many details of the deal have not been made public, it has many critics.”

A similar threat of agreement reviews has foreign partners on edge in Libya, where the country’s transitional government has pledged to take a closer look at those oil and gas agreements completed under Gadaffi.

Originally Published at Newsbase’s Afroil Report. All Rights Reserved.

Image: Modern Egypt.info

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Egypt Seeks Pipeline Solutions but Little Official Support

As Egyptian security and political forces have sought ways to combat attacks in the Sinai Peninsula that have led to 13 pipeline delays since the fall of Hosni Mubarak last year, it has become clear that ensuring the transport line or finding ways to ensure existing deliveries may not be as important as once thought – at least in terms of trade with Israel.

This month saw the country’s People’s Assembly vote to cut off natural gas exports to Egypt’s neighbor in response to allegations that the outgoing Mubarak government had sold to Tel Aviv at under-market prices, angering a government body that has already expressed their intention to review and revise all existing relations with their neighbor.

The move comes following a months-long deterioration of the security situation in the Sinai region of the country attributed to Bedouin groups, which has included both attacks on the pipeline and a third case of kidnapping last week. While unlikely to signal a wider halt to energy exports, some analysts have pointed to the shutdowns and lack of political will as a signal of greater internal use of Egypt’s energy resources.

So far, according to an off the record comment from a state official, the attacks have caused upwards of $160 million in losses for the Egyptian government, according to the country’s Al-Ahram newspaper.

Opened in 2008, the pipeline in question was meant to provide for 20 to 25 percent of Israel’s energy needs, but the country has so far expressed little concern for the long-term consequences of a prolonged or complete halt in deliveries, pointing to the potential of offshore reserves to make up the difference. However, according to a USA Today report, the pipeline shutdown could do much to damage relations between the two countries.

Emerging as the unintended victim of both the attacks and the lack of Assembly support for the situation, Jordan has been left to find viable alternatives to the loss of imports. Recent shutdowns due to the now 13 attacks have resulted in widespread energy shortages. Even efforts to curb their dependence on the pipeline have resulted in spikes in costs as the country’s shifts away from natural gas towards electricity plants that use diesel or crude.

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