Tag Archives: Sinai

Cairo’s Sinai Efforts Falling Short

Weeks after the Egyptian government pledged action to halt growing unrest in the Sinai Peninsula, military action appears to have had minimal effect on stopping violence and safeguarding the country’s energy trade route to Jordan.

The promised action followed months of growing instability in the region, beginning shortly after the fall of the government of Hosni Mubarak. In addition to a growing number of kidnappings, the Sinai saw 15 direct attacks on natural gas pipelines bound for Jordan and Israel. In early August, a single attack that led to the deaths of 16 Egyptian soldiers spurred newly elected President Mohammed Morsi to launch a military initiative aimed at bringing the region back under control. However, as recently as this weekend, attacks have continued, including one that resulted in the deaths of three police officers in El-Arish.

This latest event was followed by the dismissal of the North Sinai security chief, General Ahmed Bakr as well as protests among local police groups demanding greater attention from government forces and the passage of emergency laws. In response, Morsi once again pledged direct action, but will likely face resistance from a local Bedouin population with a long history of conflict with Cairo.

In addition to the clear goal of returning order to the country’s eastern region, the government’s efforts are especially important to protecting a natural gas export route to Jordan and beyond. Although exports from Egypt have recently halted as Cairo deals with a surge in local consumption and dwindling supply, the country’s ability to exploit domestic reserves for future growth will rely on a dependable export route to the east. According to a Jordan Times report, talks between the two governments have suggested that exports could resume as soon as next month, with a possible boost in quantity on the table.

While the government is working to address local consumption issues through a reassessment of subsidy programs and energy diversification, they have also begun pushing for greater exploration efforts, including both on and offshore projects. Recently, the Morsi government offered tenders for fifteen on- and offshore blocks for natural gas exploration.

Image: The Guardian

Originally Posted in Newsbase’s MEA Downstream Monitor

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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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Egyptian Energy Sees Some Return to Stability but Challenges Remain

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.

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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.

Challenges Remain

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.

Image: CNN Money

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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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