Politics in Oil and

The Political economy of Gas Industry

energy in the Eastern Course Code: ELEP 423
Mediterranean -1

“ Case study: Egypt” 4th year Students -Term8

2022-2023
. Lecture 6

College of International Transport and Logistics

Dr.Tarek Abbas
Energy & Petroleum Logistics Management Department
Preface
• How did Egypt’s energy crisis evolve?

• To what extent has it been resolved?

• How did the discovery of Zohr gas field

transform the natural gas industry in the region?

• What are the key features of Egypt’s gas export

infrastructure?

• Why the discovery of new natural gas reserves

in the Eastern Mediterranean change the
geopolitics of the region ?
Egypt’s Energy Crisis

Egypt as the Middle East and North Africa’s most populated and economically dynamic
country has fought to comply with its growing energy consumption in recent years.

The combination of the

gross domestic product of

US $ Billion

%of GDP
Egypt (GDP) and the
financial deficit in
percentage of GDP for the
years between 2011 and
2019 is illustrated in
opposite figure. Egypt's GDP in Dollar and Financial Deficit as % of GDP
Egypt has experienced its largest financial deficit as a percentage of GDP in the years
2013-2016 (11-13%) when spending on energy subsidies comprised the largest share
of budget expenses.

Energy subsidies also

distorted energy markets.
Primary beneficiaries

US $ Billion

%of GDP
included Egyptian and
multinational corporations, as
they tend to consume more
energy due to investments in
energy-intensive industries. Egypt's GDP in Dollar and Financial Deficit as % of GDP
• This created a further variance between
Egyptian lower and middle classes who truly
needed these subsidies, and capital classes
that used these subsidies to growing their
profit margins.
• In addition, Egypt's debts to the private sector,
particularly for foreign energy operators,
amounted to billions of dollars during this
period.
• The rise became a major worry for these
companies as it minimized confidence in the
Egyptian government ’s ability to pay its debts.
• The growth of the debt volume for the years between 2008 and 2018 is shown in the figure below .
Accordingly ,Egypt’s debt during this period was more than doubled. The financial crisis was driven by
the fall in the revenue-to-GDP ratio.
• Additionally, the large budget deficit constrained the

Debt % of GDP
Egyptian government’s ability to repay its debts to
foreign energy companies (US$ 6.4 billion) .
• In the face of such uncertainty, most of these
Egypt ,s total debt government
companies have restricted from increasing investment as % of GDP
in exploration and production activities.
• Based on this backdrop, it was the gas shortage which left the Arab world’s most populous country to
fight with blackouts when electricity demand exceeded the capacity of its mainly gas-fueled power
stations.
• Accordingly, this situation has moved the electricity and gas crises, since the country urgently needed
to upgrade its energy infrastructure to meet the needs of the growing energy demand.
• UAE, Saudi Arabia and Kuwait had
underwritten aid value of about US$ 10
billion for Egypt in the fiscal year of 2014. 2014

• Egypt then had to borrow a large amount

from the International Monetary Fund
(IMF). These funds were conditioned on
the implementation of structural
adjustment programs (SAPs) and enforced
a series of reforms on Egypt's existing
welfare policies, including subsidies for
energy products.
Egypt executed a set of three objectives to
resolve the energy crisis and improve the Total power consumption by sector in Egypt
efficiency of energy markets:- 1990-2017

kilotons of oil equivalent

1-it cut the gas flowing to energy-
intensive industries and rearrange the
distribution of energy supply.
2-It started on a five-year energy subsidy
removal plan and focused on correcting
the budget deficit.
3-It repaid all its debt to foreign energy
companies to prompt them to boost Egypt’s power consumption is shown for the years
between 1990 and 2017. Energy consumption has
exploration to enhance energy supply significantly increased over the years.
• The subsidies that the Egyptian government spends on energy products as a percentage of total
government expenditure in the years between 2013 and 2018 is shown in the figure below.
• The subsidies available for energy products for the years 2013-2015 account for a significant share of
the total government budget. Fuel subsidies alone accounted for average 18% of total government
expenditure in these years.

• In the year 2016 , however

there is a sharp fall in
subsidies available for energy
products from 21.9% to 9.7%,
and a large increase in
spending on investment
expenditure from 6.7% to
8.5%.In the year 2017 more
improvement takes place. Energy Subsides and investment expenditure as % of total government expenditure
• Year 2016 is the year that the
Egyptian government signed the
three-year extended funding program
worth US$12 billion with the IMF.
• It was part of the condition that the
program demanded from the
Egyptian government to cut spending
on energy subsidies and increase
investment expenditure.
• In 2016, the government initiated a
repayment program to pay down these
liabilities and thereby promote these
operators to accelerate capacity building
in existing gas fields or begin new
exploration and production activities .

• The energy industry was also freed up to

bring in much-needed investment from the
private sector for modernization of energy
infrastructure.
Relief of The Egyptian Energy Crisis

• Natural gas balance in Egypt (2010-2022) is shown in opposite figure:

+
• It shows that after the
fiscal year of 2010, the
share of natural gas in
energy production peaked
to a level that Egypt’s gas
reserves and production
capacities could only to
accommodate domestic
consumption. Natural Gas Balance (billion cubic meters)
• Figure also shows that the
decline of natural gas
production for the years
between 2011 and the
energy crisis of 2014 .

• After the peak of the

energy crisis in 2014,
Egypt began importing
liquefied natural gas (LNG).
Natural Gas Balance (billion cubic meters)
• After the Egyptian government

began to repay foreign energy

companies operating in the country

and encouraging offshore drilling and

investment to advance Egypt’s

current energy infrastructure, this

trend started to reverse with the

discovery of vast natural gas

reserves in the deep-water of the

Mediterranean Sea Natural Gas Balance (billion cubic meters)

• Natural gas flow again started from 2017, with the discovery of large gas fields as Zohr.
Discovery of great natural
gas reserves in recent
years has given a strategic
opportunity to Egyptian
authorities to resolve the
energy crisis and
transform the country
from the status of the
importer to a net exporter.

Natural Gas Balance (billion cubic meters)

• Such a fast raise in electricity production resulted
mainly from the mega power plant project, value €6
billion Euros, which was signed on June 3, 2015,
between the representative of the Egyptian
government, Orascom Construction , Elsewedy
Electric and Germany’s Siemens AG.

• The power production from this plant added a

total of 14.4 GW of power generation capacity to
Change in Electricity prices (annual %)
Egypt's national grid, an increase equivalent to
45% power generating capacity in Egypt as of the
year 2015.
• On the other hand, the price of electricity was
increasing during 2016-2020.
• Total power generation in Egypt for the years Egypt's electricity capacity by fuel type 2010-2019 GW
between 2010 and 2019 has raised to almost
double. Egypt has a total installed capacity of 57
gigawatts and generated about 183 gigawatt per
hours in 2019 (electricity energy) .
• Egypt’s power production subsequently increased
and begin catching up with the rising demand.
Egypt’s net electricity generation by fuel type 2010-2019 GWh
• Fossil fuel-derived sources accounted
for 90% of total power generation
capacity in Egypt, and hydropower and
renewable sources made up the
remainder.
Egyptian Natural Gas Fields Distribution

• EGAS stated that some of 58% of

the total gas production is currently
obtained from deepwater fields in the
Eastern Mediterranean, and around
one-third of Egypt's output alone
drilled from the Zohr gas field.
The share of different concession areas where
natural gas is extracted in Egypt(2020)

• The graph illustrates that in addition to Egypt’s Mediterranean shores, natural gas
is drilled in three other areas: the Nile Delta, the Western Desert, and the Gulf of
Suez and Sinai peninsula with respective shares of 20%, 20%, and 2%.
Egyptian Natural Gas Production Capacity

• In 2021, the United States

was the world's largest
natural gas producer in the
world, producing nearly 948
billion cubic meters.

• Russia was the second Leading natural gas producing countries

worldwide as of 2021
largest natural gas producer,
with its production amounting
• Natural gas production in Egypt has expanded
to over 693 billion cubic
from 42 bcm in 2016 to 70.3 bcm in 2021.
meters.
Egyptian Natural Gas Export Capacity

Australia ,Qatar
and USA are the
world natural
gas exporters.
Egypt ranks 9th
with capacity of
12.2 million Countries with largest LNG
metric ton per export capacity in operation
worldwide as of 2022
year.
Local consumption Capacity of Natural Gas in Egypt

• For over two decades, Government encouraged households,

businesses and the industrial sector to use natural gas over

petroleum products for energy production.

• Natural gas consumption, as a result, increased by an annual

average of 7%, leading that around 80% of Egypt’s energy

needs to be fueled by natural gas today.

• The electricity sector notably became the largest

consumer of natural gas in Egypt, and it currently
accounts for 60% of total consumption while other
sectors such as industry, households, and others
get 40% .
Egyptian Natural gas indicators during the period from 2014 to 2021

• Before the start of production of the Zohr natural gas field

in 2017, Egypt was turned into a natural gas importer
between the years 2015-2018. Then, Egypt achieved self-
sufficiency in natural gas and resumed exports in 2021 .

• The growth rate of the gas sector recorded 4 percent

during the fiscal year 2021-2022, compared to a decline of
11 percent in 2015-2016.

• Natural gas production in Egypt increased by 66 percent to

record 70.3 billion cubic meters in 2021, compared to 42
billion cubic meters in 2016.
• According to British Petroleum report ,It ranked 13th in the world in natural gas production, and
second in Africa in 2021,. It also ranked 9Th in the world in exporting liquefied gas with quantify 12.2
million metric ton per year.
Natural gas challenges in Eastern Mediterranean

• The discoveries of large reserves of offshore natural gas fields in the Eastern
Mediterranean such as Zohr has intensified the exploration activities in this region.

• But it led to disagreements

related to maritime boundaries
known as Exclusive Economic
Zones (EEZ), increased the
competition between region's
disputed countries and also
have further acute existing
political and military conflicts.
Thank YOU
Dr.Tarek Abbas