Egypt Oil and Gas Report Q3 2012

BMI View: The advent of further political strife, relating to the presidential standoff between the military backed candidate Ahmad Shafiq and his Muslim Brotherhood opponent Mohammed Morsi, has undermined policy coherence as it relates to the country’s most significant economic sector. Now that Morsi has been confirmed as president, one thing is clear; when it comes to Egypt’s gas sector, domestic needs are going to take priority over exports, as the decision to end gas supplies to Israel confirms. This will inevitably affect the pricing climate for international oil companies operating in Egypt’s gas sector, potentially making it more of a struggle to secure internationally competitive rates when selling gas.

We highlight these trends and developments in Egypt’s oil and gas sector:

BMI expects Egyptian oil production to decline from 637,000 barrels per day (b/d) in 2012 to 578,500b/d in 2021. Consumption is expected to rise significantly, from 814,000b/d to 1.09mn b/d in the same period, quadrupling Egypt’s oil import bill in the coming years.

We do not see any proposed refineries advancing over the forecast period, and with refining capacity remaining flat, imports of refined products are set to rise from 83,000b/d in 2011 to over 370,000b/d by 2021.

Although gas production is expected to grow from 64.4bn cubic metres (bcm) to 86.5bcm in the 2012-2021 period, consumption will also rise significantly, from 47.6bcm to 70.3bcm. Gas exports (LNG) will rise modestly in the period up to 2015, but then gradually fall to below 14bcm by the end of the forecast period.

The cessation of Egypt’s gas sales agreement with Israel in April 2012 will end a significant slice of piped Egyptian exports, though flows to Jordan (the main Arab Gas Pipeline customer) will likely persist, but at lower levels than in pre-2011 times.

Much is anticipated from the newly elected (since late Q212) President Mohammed Morsi. EGPC and the other state companies will continue to push their own licensing rounds, hoping that the political challenges will not ensnare investment in upstream hydrocarbons projects