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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region Focus International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Questionable optimism
By Aziza Sami
Figures issued by the cabinet last week indicate that there is a $450 million trade deficit in the petroleum sector. The announcement came on 1 July, the same day that the new state budget was enacted. According to the budget, the petroleum sector will generate a surplus of $755 million. However, judging by the actual performance of the petroleum sector over the past year, the government's oil revenue forecast seems to be a little overly optimistic.
Last week, when asked by a foreign investor how contracting oil revenues can be expected to bolster Egypt's seriously dwindling foreign currency reserves, Minister of Petroleum Sameh Fahmi said that this would be answered, "later, not now." With oil imports on the rise, due to declining reserves and rising domestic consumption, the answer will probably come much later. Recent financial setbacks in the oil sector indicate that the hoped for revitalisation will probably not occur in the foreseeable future.
The Egyptian General Petroleum Corporation (EGPC) has announced that it will reduce the price of crude oil exports in response to the OPEC decision last month to raise their production ceiling to 25.4 million barrels per day. Compounding this fiscal setback, revenue from the Suez Canal declined in the first quarter of this year. In particular, the volume of oil passing through the canal dropped 938,000 tons between January and March. In May, in an effort to bolster foreign currency reserves, which currently stand at a little over $15 billion, butane imports were reduced. However, domestic demand made this policy unsustainable. The Ministry of Petroleum needed to reallocate $500,000 to relieve a severe shortage.
In order to generate the projected revenue surplus, Egypt's oil and gas sector must simultaneously meet burgeoning domestic demand while increasing export revenue. Ideally, Egypt's estimated 70 trillion cubic feet of untapped natural gas reserves will become an engine of export-led growth. However, market and infrastructure realities may make this problematic.
To date, Egypt has not finalised any export agreements for its natural gas. Although a memorandum of understanding was signed with Turkey in 1996, the Turkish government is seriously considering an Azerbaijani bid. Europe should be a prime candidate for Egyptian gas, but there are no economically viable means of delivery. Recent negotiations to export gas to Europe via a Libya based pipeline have proved disappointing. Yet, Spain has expressed interest in Egyptian gas. The Ministry of Petroleum has announced "informal" plans to begin exporting natural gas to Israel.
Across the Mediterranean region the gas trade is expected to rise to 3.3 trillion cubic feet annually over the next two decades. It will mostly serve EU demand. However, if Egypt seeks to enter the European market it must overcome stiff competition. Algeria alone has the capacity to satisfy a substantial portion of the EU's energy needs. The success of Egyptian export plans depends on how efficiently it can compete in relation to giant competitors such as Algeria and Qatar.
In a drive to make the oil sector more efficient, the government is planning to privatise oil distribution this year. It is also seeking greater private investment in state-owned fields. Tenders from large multinationals to develop untapped deep sea reserves are also being investigated. Throughout the sector, ventures are being undertaken to foster much needed export-oriented activity. Indeed, the petroleum sector must continue to maximise efficiency or else Minister of Petroleum Sameh Fahmi will never be able to answer that pesky question.
Transparent gas
Sameh Fahmi
"ANY NEGOTIATIONS for the export of natural gas are open and transparent," Minister of Petroleum Sameh Fahmi said at the American Chamber of Commerce last week. The comment came in reference to the prospect of exporting Egyptian natural gas to Israel. "A pipeline is being built by private investors to extend gas to Israel," said Fahmi. "Egypt is also considering several other markets in Europe, primarily Spain," added Fahmi.
The Israel pipeline venture will see the collaboration of Egyptian Petroleum Corporation, the Italian oil company Eni and BP-Amoco. The US has also offered financial assistance. Ever since the 1996 MENA conference, Eni has been a vocal advocate of what the Italian firm refers to as the "peace pipeline." Ultimately, the goal is to link Israel and the Arab countries to a common natural gas grid. This would create what company officials describe as an "integrated gas market in the Mediterranean region."
Fahmy's statement comes less than one month after an Egyptian government spokesman denied that Egypt had asked to export its natural gas to Israel. The spokesman said he was responding to a suggestion by the Knesset that Israel halt on-going negotiations with Egypt on the issue.
