Sticky business
Figures released by the oil industry may reveal some controversial facts,
Sherine Nasr reports
Numbers and figures are boring to many, but to an expert, they are very revealing. Despite the obvious slowdown that has struck almost all economic sectors in Egypt, the petroleum sector has consistently shown itself willing to paint an all-too-rosy picture of its performance. The past year has been no exception.
In his speech before a large gathering of petroleum industry leaders as well as the governor of Alexandria last month, Sameh Fahmi, minister of petroleum and mineral resources, underlined some important indicators of oil sector performance during financial year 2008/09.
According to Fahmi, gas, oil and condensates reserves in Egypt reached record figures during 2008/ 09. Gas reserves reached 77.2 trillion cubic feet (tcf) while oil and condensates hit 4.4 billion barrels. Total production hit 81 million tonnes equivalent with a 6.5 per cent increase compared to the previous financial year.
Promising as these figures may seem, experts are sceptical. According to Ibrahim Zahran, former chairman of Khalda Petroleum Company and member of the National Specialised Councils, these figures are in reality questionable.
"Unless there is a breakdown, it is hard to take these figures at face value," said Zahran, who added that it takes an authorised and certified consultancy firm to judge their validity. "Coming from an official source does not mean they have to be correct. There are rules to calculate possible reserves and these rules have to be implemented by specialised firms. This is simply not the case here."
Technically speaking, Zahran explained, if Egypt's gas reserves are estimated at 77.2 tcf as indicated, gas production should stand at no less than 12 billion cubic feet per day. Similarly, 4.4 billion barrels of oil reserves should reap a daily production level of almost 1.3 million barrels.
"Reserve figures released by the ministry are hardly compatible with the actual gas and oil production," said Zahran, who added that Egypt's gas production is estimated at six billion cubic feet per day while oil production does not exceed 530,000 barrels per day (bpd).
Further, this wide gap between actual production and declared reserve figures is not the only dilemma. Zahran poses another question, "What is Egypt's share of the production, and does it cover local consumption?"
Statistics recently released by the Central Bank of Egypt (CBE) underlined that Egypt's production of natural gas for 2007/08 was estimated at 42 million tonnes equivalent of which Egypt's share was estimated at 23.5 million tonnes equivalent. As local consumption jumped to 27.6 million tonnes equivalent, the deficit of 4.1 million tonnes equivalent of gas was purchased from foreign partners at a net cost of $691 million. "This represents the difference between the purchasing cost and the sale cost. This figure further increased in the fiscal year 2008/09 to $804 million," said Zahran.
It is worth noting that 35 per cent of electricity generation depends entirely on solar oil, which is imported at a much higher price than that at which Egyptian gas is exported. According to Zahran, if electricity generation was to depend entirely on natural gas, the deficit would then jump to at least 10 million tonnes equivalent every year.
The same scenario goes for oil whose production reached 33 million tonnes last year. Egypt's share was estimated at 24.7 million tonnes. This means that a deficit of five million tonnes of oil had to be purchased from the foreign partner's quota at a net cost of $3.9 billion.
"It is clear, then, that the recent figures released by the oil sector are good only for local consumption. Egypt actually buys oil, gas and other oil products to cover for an ever-growing local demand," said Zahran.
Focussing on foreign direct investment (FDI) flows into the sector for the same period gives rise to other controversies. According to ministry reports, local and foreign investment inflows into the sector this year are estimated at $9 billion, in addition to an estimated $520 million in FDI inflows into the petrochemical sector.
Ironically, ministry figures for this area sharply contradict with a previous statement by CBE Director Farouk El-Oqda , in which he indicated that net FDI into the petroleum sector declined by 53.4 per cent to $2.8 billion in 2008/09, compared to $3.7 billion for the same period during the previous year.
"The contradictions in figures can hardly be overlooked," said oil analyst Amr Kamel Hammouda. He added that the Ministry of Petroleum has been under fire for an unplanned policy of exporting Egyptian gas at marginal prices, particularly to Israel. While the ministry is praising its efforts to increase Egypt's total exports of oil, gas and petroleum products which, according to its report have reached $11.4 billion in 2008/09, oil analysts argue that the exports do not necessarily mean adding more profits to the Egyptian economy. "On the contrary, these sales may be carried out at a great loss," said Zahran. One good example is Egypt's imports of solar oil, which have increased threefold starting 2004/05. That was when Egypt started to export its gas. In 2008, the country purchased solar oil at a cost of $1.7 billion, Zahran said.
Thus, while the ministry is keen to magnify Egypt's gas and other petroleum product exports, energy experts are inclined to believe that the country's traditional energy resources are scarce and thus should be handled more efficiently and carefully.
A look at the oil sector's contribution to the state coffer during the past decade may prove their point. In 1999/2000, the oil sector contributed some $2.4 billion, which dwindled to $800 million the following year. The curve went further down along the years until in 2005/06, oil subsidies for the first time reached LE23 billion. Subsidies continued to climb, reaching LE71 billion in 2007/08.
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