Egypt has been wholly transformed, whether socially, economically or politically. Over the past weeks, analysts have been observing the changes and studying the various effects of such transformation of the whole country in general and of the petroleum sector in specific. The question that should be raised, to which extent has the petroleum industry been affected?
Egypt witnessed lately a huge transformation, which took 18 days before things start to come back to normal. As any foreign investor was closely monitoring the news and whether it is safe for his business to remain in the country. Egypt gained its position in the world as a leader to the Arab world and as a border crossing to major oil shipments. The North African country does produce oil but mostly for the local demand, natural gas is what Egypt leaning on these days.
“Egypt is not an oil producer, but it is the most populous of the Arab states, and the nursery of the political doctrines of Islamic nationalism. It also owns and embraces the Suez Canal,” said Clay Jenkinson, the famous author at Bismarck Tribune.
Egypt’s reputation as a leader came from possessing the foremost Suez Canal and the SUMED pipeline. The Suez Canal connects the Red Sea and Gulf of Suez with the Mediterranean Sea, spanning 120 miles. Through November of 2010, petroleum (both crude oil and refined products) as well as liquefied natural gas (LNG) accounted for 13% and 11% of Suez cargos, measured by cargo tonnage, respectively. Total petroleum transit volume was close to 2 million bbl/d, or just below 5% of seaborne oil trade in 2010. The 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline provides an alternative to the Suez Canal for those cargos too large to transit the Canal (laden VLCC’s and larger). The pipeline has a capacity of 2.3 million bbl/d and flows north from Ain Sukhna, on the Red Sea coast to Sidi Kerir on the Mediterranean. The two routes are for the export of Persian Gulf oil and LNG.
Closure of the Suez Canal and the SUMED Pipeline would divert oil tankers around the southern tip of Africa, the Cape of Good Hope, adding approximately 6,000 miles to transit, increasing both costs and shipping time. According to a report released by the International Energy Agency (IEA), shipping around Africa would add 15 days of transit to Europe and 8-10 days to the United States.
Thus, Egypt plays an important role in international energy markets through the operation of the Suez Canal and the SUMED pipeline and this requires constant political circumstances for both Egypt and the Whole world.
The minute the demonstrations started in Egypt, news reported a rise in the oil and gas prices, most of the investors were fearful for the oil shipments through the Canal and if violence ascended it would cause the closure of the Suez Canal. The Egyptian authorities acted at a high level of responsibility and maintained the Canal protected for its towering importance for their country and the world.
“There is no chance that investors would think of switching to another expedient to transfer their shipments of oil. Egyptian authorities are aware of how it would affect both Egypt and many countries if the Suez Canal was shut down,” said an official source to Egypt Oil and Gas newspaper.
The source went on to describe how the ruling authorities kept the work wheel revolving in the Canal, mainly to keep the investors serene so not to take any rapid decisions to move their business somewhere else.
Moreover, the events combined with the worrying over Suez Canal and SUMED pipeline, affected the price of oil that it hit $103.37 at one point. “The oil market has been on edge since the mass uprising in Egypt,” as most of the agencies reported at the start of the demonstrations.
The Energy Information Administration (EIA) described the rise in oil price, “even though Egypt is not a major supplier of crude oil or natural gas to world markets, the recent unrest in that country raises the concern that unrest could spread to other countries in the region with a larger role in supplying world energy markets or that key transit routes for energy and other goods could be disrupted.”
Egypt’s situation not only affected the prices of oil, it also had its influence on the oil market. Egypt is considered as a leader to the Arab world, and questions were rose of what would happen to global oil markets and politics if similar protests emerge in the Kingdom of Saudi Arabia or any other oil exporting country.
The west world mainly depends on the Arab world in the energy matter and stability in the region is what will keep both oil flow and prices steady.
In addition, Egypt’s situation affected the United Sates offshore drilling policies. It made that the experts call for a new policy regarding offshore oil drilling in the United States. “Senior oil industry executives, scientists, policy makers and environmental groups gather at the Baker Institute to discuss the path forward for U.S. offshore oil drilling. The discussions will be wide ranging and focus on everything from improving existing technologies through enhanced real time down-hole information systems to better rapid coastal defense responses to corporate strategies that enhance safety culture,” according to reports.
Looking from Egypt’s side, and how the turmoil influenced the investing climate in the country, “It will surely affect the petroleum investments in Egypt, but we are discussing the methods of how to go through this period of time with the less damage,” said the official source.
“The high prices of oil that the world witnessed through the event of Egypt must teach us a lesson of how to use this for our advantage.”
“Egypt must lay the kind of investment plans that would attract the investors more than before. Both drilling and production plans ought to satisfy the investor eagerness, whether on the material or the morale side,” said the official.
He added, “We must provide the morale satisfaction in such harsh times because we need to guarantee the safety of our country for investments at any time. If the foreign investor is feeling that his money will be in a safe place, then you can expect even more investments than before.”
On the other hand, reports showed that there is a good to the late situation in Egypt. The good side that the number of local petroleum workers would rise and there is a big chance that foreign companies would appoint the Egyptian labor to work in their concessions. This will definitely boost the Egyptian labor shares. Others expect that the foreign labor will now cost even higher amount of money and that would also increase the existence of the Egyptian labor in the petroleum market in Egypt.
Furthermore, the gas prices also rose due to the changes in Egypt, “Demand for gasoline in the U.S. is dropping, but the price at the pump is rising due to tensions and uncertainty in Egypt,” according to reports.
Arab Gas pipeline faced a big hit during the late events in Egypt as a pipeline that sends natural gas to Jordan was set on fire in the Egyptian Sinai town of El Arish, and the suspected act of sabotage has forced its temporary closing, according to officials.
As a precaution as it responds to the incident, Egypt’s gas company decided to stop pumping gas in the area altogether, including gas going to neighboring Israel. Israel has been getting supplies from a location 20 kilometers away from the damaged gas pipeline in El Arish. Egypt has been Israel’s main gas supplier since 2007, accounting for 20% of the total electricity production in the state. It is known that due to an agreement signed in 2005 with Israel, Egypt has been supplying the gas at much lower rates than those of the global market. But an Egyptian court ruled recently that the agreement must be reworked to allow for steeper costs. However, the army authorities insisted in many declarations that Egypt will respect its international agreements no matter.
The lesson that needs to be learned from Egypt’s late events that Egypt must not let any other country use the circumstances for its advantage and to pull the attention and investments from Egypt. “It stands on the foreign investor point of view, but we can push it towards us by showing them how safe is Egypt through anything and by giving them privileges in drilling in much more areas,” added the Official.
“The future of oil and gas industry in Egypt is vivid. Only if we controlled it right and showed the positives as much as we can to the investors.”
“This will only come from long-term plans that will be a magnet for the investor, we have all the trust in the army authorities that it will help us conduct such plans and provide all the help for the petroleum sector in Egypt,” pointed the Official.
Egypt’s position in the world appeared clearly through the late events; the prices rose by the start of the events and became steady as the events ended. The petroleum ministry did some changes to the chairmen of major public companies, in a try to rise with the sector from the late events; all the eyes are concentrating with the ministry expecting more decisions to boost the sector into more investments and into the truthful path of brighter future to the oil and gas industry. Egypt went through a lot lately and it’s trying to continue its role as a major leader in the Middle East, and the country is expecting the petroleum sector to be on the same pace.
By Sama Ezz EldinDownload