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EGP 126.3bn in oil product subsidies’ expenditure in FY 2013/2014: EIA - Daily News Egypt

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EGP 126.3bn in oil product subsidies’ expenditure in FY 2013/2014: EIA

In 2013, Egypt’s total primary energy consumption was 1.7m barrels per day of oil equivalent, according to BP 2014 Statistical Review of World Energy

6-1Egypt has spent EGP 126.3bn on oil products subsidies during the fiscal year (FY) 2013/2014, according to a US Energy Information Administration (EIA) report on Egypt’s energy released in June.

The country, which is the largest non-OPEC oil producer in Africa and the second largest natural gas producer on the continent after Algeria, also spent EGP 13.3bn on electricity subsidies in FY 2013/2014.

As for FY 2014/2015, the Egyptian government cut oil products subsidies costs to EGP 70bn due to subsidy reform and the decrease in global crude oil prices since mid-2014. On the other hand, Egypt’s spending on electricity increased and is expected to cost EGP 27.4bn in the same FY, the report added.

The report shows the high cost of energy subsidies in Egypt has contributed to the country’s high budget deficit and the inability of the Egyptian General Petroleum Corporation (EGPC) to refund its debt to foreign operators. The corporation owes foreign oil and natural gas operators billions of dollars, which has led them to delay their investments in existing and new projects.

Regarding total primary energy consumption, the report says Egypt is the largest oil and natural gas consumer in Africa with about 20% of petroleum and liquid consumption, and 40% of dry natural gas of the continent’s consumption in 2013.

In 2013, Egypt’s total primary energy consumption was 1.7m barrels per day (b/d) of oil equivalent, according to the BP 2014 Statistical Review of World Energy. However, natural gas and oil are the primary fuels used to meet Egypt’s energy needs, reaching 94% of the country’s total energy consumption in 2013. Oil is mostly used in the transportation sector, while natural gas is used in power sector and in transportation sector as well in the form of compressed natural gas (CNG).

Egypt held 4.4bn barrels of proved oil reserves as of 1 January 2015, according to the Oil & Gas Journal (OG). The EGPC places Egypt’s official oil reserve estimate slightly lower at 4bn barrels, of which 2.8bn barrels is crude oil and 1.2bn barrels is condensate. However, Egypt’s reserve has been boosted by new oil discoveries, over the past few years, where 86 discoveries of mostly oil were made in 2013, according to the EGPC.

In 2014, Egypt’s petroleum and other liquids production was in the same average as 2013, amounting to approximately 708,000 b/d. Approximately half of Egypt’s oil production comes from the Western Desert with the rest comes from the Gulf of Suez, the Eastern Desert, Sinai, the Mediterranean, the Nile Delta and Upper Egypt, according to EIA’s report.

The report added that Egypt’s oil consumption currently surpass its oil production, with the consequence that one of Egypt’s main challenges is to satisfy increasing domestic oil demand amid falling production. Total oil consumption annually increased by 3% over the past ten years, averaging 775,000 b/d in 2014.

6-2Regarding refined oil products, the report shows that Egypt has the largest oil refining capacity in Africa, where estimates differ among publications: the Arab oil and Gas Directory estimates its capacity by 704,000 b/d; while the OGJ estimates it is higher at 726,250, although Egypt operates below capacity.

Egypt’s refining capacity is expected to increase in late 2015 or 2016 when a new 85,000 b/d refinery begins operations. The refinery is under construction and is being developed by the Egyptian Refining Corporation (ERC), a public-private partnership financed by Qalaa Holdings and EGPC.

Moreover, Egypt imported about 145,000 b/d  of petroleum products in 2014,according to Global Trade Information Services, whereas it also exported about 60,000 b/d of petroleum products that same year.

Concerning natural gas, the EIA showed a decrease by 5% in dry natural gas production from 2012 to 2013, despite new discoveries made almost every year in the deepwater Mediterranean Sea, Nile Delta, and the Western Desert. Egypt produced 2tr cubic feet (Tcf) of dry natural gas in 2013, of which almost 1.9 Tcf was consumed domestically and more than 0.1 was exported.

To meet the rising domestic demand particularly in the electricity sector, Egypt has been limiting natural gas exportation. As a result, exports have declined significantly by an annual average of almost 30% from 2010 to 2013.

As for proved natural gas reserves, Egypt holds 77 Tcf, according to OGJ estimates as of 1 January 2015, marking an increase of 18 Tcf from the 2010 estimate of almost 59 Tcf recording the fourth largest amount in Africa.

Egypt had faced several energy crises following the January Revolution (AFP Photo)
Egypt had faced several energy crises following the January Revolution
(AFP Photo)

To satisfy its natural gas consumption, which increased by 7% annually over the past decade, Egypt started importing liquefied natural gas (LNG) in 2015. In May 2014, Egyptian Natural Gas Holding Company (EGAS) signed a letter of intent with Hoegh LNG of Norway to use  one of its Floating Storage and Regasification Units(FSRUs)for five years to allow Egypt to import LNG. In April 2015, the (FSRU) arrived to Egypt with the first LNG cargo. Egypt has as well signed deals to import LNG cargos from Russia’s Gazprom and Algeria’s Sonatreach, according to EIA report.

The report further shows that much of the natural gas consumed in Egypt is used to furl electric power plants. However, the share of natural gas consumption in the transportation sector also increased after the development of compressed natural gas (CNG) infrastructure and vehicles.

Numerous discoveries in the deep water of the Mediterranean Sea and other areas in Egypt remained undeveloped as a result to the cheap price Egypt paid to foreign operators for natural gas, which was $2.65 per million British thermal units (Btu). However, in recent years, EGAS has signed deals to pay foreign operators a higher price ranging from $3.95 to $5.88 per million Btu in order to attract more investors, according to EIA.

An additional obstacle facing the increase of natural gas output is the substantial debt that Egypt owes foreign operators. In turn, some of those operators have reduced their drilling activity and delayed project investments that could help reverse Egypt’s declining production.

The report shows that Egypt’s electricity generating capacity reached 31.45 GW in May 2015, which is slightly higher than the expected peak demand in 2015 of 30 GW, according to the Middle East Economic Survey (MEES). About 70% of Egypt’s electricity is fuelled by natural gas, while the rest is being fuelled by petroleum and renewable energy.

The report also outlines that the frequent blackouts that occur in Egypt, especially during the summer months, are due to rising of power demand, natural gas supply shortage, aging infrastructure, and inadequate generation and transmission capacity.

Due to political and social unrest, the government’s plan to expand power generation capacity by 30 GW by 2020 has been disrupted. As a result, electricity consumption is increasing much faster than the expansion in capacity, according to the report, noting that private sector and international organisations are providing funds toward fossil and renewable energy projects.

The new projects being constructed aim at diversifying Egypt’s energy generation mix, and include power plants that will be fuelled by coal, solar and wind energies.

Despite Egypt’s vast solar and wind resources, the renewable energy sector is still relatively undeveloped. The country is targeting a boost in its renewable usage, proposing that it accounts for 20% of its power generation capacity by 2020, of which 12% would be wind energy, 6% hydro energy, and 2% solar energy, according to the EIA.

6-4The report also shows the government aims to expand power generation from new fossil fuel sources, with recently signed deals concluded for the construction of coal-fired power plants. One plant is planned to be built in South Sinai’s Oyoun Moussa area with a generating capacity of 2,640 MW, whereas, the second is planned to be built near Hamrawein Port on the Red Sea coast with generating capacity of 2,640 MW.

Furthermore, EIA revealed that Egypt is also planning to expand its power system interconnection with countries in the Middle East and Africa. Egypt and Saudi Arabia signed a $1.6bn deal to connect the two countries with a 3,000 MW electricity cable, indirectly expanding each country’s electricity capacity by pulling from each other’s supplies during peak demand times. The project’sconstructionisexpectedtobegin in2015 withcompletionthreeyearslater.

Regarding renewable energy sources, the report shows that hydropower is Egypt’s third largest energy source after natural gas and oil, while in 2013, Egypt generated 13.7bn kilowatt hours (KWh) of hydroelectricity, marking about 9% of its total power generation.

Most of the hydroelectricity is generated by the Aswan High Dam and the Aswan Reservoir Dams across the Nile River, however, the vast majority of the river’s hydropower potential has been exploited. As a consequence, Egypt’s New and Renewable Energy Authority is seeking other type of renewable projects, such as solar and wind power to diversify the country’s energy mix.

Concerning using wind energy in producing power, Egypt has abundant wind power resources, especially in Gulf of Suez and Nile Valley. Egypt mainly generates wind power from the 545MW Zafarana wind farm and the 5 MW Hurghada wind farm, according to NREA. The government plans to expand wind capacity over the coming years as part of a plan to increase wind generation to 7.2 GW by 2020.


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