When Egypt inaugurated its huge Zohr gasfield in 2018, the federal government hailed the venture for serving to it obtain its ambitions to grow to be vitality self-sufficient and save an annual $2.8bn in fuel import prices.
However as a substitute of the anticipated vitality bonanza, a fuel scarcity has left the nation mired in every day blackouts this summer time which have disrupted financial exercise and on a regular basis life for thousands and thousands of Egyptians and sparked public anger.
Cairo has now been compelled to renew LNG imports as declining pure fuel output, surging demand for electrical energy and a fast-growing inhabitants stretch its energy technology system.
“I’d argue the ability outages have triggered extra injury to the economic system than the value of the fuel shipments,” stated an Egyptian businessman with investments throughout a spread of sectors. “The crux of the matter is, what are the priorities of the state?”
To alleviate the disaster, Egypt has allotted $1.2bn to fund preliminary vitality imports, together with 21 LNG cargoes which have begun to reach, primarily from the US. The blackouts, which started in April, ended at the start of August however might resume in mid-September, in response to the federal government.
Till not too long ago, Egypt provided LNG to Europe and harboured ambitions to grow to be a fuel buying and selling hub, exporting its personal output in addition to fuel piped in from Israel and doubtlessly from Cyprus. However it has now additionally “quickly” halted fuel exports, officers say.
Based on Farouk Soussa, Center East and North Africa economist at Goldman Sachs, Egypt’s internet oil and fuel imports price $6.3bn within the yr to March 2024, in contrast with a peak internet export surplus of $4.4bn within the yr to September 2022. “That’s a swing of $10.7bn,” he stated.
The outages, which got here as hovering summer time warmth ramped up demand for air con, have embarrassed a closely indebted regime that has poured billions of {dollars} of borrowing into infrastructure tasks over the previous decade, together with new energy stations.
“Nobody anticipated the heatwaves we’ve got been experiencing and the constantly excessive temperatures which have lasted not only for a day or two however for weeks on finish,” stated Egypt’s prime minister Mostafa Madbouly in July. “We’re in a continuing state of emergency every single day.”
After being hit by a international foreign money crunch in 2022, when international buyers pulled some $20bn in another country in a flight to security amid the Ukraine battle, Cairo has additionally fallen behind on funds to worldwide oil and fuel firms. Its arrears are estimated at round $6bn, slowing funding in exploration and manufacturing and exacerbating the fuel shortages, analysts say.
“East Mediterranean gasfields have tended to have pretty speedy charges of decline,” stated David Butter, an oil and fuel specialist and affiliate fellow at Chatham Home, a UK think-tank. “They get to a peak after which begin to fall off, which requires new exploration and growth and means firms have to take care of funding ranges. They’ll solely do this if it’s price their whereas.”
Madbouly stated in March that the nation would pay as much as 20 per cent of the arrears this yr. The transfer adopted Egypt’s $55bn worldwide bailout take care of the IMF, World Financial institution and United Arab Emirates, which eased the international foreign money crunch.
A spokesperson for Italian oil group Eni, which operates Zohr, stated the credit score state of affairs was enhancing, including: “We’re assured of recovering excellent dues.”
The ability cuts additionally comply with a decline in Egypt’s fuel output. Whole annual manufacturing in any respect its gasfields has dropped from 70bn cubic metres (bcm) in 2021 to a forecast 53 bcm this yr, in response to Norwegian vitality consultancy Rystad.
“The preliminary announcement was that [Zohr] contained 30tn cubic ft [tcf] of fuel,” stated Peter Stevenson, east Mediterranean editor on the Center East Financial Survey e-newsletter. “That now seems incorrect — they suppose it’s nearer to 10-11 tcf.”
Cairo has denied stories that Zohr is going through technical issues, together with allegations that water has leaked into its reservoir after it was broken in an try and extract extra fuel.
“Eni is a world firm and there’s no extreme exploitation,” oil ministry spokesman Hamdy Abdel Aziz stated earlier this yr. “That is flawed.”
The Eni spokesperson denied Zohr’s output was lower than anticipated. “Manufacturing from Zohr is according to what we projected . . . and with what has been agreed with our companions and institutional counterparts,” they stated.
Trade figures and vitality consultants have constantly confirmed the operator’s view on Zohr’s recoverable reserves.
The federal government stated final yr that complete funding within the subject stood at $12bn and would rise to $15bn in three years.
However for now, Egypt’s fuel buying and selling hub ambitions have been dealt a blow as exports stop and it consumes Israeli provides.
Butter stated the prospect of Israel growing its fuel manufacturing might enhance provides for Egypt in late 2025 or 2026. Final yr, Israel’s export capability was round 15 bcm, which is projected to rise to 25-30bcm by the top of the last decade.
“There might be much more Israeli fuel that doesn’t actually have wherever else to go. Egypt is the one actually massive market that’s simply accessible for Israel,” stated Butter.
However escalating hostilities between Israel and Hizbollah might curb Egypt’s provides within the quick time period, because the Lebanese militant group has threatened to focus on Israel’s offshore fuel output.
“Hizbollah has the aptitude to wreck [Israel’s offshore gas production],” stated Butter. “These are foreign-operated rigs and the folks on them will not be sticking round in a battle zone.”
Egypt final month launched a brand new bid spherical for oil and fuel exploration in 12 blocks within the Mediterranean and Nile Delta. The federal government stated incentives can be provided to worldwide firms to ramp up exploration and manufacturing.
Madbouly stated Cairo deliberate to return output to “regular ranges” from 2025, including: “There’s a very clear plan to convey the manufacturing of oil and pure fuel with international companions again to earlier ranges, and likewise to extend it.”
