Middle East Special Section
An international bidding round for oil and gas announced on 1 August is Egypt’s most recent move to bolster its lackluster economy. The country is facing a severe dollar shortage as a drop in tourism, capital, and exports have caused international reserves to sink by more than half to USD 16.4 billion since the political instability in 2011. Economic activity and vital imports also have been limited by the country’s arrears owed to foreign oil companies.
In July, Petroleum Minister Tarek El- Molla said the arrears were reduced to USD 3.4 billion in 2015–2016 from USD 3.5 billion a year earlier. He said the crude oil and natural gas received from the foreign partners’ share during 2015– 2016 was worth USD 5.4 billion, and Egypt paid the partners USD 5.5 billion.
Egypt was once an oil exporter, but declining production and increasing subsidized consumption have turned it into a net importer. It is dependent on imported gas largely from Iraq and Jordan to keep pace with the country’s demand.
The high cost of energy subsidies in Egypt has contributed to the country’s budget deficit and the inability of the Egyptian General Petroleum Corporation (EGPC), the country’s national oil company, to pay off its debt to foreign operators. In the fiscal year (FY) 2013– 2014, Egypt spent USD 18.2 billion on oil product subsidies and USD 1.8 billion on electricity subsidies. In FY 2014–2015, the Egyptian government projected the cost of oil product subsidies to fall to USD 9.2 billion as a result of its implemented subsidy reforms and the drop in global crude oil prices since mid-2014. However, Egypt’s spending on electricity subsidies has increased and is budgeted to cost USD 3.6 billion in FY 2014–2015.
To avoid significant backlash from the public at the prospect of dwindling subsidies, which now account for approximately one-fifth of the government’s total budget, the country is looking to increase production by appealing to foreign investment in its oil and gas sector.
From 2012 to 2013, Egypt’s dry natural gas production declined by 5%. Substantial natural gas discoveries in the Mediterranean Sea and in other areas have been undeveloped because the price that the government was willing to pay foreign operators for the gas was too low, making some projects commercially unviable. However, in recent years Egypt has signed deals to pay foreign operators a higher price for the natural gas they produce.