Egypt is the largest oil producer in Africa that is not a member of the Organization of the Petroleum Exporting Countries (OPEC), and the second largest natural gas producer on the continent, following Algeria. Egypt plays a vital role in international energy markets through the operation of the Suez Canal and Suez-Mediterranean (SUMED) Pipeline. The Suez Canal is an important transit route for oil and liquefied natural gas (LNG) shipments traveling northbound from the Persian Gulf to Europe and North America and southbound shipments from North Africa and countries along the Mediterranean Sea to Asia. The SUMED Pipeline is the only alternative route nearby to transport crude oil from the Red Sea to the Mediterranean if ships were unable to navigate through the Suez Canal. Fees collected from operation of these two transit points are significant sources of revenue for the Egyptian government.

In Africa, Egypt has the third largest population, after Nigeria and Ethiopia, and the second highest gross domestic production (GDP), in purchasing power parity at current international prices, after South Africa, according to the latest 2011 statistics from the World Bank. The International Monetary Fund (IMF) indicates that after the Egyptian revolution in 2011 the country experienced capital outflows and a sharp drop in tourism revenue and foreign direct investment. Annual GDP growth in Egypt dropped to 1.8 percent in 2011 from 5.1 percent in 2010.

Despite this slower growth, oil and gas production and operations largely have been unaffected, although some foreign companies have withdrawn nonessential foreign staff as a precautionary measure because of uncertainty in the country. In addition, shipments of oil and LNG through the Suez Canal have been unaffected, as the Egyptian army continues to guard the Canal.

The most visible effect of the 2011 revolution and the recent unrest on Egypt's energy sector has been a series of attacks on the Arab Gas Pipeline, which prior to the revolution had transported natural gas to Jordan and Israel. Gas exports to both countries were significantly reduced in 2011. In 2012, natural gas exports to Israel were halted, according to the Arab Oil and Gas Journal. In addition, growing domestic demand for oil and gas amid stagnant production has led to energy shortages, contributing to continued protests and sporadic unrest in the country.

Almost all of Egypt's 3.6 quadrillion British thermal units (Btu) of energy consumption in 2010 was met by oil (41 percent) and natural gas (46 percent), with the remainder from renewable energy sources (traditional biomass, hydro, wind, and solar) and coal. Oil's share of the energy consumption mix is mostly used in the transportation sector, but with the increased use of compressed natural gas (CNG) in vehicles, the share of natural gas in the transportation sector is likely to grow.

Egypt's total primary energy consumption grew by an annual average of 5 percent from 2000 to 2010, most of which was oil and natural gas. Egypt is the largest oil and natural gas consumer in Africa, accounting for almost a quarter of total oil consumption in Africa in 2012 and almost half of total dry natural gas consumption in 2011. The rapid growth of oil and gas consumption has been driven by increased industrial output, economic growth, energy-intensive gas and oil extraction projects, population growth, and an increase in private and commercial vehicle sales.

Fuel subsidies have contributed to oil consumption growth. Oil producers in Egypt are required to sell their crude oil to the Egyptian General Petroleum Corporation (EGPC) at a price below the world market price, and EGPC then sells the crude to its refineries on the global market, according to the 2013 African Economic Outlook. Because Egypt's diesel consumption is twice the level of gasoline consumption, the country must import diesel to satisfy local demand. According to Foreign Reports, EGPC sells diesel locally at retail for 59 cents per gallon, but it pays about $2.80 per gallon wholesale for imports by the tanker-load.

Egypt's FY 2012/2013 budget proposed a $12 billion reduction in petroleum products subsidies and the government has taken steps toward energy subsidy reform, but subsidy reduction is a politically sensitive issue that has proven difficult to fully implement. In November 2012, the subsidy on high-grade 95-octane gasoline was eliminated, but savings may be negligible because consumers could shift to the subsidized 92-octane gasoline, according to the 2013 African Economic Outlook. According to the IMF, in early 2013 the government increased fuel prices for the industrial sector and electricity tariffs as part of the first phase of planned energy subsidy reforms.

According to the Oil & Gas Journal's (OGJ) January 1, 2013 estimate, Egypt's proven crude oil reserves are 4.4 billion barrels, an increase from the 2010 reserve estimate of 3.7 billion barrels, with new oil discoveries boosting oil reserves in recent years. According to the Arab Oil and Gas Journal, several new oil discoveries have been made every year since 2008, with 16 in 2011, 16 in 2010, 11 in 2009, and 17 in 2008. Many of these oil discoveries were the result of exploration conducted by the U.S.-based Apache in Egypt's Western Desert.

Egypt's oil production comes from the Gulf of Suez, Nile Delta, Western Desert, Eastern Desert, Sinai, and the Mediterranean Sea. Most of Egypt's production is derived from relatively small fields that are connected to larger regional production systems. Overall production is in decline, particularly from the older fields in the Gulf of Suez and Nile Delta. However, declines have been partially offset by small new finds, particularly in the Western Desert and offshore area. In addition, the use of enhanced oil recovery (EOR) techniques at mature fields has eased production declines.

After Egypt's production peak of more than 900,000 bbl/d in the mid-1990s, output began to decline as oil fields matured. However, natural gas liquids (NGL) output has increased over the past decade as a result of expanding natural gas production and has offset some of the declines in other liquids production, such as crude oil. In 2012, Egypt's total oil production averaged around 720,000 bbl/d, of which approximately 555,000 bbl/d was crude oil including lease condensate, almost 170,000 bbl/d was NGL, with refinery processing loss accounting for the difference.

One of Egypt's challenges is to satisfy increasing domestic demand for oil amid falling domestic production. Total oil consumption grew by an annual average of 3 percent over that past decade to 755,000 bbl/d in 2012. Egypt's oil consumption has outpaced production since 2010.

The EGPC is the state entity charged with managing upstream activities including infrastructure, licensing, and production. EGPC owns and operates much of the country's refining capacity. International oil companies (IOCs) play a significant role in Egypt's upstream sector on a production-sharing basis with EGPC. In addition to the EGPC, other important regulatory companies in the energy sector are the Egyptian Mineral Resource Authority (EMRA), Egyptian Natural Gas Holding Company (EGAS), the Egyptian Petrochemicals Holding Company (ECHEM), and Ganoub El Wadi Petroleum Holding Company (GANOPE).

EGPC holds shares in operations through joint ventures (JVs) with foreign companies, according to Business Monitor International Ltd. (BMI), while IOCs dominate Egypt's upstream oil sector. BP, Eni, BG, and Apache are the major oil and gas players in Egypt, with the first three primarily invested offshore and Apache in the onshore Western Desert, according to IHS CERA. There are also several small and mid-sized companies participating in Egypt's oil and gas exploration and production.

Egypt exported around 100,000 bbl/d of crude oil including lease condensate in 2012. Most of Egypt's exports were sent to India (46 percent), the United States (32 percent), and Italy (17 percent) in 2012. EIA data show that the United States imported 31,000 bbl/d of crude oil from Egypt in 2012; an increase compared to previous years as U.S. crude imports from Egypt averaged less than 6,000 bbl/d in the past five years.

Egypt's main oil grades are Suez, Belayim, and Western Desert. The Suez Blend comes from declining offshore fields in the Gulf of Suez, operated by The Gulf of Suez Petroleum Co. (Gupco), a JV between BP and EGPC, according to the Energy Intelligence Group. The Belayim Blend is sourced from aging oil fields in the Gulf of Suez that are operated by the Belayim Petroleum Co. (Petrobel), a JV between Eni and EGPC. Most of the Suez and Belayim Blend crudes are refined domestically, with only a small volume of these grades destined for exports. Both blends are usually sold at a discount to the Brent contract because of their relatively high sulfur content.

The Western Desert Blend is a light, relatively sweet grade crude with a high wax content that is sourced from oil fields in the Western Desert, and in recent years output has increased because of small new finds and the application of EOR techniques to fields in the Western Desert region. The main producer in the area is Khalda Petroleum Co., a JV between Apache and EGPC. Agiba (JV between Eni and EGPC) and Bapetco (JV between Shell and EGPC) also hold assets that feed the Western Desert Blend, according to the Energy Intelligence Group. Similar to the other two blends, much of the Western Desert Blend is refined domestically, and the remainder is sold to international markets.

Egypt has the largest refinery capacity in Africa, with a total crude distillation capacity of 726, 250 bbl/d or 23 percent of Africa's total refinery capacity. The nine refineries mostly run domestically produced crude oil and are operated by subsidiaries of EGPC. The last increase in refinery capacity occurred in 2001 when the 100,000-bbl/d Sidi Kerir refinery came online, according to the Arab Oil and Gas Journal.

Egypt's refinery capacity is planned to increase in 2015 when a new 96,000-bbl/d refinery next to the Mostorod refinery in Cairo begins operations. Construction on the facility began in 2012 and it is being developed by the Egyptian Refining Corporation (ERC), a public-private partnership financed by Citadel Capitol and its co-investors, along with EGPC. According to ERC, petroleum products refined at this facility will be sold to EGPC under a 25-year offtake agreement at international prices. A second refinery project that has made much less progress is a proposed 300,000-bbl/d refinery. EGPC signed a memorandum of understanding with a Chinese consortium in May 2010 to develop this facility, according to the Arab Oil and Gas Journal.

Table 1. Egypt crude oil refineries

According to OGJ estimates as of January 1, 2013, Egypt's proven natural gas reserves registered at around 77Tcf, an increase from the 2010 estimate of 58.5 Tcf and the third highest in Africa, after Nigeria and Algeria. New discoveries in the deepwater Mediterranean Sea and Nile Delta, along with some finds in the Western Desert, have led to the increase in proven reserves. There were 16 natural gas discoveries in 2009, 10 in 2010, and 7 in 2011, according to the Arab Oil and Gas Journal. The majority of Egypt's natural gas reserves and production is located in the Mediterranean Sea and Nile Delta.

Egypt's natural gas production is used to satisfy rising domestic demand, exports through the Arab Gas Pipeline, and LNG exports. In 2011, Egypt produced roughly 2.2 Tcf of dry natural gas, of which 1.8 Tcf was domestically consumed and 0.4 Tcf was exported. Egypt supplies natural gas mostly to European and Asian markets, although exports are competing with rising domestic demand, particularly in Egypt's power generation sector.

Egypt's natural gas consumption has increased by an annual average of 11 percent from 2001 to 2011. Natural gas production rapidly increased for most of that time period as well, but after 2009 natural gas production began to fall because of a decline in output from offshore gas fields. Egypt's natural gas exports have also fallen. The government may start to import natural gas for the first time, to satisfy rising domestic demand and continue to export natural gas to global markets.

Much of the natural gas consumed in Egypt is used to fuel electric power plants. The government is encouraging households, businesses, and the industrial sector to consider natural gas as a substitute for petroleum and coal. In January 2008, the World Bank approved loans for the Natural Gas Connections Project, which aims to switch consumption of liquefied petroleum gas (LPG) to natural gas through investment in new connections and to further expand natural gas use in densely populated, low income areas. The share of natural gas consumed in the transportation sector also has been rising since the development of compressed natural gas (CNG) infrastructure and vehicles.

The Egyptian Natural Gas Holding Company (EGAS) oversees the development, production, and marketing of natural gas. EGAS is also responsible for organizing international exploration bid rounds and awarding gas exploration licenses. EGAS and/or EGPC participate in JVs with IOCs to develop and operate gas fields. The Egyptian Natural Gas Company (GASCO) operates many of the gas processing plants.

Foreign companies operating in Egypt's gas sector must direct all or a portion of their current production to the domestic market, and the government has demanded that new discoveries be earmarked for the domestic market. Major foreign players in Egypt's upstream natural gas sector include Eni, BG Group, BP, Shell, and Apache. BG Group produces about 40 percent of Egypt's natural gas production, mainly from the offshore Nile Delta, according to IHS CERA. The vast majority of BG's output is used to supply the domestic market. Another major producer, BP, is planning to increase output through its recent discoveries in the Gulf of Suez and the Mediterranean Sea.

Dry natural gas exports, which began in 2003, had been rising rapidly, with the completion of the first stage of the Arab Gas Pipeline (AGP) linking Egypt to Jordan and the startup of LNG production in 2004. However, after 2006 exports began to level off, and in 2012 natural gas exports fell to 256 Bcf, less than half of the peak export volume of 647 Bcf in 2009. In 2011 and 2012, gas exports through the AGP were disrupted by repeated sabotage attacks and the amounts sent to Jordan and Israel were substantially curtailed. Growing domestic demand, stagnant domestic production, and attacks and technical problems at the AGP have all contributed to reduced Egyptian exports of pipeline gas and LNG after 2009.

Pipeline exports

The AGP originates in Egypt and connects to Jordan, Syria, and Lebanon. In 2008, a pipeline was built from the starting point in al-Arish in Egypt to Ashkelon in Israel and runs underwater. The AGP had been sabotaged on over a dozen occasions between 2011 and 2012, which resulted in gas supply disruptions to recipient countries. Israel and Jordan were most affected by supply cut-offs because they were most dependent on Egypt's gas. In April 2012, Egyptian state-owned oil and gas companies announced that they were terminating their agreement to supply gas to Israel. Total exports via the AGP dropped to 19 Bcf in 2012, of which the majority was sent to Jordan, with a smaller amount delivered to Israel before exports were terminated. This level is a substantial decrease from the gas volumes transported prior to the revolution, which totaled 193 Bcf in 2010.

Liquefied natural gas (LNG)

Egypt has two LNG plants that include a total of three LNG trains, with combined capacity of around 610 Bcf per year (or 12.7 million tons per year). The Spanish-Egyptian Gas Company (Segas) LNG plant in Damietta started production in late-2004 and has one train with a capacity of 264 Bcf per year. There were plans to add a second train, but the project was delayed after the government enacted a two-year moratorium on new gas export deals in 2008. The moratorium was put in place to remedy growing local demand for natural gas. The second 346-Bcf-per-year LNG plant was developed by Egyptian LNG (ELNG) and started production in 2005. It has two trains and is located in Idku near Alexandria.

Egypt's LNG exports have been cut in half over the past five years, from 496 Bcf in 2008 to 237 Bcf in 2012, according to BP Statistical Review. LNG exports are expected to decline further in 2013 because increased domestic demand has diverted additional natural gas supply to the local market. The Segas LNG plant in Damietta was recently forced to shut down operations due to the lack of natural gas to feed the facility. The company operating the facility, Union Fenosa Gas, is working with the Egyptian government to restore gas flows to Segas, according to the Energy Intelligence Group. The Idku plant, which is fed gas from the BP-operated West Delta Deep Marine (WDDM) offshore concession, is running below capacity. If the government diverts a greater portion from WDDM to the local market, this could compromise operations at Idku as well.

In 2012, most of Egypt's LNG was exported to Asia (53 percent), with Japan being the primary destination, followed by South Korea and India, with smaller volumes sent to China and Taiwan, according to FACTS Global Energy and BP 2013 Statistical Review. Europe was the second-largest regional destination and absorbed 39 percent of Egypt's total LNG exports in 2012. France, Spain, Turkey, Portugal, and Italy were the recipients in that region.

Europe previously had been the leading export destination for Egypt's LNG, but European LNG imports from Egypt dropped by about a quarter in 2012 compared with the previous year. This drop reflects the overall decrease of total European LNG imports in 2012 and increased competition for LNG on the global market. Egypt's LNG accounted for 4 percent of Europe's total LNG imports in 2012, according to FACTS Global Energy estimates.

The Suez Canal is located in Egypt and connects the Red Sea and Gulf of Suez with the Mediterranean Sea. In 2012, oil (both crude oil and refined products) and LNG accounted for 24 and 5 percent of total Suez cargoes, measured by cargo tonnage, respectively. The Canal is unable to handle Ultra Large Crude Carriers (ULCC) and fully laden Very Large Crude Carriers (VLCC) class crude oil tankers. The Suezmax was the largest ship capable of navigating through the Canal until 2010 when the Suez Canal Authority extended the depth to 66 feet to allow over 60 percent of all tankers to use the Canal, according to the Suez Canal Authority.

Table 3. Tanker type, tonnage, and capacity