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2/3 of Egypt’s oil is gone 20 years after its peak

No matter who is ruling Egypt and for how long, this country faces a crippling energy crunch which contributes to the general dissatisfaction of the public and the accelerating changes we see in this country.

Egypt’s Gas Shortage Fuels June 30 protests

27/6/2013 By Wednesday afternoon, June 26, traffic in Cairo went from a gridlock of cars jammed around gas stations to eerily empty as the gas shortage discouraged drivers from going out. By Thursday, traffic jams were again at their worst, with people complaining of commutes taking hours. Worried about escalating tensions with the gas shortage hitting the country before protests planned for June 30, many offices have been letting their employees stay home in preceding days. 
 
Ration cards for subsidised fuel come to Egypt in fall: Minister
12 May 2013 Egyptian authorities will distribute in October smart cards as part of its new system for rationing government-subsidised fuel, Finance Minister Fayad Abdel-Moneim told the state-run Al-Ahram Arabic website Sunday. Under the new system, consumers will be provided with limited amounts of subsidised fuel, beyond which they will have to pay at market prices. Egypt, which spent LE120 billion in fuel subsidies this fiscal year, according to former Petroleum Minister Osama Kamal, is obliged to implement drastic cuts to rein in a galloping budget deficit and secure a $4.8 billion International Monetary Fund loan. Kamal, who spoke to Ahram Online last month, expected the smart card system to save some LE30 billion out of Egypt’s fuel subsidy bill, which the government expects to reach LE99.6 billion, in the coming 2013/14 fiscal year — some 15 percent of total forecast public expenditures.
 
Under the new system, vehicles with smaller engines (1,600cc or smaller) will be assigned an annual 1,800 litres of petrol at the subsidised price. If consumption exceeds this amountmotorists will have to buy petrol at market prices, according to statements made by then-Planning Minister Ashraf El-Araby to the state owned MENA news agency in March.
Cars with larger engine sizes will not be eligible for subsidies, said El-Araby. Final market prices for petrol have not been announced yet; nor have the prices at which petrol will be sold to commercial vehicles.
 
  
Peak production was in 1993, 20 years ago. We see that ever growing consumption (from an ever growing population) has hit the production curve, now 23% lower.
 
The up-tick in production comes from using modern technology (like fracking) in joint ventures of the Egyptian General Petroleum Corporation and Western oil companies
 
 
But this comes at a hefty price:
 
Egypt Struggles to Pay Oil Bill
October 3, 2012 Industry executives estimate that the government is $6 billion to $7 billion behind in payments to the companies for oil and natural gas they have produced and delivered to the state-owned Egypt General Petroleum Corp. “The burden has become very high on the Egyptian government,” said Magdi M. Nasrallah, a professor at the Department of Petroleum and Energy Engineering at American University in Cairo, and a consultant to energy companies operating in Egypt. “It has become dangerous because Egypt is buying the share of the joint ventures at international prices and selling this share on at subsidized prices.”
 
From Apache’s annual report 2012 (page 7)
Our operations in Egypt are conducted pursuant to production-sharing agreements in 23 separate concessions, under which the contractor partner pays all operating and capital expenditure costs for exploration and development. Development leases within concessions generally have a 25-year life, with extensions possible for additional commercial discoveries or on a negotiated basis, and currently have expiration dates ranging from five to 25 years. A percentage of the production on development leases, usually up to 40 percent, is available to the contractor partners to recover operating and capital expenditure costs, with the balance generally allocated between the contractor partners and Egyptian General Petroleum Corporation (EGPC) on a contractually defined basis.
 
 
According to the above table, Apache charged $111 a barrel in 2012. Therefore, Egypt not only pays world market prices for imported crude and petroleum products but also for around half of its own domestic production.
 
Black Market Manipulation:  Egypt’s Diesel Dilemma
March 2013 Increasingly a palpable sense of anxiety can be felt concerning the present and future availability of energy products in Egypt. Consistent supplies of oil, gas, butane, and particularly diesel, are becoming difficult to obtain. Diesel shortages have created an ominous and potentially dangerous situation greatly  exacerbated by the interference of the black market. Black market dealers pose a significant threat to consumers and regulators and their growing influence and interference in supply mechanisms can be increasingly felt. When rumours of a shortage spread, drivers rush to gas stations and exhaust the supply within a few hours. Once the stations run out drivers will continue to wait in long lines for hours until more diesel is delivered. Drivers will often circumvent the line by bribing gas station attendants, who use the opportunity to supplement meager wages.
 
Fake diesel also plays a role in black market activity. Fake diesel is comprised of fuel and water, a mix sold by black market dealers as legitimate diesel. The mix, while highly profitable, is extremely harmful to engines and fuel tanks. Mostafa El Naggar, a bus driver in El Rehab complained, “From the black market, everything is mixed with water so it is not totally a pure diesel fuel.” Damage stemming from the usage of fake diesel in cars and microbuses can range from 1000 to 2000 pounds in order to fix the motors. Mohamed Ragheb, a microbus driver in Nasr City commented “I got tired from the black market, I pay double the price and I discover the fuel is mixed with water, I couldn’t afford fixing the motor last month.” 
 
Diplomat: Egypt’s subsidized diesel being smuggled to Jordan
1/6/2013 Traffickers use trucks to smuggle around 18 million liters of subsidized diesel a year from Egypt to Jordan, an Egyptian diplomat revealed Saturday. 
 
Egypt authorities flooding Gaza tunnels to curb smuggling
14/2/2013 Egyptian authorities have begun flooding some of the tunnels that stretch into the Gaza Strip in an effort to curb smuggling of goods such as diesel and building materials, a security official said.
 
Risk to oil flows
3.8  mb/d flow through Egypt (Suez canal and Sumed pipeline). It is one of the world’s chokepoints
 
 
The Sumed pipeline runs from the Ain Sukhna terminal in the Gulf of Suez to offshore Sidi Kerir near Alexandria in the Mediterranean Sea. 
 
Mohamed ElBaradei: Egypt is a failed State
26/6/2013
 
Egypt is a failed state, even worse now than under Hosni Mubarak’s dictatorship, said Mohamed ElBaradei, a Nobel peace laureate and former head of the U.N.’s nuclear watchdog, in a recent article in Foreign Policy magazine. “The evidence is all around us,” said ElBaradei.
 
“The feeling right now is that there is no state authority to enforce law and order, and therefore everybody thinks that everything is permissible. And that, of course, creates a lot of fear and anxiety.”
 
Oil price risk: Egypt dejà vu
The SUMED pipeline and the Suez Canal are important transit points for oil and liquefied natural gas (LNG) shipments from Africa and Persian states to Europe and the Mediterranean Basin. Fees collected from operations of these two transit points are significant sources of revenue for the Egyptian government. Thus, both the Suez Canal and the SUMED pipeline are strategic targets for strikes or attacks against the government. A temporary shutdown of the Suez Canal would have the biggest effect on the crude, petrol and middle distillate markets in the US and Europe as around 470k b/d of crude, 420k b/d of petrol and 200k b/d of middle distillates were shipped through the Suez Canal in the northbound direction (PIRA figures from 2010). A temporary shutdown of the canal will redirect the shipping traffic the long way around Africa, pushing up freight costs and increasing the delivery time.
 
The SUMED pipeline is the only alternative route to transport crude oil to the Mediterranean Sea from the Red Sea. A temporary closure of the Suez Canal and/or the SUMED pipeline would add around 6,000 miles to transit and could have a dramatic impact on tanker rates and oil prices. The crude and product supply routes would be extended by around 8-10 days to Europe and 15 days for transport to the US according to the IEA. The longer voyage will cause a significant build in in-transit inventories and increasing tanker demand. Delayed loads and losses to the oil market and increasing transportation costs will push up the price of crude oil and products as well as the longer-haul routes will increase demand for bunker oil to fuel the ships.
 
The fear that Egypt would close down the Suez Canal at the outset of the Arab Spring in 2011 pushed up oil prices by around USD 7/barrel. Egypt is the largest oil producer on the African continent which is not a member of the OPEC and the second-largest natural gas producer after Algeria. The country’s oil exports are limited, only 114k in 2012, as most of the oil is consumed domestically. Thus the crisis in Egypt is first and foremost a big threat to the oil market as an important transport chokepoint and not as a supplier of oil and natural gas to the global markets.
 
A shut-in of the country’s oil production would need to be replaced by increasing production (a cut in OPEC spare capacity) from other oil suppliers and cut down on OPEC’s (the world’s) spare capacity buffer. This will in turn put more pressure on the world’s supply/demand balance and thus increase the risk premium in oil prices in the short term as the oil market starts once again to worry about the spill-over effects if the protests spread to the oil-producing regimes of the Persian Gulf. The Persian Gulf accounts for around 30% of the world’s oil production and controls around 56% of the proven reserves. 
 
Egypt officially becomes gas-importing country to meet demand
19/12/2012 Egypt has announced that it has changed from a gas-exporting to a gas importing country based on a decision issued by the Petroleum Minister that went into effect on 17 December. According to the ministerial order, the Egyptian Natural Gas Holding Company would either import the gas itself from international markets or via contracting companies. The gas would be transferred via national networks with necessary approvals. Petroleum expert Medhat Youssef said the decision was “unprecedented,” especially as Egypt would import gas from international companies in Qatar, not the Qatari government.
 
The import price is expected to reach US$14 per 1 million thermal units, whereas the government sells gas to factories for no more than $4. The Egyptian government exports gas to Jordan at $5.50 per one million units, while Qatar exports it at more than $9, Youssef said, arguing that Egypt administers its petroleum supply poorly and should reconsider prices. Importing gas at international prices would affect industries such as cement and fertilizer  production.
 
Meanwhile, Hany Suleiman, former Petroleum Ministry deputy for gas affairs, said gas production in Egypt does not meet demands, referring to expectations that the deficit would reach 3.7 billion cubic feet by 2018. Daily consumption, according to Suleiman, will double by the fiscal year 2014/2015 reaching 25 million cubic feet, compared to around 12 million cubic feet in 2011/2012. Importing gas requires infrastructure and facilities that would cost around $600 million to develop. 
 
Outlook
This graph was kindly provided by oil geologist Jean Laherrere, ASPO France, showing actual crude oil production (dark green, from the EIA) and Jean’s production forecast, based on an ultimate discovery of 16 Gb (thin line). The peak production happened at a depletion level of 44%. Annual decline rates are around -3.4% pa. Jean’s website is: 
 
.
Jean’s graph showing how he arrived at the ultimate of 16 Gb for oil
 
Population
 
Other forecasts
If you think Jean’s production forecast is too pessimistic, look at this graph published by the Egypt Oil & Gas Newsletter in December 2012
Egypt is estimated to hold 12,446 mmbbl initial recoverable liquid reserves. After decades of production, it is estimated that the country has approximately 1,888.9 mmbbl recoverable oil remaining, as of January 2011. These figures indicate that 83% of Egypt’s recoverable oil reserves have been depleted
 
Conclusion:
While most peak oil researchers are transfixed on calculating the global peak, they forget to look at the peaking in populous, strategically located countries like Egypt and its geo-political impacts.  Neither US shale oil nor syncrude from Canadian tar sands will help the situation in these countries. What is happening there also tells us something about the world 20 years after the global peak.

 

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