COUNTRY BACKGROUND

FROM THE ECONOMIST INTELLIGENCE UNIT

Oil production

Crude oil reserves are modest, at 3.7bn barrels at end-2006 according to BP's Statistical Review of World Energy—which will last some 15 years at current extraction rates. According to the Ministry of Petroleum, crude oil reserves rose to 3.97bn barrels by end-June 2007 as a result of new discoveries. Apart from the mature fields in the Gulf of Suez, which produce about 80% of the country's oil, exploration activity is focused on frontier areas such as the Western Desert near the Libyan border, the offshore Mediterranean and Sinai. Exploration is largely undertaken by foreign companies, especially BP of the UK and Eni of Italy, in partnership with the state-owned Egyptian General Petroleum Corporation (EGPC). Eni, which produces 500,000 barrels of oil equivalent per day in Egypt, of which 1.4bn cu ft/day is gas, has announced that it will invest US$6bn in the oil sector until 2010, with its partners providing another US$6bn. Eni is aiming to extract an extra 180m barrels of oil from its Belayim field, with an overall goal of maintaining current oil production. Two-thirds of oil output is refined domestically. Because of depletion in the ageing Gulf of Suez oilfields, crude oil production has declined significantly since 1996, when it reached a high of 922,000 barrels/day (b/d), to around 678,000 b/d in 2006 (including condensates and natural gas liquids), according to BP. Crude oil exports are constrained both by lower production and by rising demand resulting from the high population growth rate. As a result, petroleum exports (a key foreign-currency earner, with crude oil exports generating E£3,213.8m (US$561m), or 31.4% of total export earnings, in 2005/06) are set to decline, and Egypt's days as a net oil exporter are numbered.

Natural gas

Proven natural gas reserves were estimated at 68.5trn cu ft at end-2006 by BP, accounting for just over 1% of the global total, and potential reserves are put at another 40trn-60trn cu ft. Thanks to new discoveries, the state news agency, MENA, announced in July 2007 that proven reserves of natural gas had risen to 72.3trn cu ft. The government is encouraging additional exploration, as a minimum total of 120trn cu ft would be necessary for the government to realise its ambitious plans for the sector, which include liquefied natural gas (LNG) projects, gas export pipelines, gas-to-liquids schemes, petrochemicals expansion and increased domestic consumption. In 2003 Egypt exported its first gas, pumping natural gas to Jordan through an undersea pipeline that runs across the Gulf of Aqaba, skirting Israeli waters. Egypt has signed a 30-year agreement with Jordan to supply 1.1bn cu metres/year of gas, rising to an estimated 2bn cu metres/y by 2008.

The second phase of the Arab Gas Pipeline, with a 10bn cu metres/y capacity, which runs across Jordan from Aqaba to the Syrian border, was completed in January 2006. The third phase, which is to stretch 324 km from the Jordanian border to the Deir Ali power station in Syria and then to Rayan, near Homs, is to be undertaken by Stroitransgaz of Russia. The aim is to complete this phase by 2007 and then extend the pipeline to Cyprus and Turkey, possibly ultimately linking it into the European gas grid. The government announced in April 2007 that it would supply Lebanon with natural gas through the pipeline, but both countries received a warning from the Turkish government in early 2007 after they signed a natural gas exploration deal with Cyprus. Egypt faces tough competition from Russia and other producers for the large Turkish market. In mid-2005, Egypt also concluded an agreement for the sale of gas to Israel, seven years after talks began. The accord provides for the supply of 1.7bn cu metres/y of gas over 15 years, and includes an option for a five-year extension.

Egypt has also rapidly expanded its LNG export capability. It has become the world's sixth-largest gas producer and the third-largest in Africa, behind Algeria and Nigeria. BG Group of the UK is the biggest gas producer, providing some 2.6bn cu ft/d, about 43% of total output, and has committed to invest US$3bn until 2010 in further exploration. In January 2005 the 5m-tonnes/year (t/y) Damietta plant (in which Union Fenosa Gas of Spain has an 80% stake, with the remainder held by the Egyptian government) began shipping LNG to Spain. The gas is purchased from the national grid. In May 2005 sales began from Egypt's second LNG plant at Idku, established by BG and Petronas of Malaysia and fed by the companies' large uncommitted gas reserves from the offshore West Delta Deep Marine tract. Gaz de France is committed to taking the total output of the 3.6m-t/y first train on a 20-year contract. Output from Idku's second train, purchased by BG, began in September 2005, some nine months ahead of schedule. BG has said that it wants to build a third LNG train at the facility, to begin production by late 2009. BG has insufficient gas through its Egyptian concessions to commit to the project but is considering using gas from a variety of sources, including its licence offshore from Gaza, which it is developing in conjunction with the Palestinian Authority. The plant can support as many as six trains and will operate as a tolling facility, so that other gas producers can use the LNG facilities to get their gas to market. BP and Royal Dutch Shell (Netherlands/UK) have also contemplated potential LNG projects. In November 2006, a British firm, Petrofac, was awarded a contract for engineering, procurement and construction of a fourth gas processing train in the Salam area of Egypt's Western Desert by Khalda Petroleum Company (KPC), a joint venture company between Apache Corporation of the US and Egyptian General Petroleum Corporation (EGPC). This is the second consecutive contract that KPC has awarded to Petrofac, and it increased the value of the Khalda contract from US$200m to US$375m.

Several concessions for natural gas and oil exploration were awarded in 2007, particularly along the Mediterranean coast and in the Nile Delta. In July 2007 alone, the government signed eight exploration deals worth US$660m with several companies, including BP, Austria's OMV, Norway's Statoil, Germany's RWE and Algeria's Sonatrach, committing to drill 28 wells.

Mining

Egypt's coal reserves, located mainly in Sinai, are estimated at 50m tonnes. Other mining activities include the extraction of iron ore at the Baharia Oasis in the Western Desert, and limestone and phosphate mining near Bur Safaga and Quseir on the Red Sea. Egypt also possesses appreciable deposits of manganese, gold, zinc, tin, lead, copper, potash, sulphur and uranium, although the remote location of deposits and high costs of extraction and transport have limited exploitation. A large deposit of gold, of about 7.7m oz, was discovered in 2006 in the Red Sea Hills. With reserves estimated at 48m tonnes, Egypt's deposits of tantalite are the fourth-largest in the world. An Australian mining company, Gippsland, signed a US$40m, 30-year agreement with the Geological Survey and Mining Authority in 2001 to form a joint venture to exploit tantalite deposits at Abu Dabbab in the Eastern Desert.