New Market Report: Egypt Oil & Gas Report Q3 2013

The Egyptian hydrocarbons sector continues to suffer from the political uncertainty inherent to the months of turbulence that the country has experienced since the election of Mohammed Morsi in June 2012. The removal from power of Morsi's government in early July 2013 has created further uncertainty in the market. The country's tight budget will continue to pressurise officials to adopt progressive removal of energy subsidies. Exploration and production in the country remains a blemish as political uncertainty and its poor business environment continue to weigh on investor sentiment.

We highlight the following trends and developments in Egypt's oil and gas sector:

* Mohammed Morsi's government was removed in early July. At the time of writing debates on how to select the new government were still ongoing. We do not expect that this will impact our consumption forecast significantly, especially because whichever government is selected will most likely have to continue negotiations with the IMF. However, we see serious downside risk to our production forecasts for 2013 and 2014 as companies are likely to reduce their exposure to operational risks. Both BG and BP have already announced reductions in their activities.
* We expect gas consumption to continue increasing as the country further incentivises the use of condensate natural gas vehicles and gas-based power generation.
* Although gas production is expected to grow from 63.5 cubic metres (bcm) to 84.5bcm in the 2013-2022 period, consumption will rise at an ever more rapid pace, from 53.6bcm to 80.8bcm. Net gas exports, especially through liquefied natural gas (LNG), will fall over the forecast period as consumption increases sharply.
* BMI expects Egyptian oil production to decline from 709,000 barrels per day (b/d) in 2013 to 653,100b/d in 2020. At the same time, consumption is expected to rise significantly, from 824,800b/d to more than 1mn b/d over the same period, more than quadrupling Egypt's oil import bill.
* Despite several proposals to increase capacity, we do not see refineries advancing over our forecast period. With refining capacity set to remain flat, imports of refined products are set to rise from 83,000b/ d in 2011 to over 370,000b/d by 2021.Although disturbances have reduced exports to Jordan to 16% of the contractual agreement, we expect trade links to persist. The country's inability to service both its domestic consumption and its international contractual obligations will force the government to import an increasing amount of the gas from Middle East countries, and in particular Qatar.
* Egyptian General Petroleum Corporation (EGPC) and Egypt's other state companies will continue to push their own licensing rounds, hoping that political challenges will not ensnare investment in upstream hydrocarbons projects.

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