Egypt produced an average of about 594,000 barrels per day (bbl/d) of crude oil in 2004, down sharply from its peak of 922,000 bbl/d in 1996, but only modestly below the 618,000 bbl/d produced in 2003. Demand for petroleum products has been relatively flat since 1999, after rapid growth between 1995 and 1998. This is due largely to reductions in subsidies for petroleum products consumption and the increased use of compressed natural gas (CNG) as a fuel for motor vehicles. Egypt is hoping that exploration activity, particularly in new areas, will discover sufficient oil in coming years slow the decline in output. Egyptian oil production comes from four main areas: the Gulf of Suez (about 50 percent), the Western Desert, the Eastern Desert, and the Sinai Peninsula. Increased production of natural gas liquids, which averaged 114,000 bbl/d in 2004, also has offset some of the decline in crude oil production.
Oil from the Gulf of Suez basin is produced mainly by Gupco (Gulf of Suez Petroleum Company) under a Production Sharing Agreement (PSA) between BP and the Egyptian General Petroleum Corporation (EGPC). Production in the Gupco fields, with most wells in operation since the 1960s and 1970s, has fallen in recent years. Gupco is attempting to slow the natural decline in its fields through significant investments in enhanced oil recovery as well as increased exploration. Egypt’s second largest oil producer is Petrobel, which is a joint venture between EGPC and Agip of Italy. Petrobel operates the Belayim fields near the Gulf of Suez and also is undertaking an upgrade program to stem declining production.
Other major companies in the Egyptian oil industry include Badr el-Din Petroleum Company (EGPC and Shell); Suez Oil Company (EGPC and Deminex); and El Zaafarana Oil Company (EGPC and British Gas — BG). A new oil find was reported in October 2001 in the Gulf of Suez. Canada’s Cabre Exploration reported a drilling success in the offshore East Zeit block which tested at around 8,000 bbl/d. A larger new find, which may prove to attenuate the fall in overall Gulf of Suez production, was announced by BP in May 2003. The Saqqara field, located offshore adjacent to the existing El-Morgan field, is expected to reach peak production of around 40,000 to 50,000 bbl/d, and begin commercial production in late 2005 or early 2006. Saqqara represents the largest new crude oil discovery in Egypt since 1989.
Offshore oil production possibilities in the Mediterranean are beginning to be explored. The largest concession awarded went to Shell, in February 1999, for a large deepwater area off Egypt’s Mediterranean coast. BP and TotalFinaElf also were awarded a large offshore block from the same bidding round. A smaller offshore concession was awarded to Italy’s ENI-Agip. While most discoveries offshore from the Nile Delta have been natural gas, it is believed that there may also be significant quantities of oil in the area. Shell reportedly is optimistic about the prospects for its North East Mediterranean Deepwater (NEMED) concession, but drilling so far has yielded natural gas rather than significant quantities of oil.
EGPC awarded five exploration contracts in July 2004 to a newly-formed state-owned upstream oil firm, Tharwa Oil. Four of the five concessions cover unexplored areas of the Western Desert, with the fifth covering an offshore block in the Mediterranean. Burren Energy of the UK also was awarded two blocks in the Gulf of Suez under the 2004 licensing round, which closed in January 2005. Other awards under the 2004 licensing round are still pending.
In April 2005 Melrose Resources reported that the Egyptian Parliament has confirmed a six-year extension to the El Mansoura Concession. The extension will be for two additional three-year exploration periods from the expiration date of the current exploration concession in June 2006. The further reported Two step out wells have been drilled on the South Batra Field. The South Batra No.19 was drilled to the Miocene Abu Madi and successfully encountered the reservoir section.
In May 2005 BP Egypt announced it had extended two concessions in the Gulf of Suez: the Merged Concession Agreement (MCA) and South Gharib. Extension of the MCA and South Gharib concessions with modified terms for BP will extend the life of the existing oil fields, maximize the recovery of the remaining reserves in these two concessions and provide a foundation for growth through future exploration. The agreements enable BP to continue investing in these concessions and commit it to invest at least $615 million over 7 years in exploration and development activities, as well as renewing and upgrading the existing facilities and infrastructure across the Gulf of Suez. Operations in these two concessions are conducted by Gulf of Suez Petroleum Company (GUPCO), which is a 50/50 joint venture between BP and Egyptian General Petroleum Corporation (EGPC), and the agreements create new opportunities for the development of GUPCO.
In addition to its role as an oil exporter, Egypt has strategic importance because of its operation of the Suez Canal and Sumed (Suez-Mediterranean) Pipeline, two routes for export of Persian Gulf oil. The SCA offers a 35 percent discount to liquefied natural gas (LNG) tankers, with even deeper discounts for the largest LNG tankers, as well as other discounts for oil tankers.
The SCA is continuing enhancement and enlargement projects on the canal. The canal has been deepened so that it can accept the world’s largest bulk carriers, but it will need to be deepened further to 68 or 70 feet, from the current 58 feet, to accommodate fully laden very large crude carriers (VLCCs). The SCA has attempted to reach an agreement with its main competition for northbound crude traffic, the Sumed pipeline. Such an agreement could bar any tanker small enough to traverse the canal from transporting oil through the pipeline. The SCA offers incentives for tankers to off-load a portion of its cargo through the Sumed, allowing for passage through the canal, and reloading at the other end of the pipeline.
The Sumed pipeline is an alternative to the Suez Canal for transporting oil from the Persian Gulf region to the Mediterranean. The 200-mile pipeline runs from Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean. The Sumed’s original capacity was 1.6 million bbl/d, but with completion of additional pumping stations, capacity has increased to 2.5 million bbl/d. The pipeline is owned by the Arab Petroleum Pipeline Company (APP), a joint venture between Egypt (50 percent), Saudi Arabia (15 percent), Kuwait (15 percent), the U.A.E. (15 percent), and Qatar (5 percent). The APP also has been increasing storage capacity at the Ain Sukhna and Sidi Kerir terminals.
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Eni, through its representative, International Egyptian Oil Company (IEOC), is Egypt’s second largest oil producer.