Reshaping the Global Energy Scene: A Year into Russia's War in Ukraine

TABLE OF CONTENTS

THE TEAM INTRODUCTION

CEO

MOHAMED FOUAD

General Manager

AYMAN RADY

Research & Analysis Manager

DR. MAHINAZ EL BAZ

Managing Editor

IHAB SHAARAWY

Senior Research Analyst

REHAM GAMAL

Research Analysts

JOLLY MONSEF

MARIAM AHMED

MAHA BALBAA

Statistician

NADA ABBAS

Senior Editors

NADER RAMADAN

RANA AL KADY

Senior Writer

SARAH SAMIR

Staff Writers

FATMA AHMED

ISRAA NOUR ELDEEN

Chief Reporter

WAEL EL-SERAG

Business Development Manager

TAMARA EWISS

Marketing Specialist

SHROUK IHAB

Creative Art Director

OMAR GHAZAL

Graphic Designers

MERNA WILLIAM

AMIRA HASSAN

One year on, the global energy landscape changed dramatically. Global trade faced massive disruptions in supply chains because of the Russian-Ukraine war. Oil, natural gas, and food prices have soared since both Russia and Ukraine are major global producers and suppliers of these vital commodities. The world’s current dependence on fossil fuel consumption, including the prices and resource volatility, is at stake.

These economic disruptions escalated calls for accelerating the energy transition globally, especially in Europe which felt the ripple effects of the war acutely as Russian gas has historically dominated its imports. Hence, Europe has been looking for alternative sources of oil and gas in light of Western sanctions on Russia.

Furthermore, countries with direct trade, tourism, and financial vulnerabilities like Egypt felt additional economic pressures and experienced slower economic growth, wider fiscal and trade deficits, and more inflation pressure. However, in the midst of the war's repercussions, Egypt emerged as one of the major North African liquefied natural gas (LNG) exporters to Europe since the conflict began.

This report offers an analytical assessment of the global oil and gas market’s evolution over the past year. It sheds light on the reaction of oil commodities prices to global events during the year, focusing on the global inventory withdrawal and worldwide supply and demand trends. The European Union’s (EU) reaction to the crisis and Russian strategies to find alternative importers for its crude oil will also be given specific attention. The report also reveals how Russia's oil production has been impacted by Western sanctions. This is in addition to further examining the global market outlook in 2023 and the 2045/2050 energy transition scenarios of major international institutions.

The report also tracks Egypt's response to the repercussions of the war by studying the performance of major macroeconomic indicators during the war. It also highlights the performance of the Egyptian oil and gas sector and examines natural gas trade growth as the conflict continues.

SECTION ONE CHANGES IN THE GLOBAL ENERGY SCENE

1: OIL & GAS MARKET DYNAMICS

A. Crude Oil, Natural Gas, and Diesel Average Prices

On 24 February 2022, the Russian-Ukraine war started when Russia invaded parts of Ukraine. Russia is a major player in the global oil & gas market, being one of the largest crude oil exports as Russia exported 7.8 million barrels per day (mmbbl/d) in December 2021 which accounted for 64%. Accordingly, the oil and gas industry was significantly affected, pushing up prices to unprecedented levels. During 2021, the prices of brent crude oil ranged between the sixties and seventies to reach $86.51 per barrel in January 2022.

One month after the Russia-Ukraine war started, the prices of crude oil, natural gas, and other petroleum products climbed up to its highest point since 2008. The price of brent crude oil soared to more than $100 per barrel in March 2022, which increased by 78.16% compared to March 2021.

The Brent price rose significantly during the H1 of 2022 and reached its peak in June. Then, it started to decline gradually in H2 of the year. The reason behind the increase in H1 is the combination of Russia’s invasion of Ukraine with low global crude oil inventories, according to US Energy Information Administration (EIA). After just three months following the peak, in September 2022, prices slipped below $90 per barrel, reflecting a seasonal slowdown in refinery purchases, increased supplies, and concerns about a possible economic recession reducing demand, as explained by the International Energy Agency (IEA). Brent prices reached $84.64 per barrel in April 2023 down from 97.13 per barrel in February 2022 which declined by 12.86%.

Similarly, natural gas prices were affected by the war, as the prices reached $4.9 per million British thermal units (mmBtu) in March 2022, which increased by 87% compared to March 2021. Natural gas surged above $9 per mmBtu on May 25, 2022, the highest level since 2008 due to declining inventories, according to EIA. The prices of natural gas declined at the beginning of 2023 to record $2.16 per mmBtu in April which declined by 53.94% compared with 4.69 mmbtu in February 2022.

Moreover, the war has impacted the prices of petroleum products, as diesel prices have stayed steady at around $3 per gallon before the war and then jumped by 62.2% in March 2022, compared to the previous year. In June 2022, diesel prices reached their peak of $5.75 per gallon, the highest level in a while as the European Union adopted the sixth package of sanctions that banned seaborne imports of petroleum products from Russia including diesel fuel, according to EIA. Diesel prices declined to reach $4.211 per gallon in March 2023 down from $4.71 per gallon in December 2022.

B. Crude Oil & Natural Gas Inventories Withdrawals

The inventories of the oil and gas industry were exhausted rapidly after the war and even before it. Over 2022, the inventories withdrawal trend declined from March 2022. In June 2022, global oil inventories withdrawal increased with recent builds concentrated in China, where refiners reduced runs due to weaker demand amid COVID-19 lockdowns. The sharpest decline in inventories withdrawals in 2022 was in October, as explained by the IEA.

Natural gas inventories were slightly affected by the war, which recorded a decline in February and March 2022 and then the inventories declined yet in an increasing trend. European natural gas inventories recorded an increase due to lower demand and strong LNG inflows, according to the World Bank (WB).

MONTHLY CRUDE OIL & NATURAL GAS INVENTORIES WITHDRAWALS OVER (JAN 2021 - FEB

C. Petroleum & Natural Gas Supply & Demand

One of the critical aspects which were affected by the war is the supply and demand dynamics of crude oil, natural gas, and other petroleum products. Oil supply started to record a remarkable increase from June 2022 as resilient Russian production and higher output from the US and Canada offset steep maintenance-related losses from Kazakhstan. Supplies from the Organization of the Petroleum Exporting Countries and its alliance (OPEC+) and non-OPEC rose as agreed during their meeting on 30 June 2022 to increase production by 0.648 mmbbl/d for August. In July, petroleum and other liquids supply hit a post-pandemic high of 100 mmbbl/d as maintenance wound down in the North Sea, Canada, and Kazakhstan. Moreover, OPEC+ and non-OPEC ramped up total oil products in line with higher targets at that time, as explained by the IEA.

On the oil demand side, the growth was slow over 2022 driven by a weaker economic outlook. In the International Monetary Funds’ (IMF) World Economic Outlook, in October 2022, global growth is forecasted to slow from 6% in 2021 to 3.2%

in 2022 and 2.7% in 2023. This is the weakest growth profile since 2001, except for the global financial crisis and the acute phase of the COVID-19 pandemic. In April 2022, petroleum and other liquids demand decreased to reach 97.27 mmbbl/d as China, the world’s second-largest oil consumer, struggled to contain the spread of COVID-19, according to the IEA.

The war added further pressure and uncertainty to an already tight natural gas market. The supply and demand of US natural gas exceeded 100 billion cubic feet per day (bcf/d) at the beginning of 2022, then ranged between the seventies and eighties to hit 100 bcf/d at the end of the year and the beginning of 2023. The natural gas supply of Europe had been a concern since mid-2021 as storage inventory levels had remained below average. The natural gas crisis triggered by the war has caused a series of market adjustments. European buyers had enormously increased their LNG procurement, resulting in market tightening and demand destruction in different importing regions, according to the IEA.

REGIONS

A. Europe’s Reliance on Russian Oil & Gas

For years, Russia has been Europe's largest supplier of coal, oil, and natural gas. The EU imported 83% of its natural gas in 2021. Russia's natural gas importing share of the EU market was around 50% until H2 of 2021. Since then, the Russian natural gas share started to decline rapidly and the market shares of other suppliers began to grow, particularly after Russia invaded Ukraine until it reached below 20% in June 2022, then 12.9% in November, according to the Council of the EU and the European Council.

On the other side, the EU imported 20% of its oil and petroleum products from Russia in 2021. After the war, the EU’s importing of oil and petroleum products from Russia started to fall gradually, until it reached about 16% of the total amount imported over the period (March - November 2022) after it was around 23% of the total imports over the same period of 2021, according to Eurostat data.

It is worth noting that the two main routes for exporting Russian crude oil are by pipeline and by oil tanker at sea. The Druzhba pipeline system carries oil to the EU, and the remaining Russian crude oil has historically been exported by sea to the EU, China, and other countries, according to the Bruegel Website. The Druzhba pipeline supplies oil from Russia to Europe directly into the refineries of Poland, Germany, Hungary, Slovakia, and Czechia, and is currently exempt from sanctions, according to the European Parliament.

» EU Restrictive Measures Against Russia

In response to Russia's war on Ukraine, the EU agreed on a series of measures intended to thwart Russian abilities to continue the aggression effectively. These measures were represented in prohibiting the purchase, import, or transfer of crude oil and certain petroleum products from Russia into the EU, with some temporary derogations for some countries, according to the Council of the EU and the European Council.

Announcing Date

Jun 3, 2022

Moreover, the international price cap coalition, which consists of Australia, Canada, Japan, and the US, in addition to the 27-nation EU, has introduced a $60 per barrel price cap on Russian crude from December 5, 2022, on top of the EU embargo on imports of Russian crude by sea, and from February 5, 2023 for refined petroleum products according to the European Commission. This resulted in a reduction in Russian oil and petroleum products imports to the EU by about 26% from June to November 2022, compared to an increase of about 21% over the same period of 2021, according to Eurostat data.

SANCTIONS ON OIL & PETROLEUM PRODUCTS

2: WAR'S REVERBERATION ACROSS WORLD’S OILIMPORTING

» Natural Gas Consumption Fallback

On May 18, 2022, the EU Commission unveiled its REPowerEU plan in an attempt to make the EU energy supply more secure, and independent from Russia. The plan focuses on achieving several measures through energy savings, diversification of energy supplies, and accelerating the roll-out of renewable energy to replace fossil fuels in homes, industry, and power generation. With this plan, the German government hopes to reduce gas usage by 2% by rationing the use of lighting and heating in public buildings this winter. Also, Spain has brought in similar measures and Switzerland is considering doing the same.

As a part of the REPowerEU plan to end EU dependence on Russian fossil fuels, the EU Council issued a regulation on August 5, 2022, to set a reduction target of 15% in natural gas consumption for the period between August 2022 and March 2023, compared to the average of the same period of the five previous consecutive years.

Starting in February 2022, EU natural gas consumption began to fall significantly. The most significant decrease was registered in August 2022, with around a 63% reduction compared to January of the same year. This was in parallel with the significant decrease in natural gas volumes imported from Russia after the war. Between February and December 2022, the EU imported around 4,691 million cubic meters (mmcm) on average from Russia, compared to about 7,182 mmcm over the same period of 2021, based on Eurostat data.

» LNG Revolution

Natural gas imports from Russia to the EU have been significantly reduced. This has mainly been compensated by a sharp increase in liquefied natural gas (LNG) imports from other suppliers, particularly from the US. Between January - November 2022, LNG imports from the US accounted for over 50 billion cubic meters (bcm), more than twice as much as in 2021, according to the European Commission.

In late 2022, India became the largest buyer of Russian crude followed by China which achieved significant growth in Russian inflows between January and November 2022. Russian crude's share in the Indian crude basket in 2021 was only around 2.2%. From that level, Russia became India's top crude supplier, and this was evident in the huge increase in Russian oil exports to India which recorded an increase of 1500% in January 2023 compared to January 2022.

Also, China, the world's top oil importer, has increased its Russian oil imports by around 35% from January 2022 to January 2023, despite Western sanctions. This can be justified by the no-limit partnership that was launched by Russian President Vladimir Putin and Chinese leader Xi Jinping before the war in Ukraine, according to Reuters.

IEA also professed that Russia accounted for around 40% and 20% of Indian and Chinese crude imports, respectively, in February 2023, explained in IEA Oil Market Report published in March 2023.

» Russian Crude Oil Production & Exports

The Russian invasion of Ukraine in February 2022 rattled the global energy markets, as Russia dominated the global oil and gas industry for decades prior to the invasion. As a result, Russian crude oil production and exports are still dominant.

3: WHAT HAPPENED IN RUSSIA?

A. Russian Oil & Gas Supply, Exports

Between March and November 2022, Russian crude oil production increased slightly during the war year, as Russian crude oil production was 91.77 mmbbl/d, compared to 91.34 mmbbl/d in the same period in 2021, according to EIA data.

With regard to Russian seaborne crude oil exports, in February 2022, the war month, Russia’s seaborne exports witnessed the biggest decrease in 2022 at 13.11 million tons (mmt) with the beginning of the war, while the exports reached the highest level in October 2022 at 17.88 mmt.

Exports amounted to about 146.3 mmt from March to November in the war year 2022, compared to 120.3 mmt in the same period in 2021, with an increase of 21.6%.

» Russian Natural Gas Production & Exports

In response to the war, many Western countries imposed sanctions on Russia, which resulted in the country curbing its supplies to the West. This significantly affected Russian natural gas production and exports.

In 2022, Russia’s total natural gas production volume was 672 bcm, 12% down from the previous year. Furthermore, the Russian company Gazprom produced 412.6 bcm of natural gas compared to 514.8 bcm which was around 20% less than in the previous year, according to Gazprom.

For Russia’s natural gas exports, Gazprom exported 784.8 bcm of natural gas in 2022, compared to 1,267 bcm in 2021, with a decrease of 38.1%.

Gazprom exports were clearly affected in February 2022, the month when the war began, as it exported 23.2 bcm in February 2022, compared to 34.5 bcm in February 2021, with a decrease of 32.8%, according to Gazprom data.

This decline was related to the Russian invasion of Ukraine, in response to which several European countries announced plans to reduce dependence on Russian gas. Furthermore, the Russian government demanded payments for gas in Russian rubles at the end of March 2022.

B. Nord Stream 1 & 2

Nord Stream’s business model provides natural gas transportation capacity coming from western Russia for distribution into the European gas grid. The gas transportation system consists of its twin, 1,224 km pipelines through the Baltic Sea. Each has the capacity to transport 27.5 bcm of natural gas a year, according to Nord Stream.

The Nord Stream 1 pipeline opened in 2011 and supplies gas to EU states from the Russian coast to north-eastern Germany. It is owned and operated by Nord Stream AG, whose majority shareholder is the Russian state-owned company Gazprom.

The Nord Stream 2 pipeline launched in 2015, connects Russia and Germany directly via the Baltic Sea, following a similar route to Nord Stream 1 and it is also owned and operated by Nord Stream AG.

In February 2022, Germany halted the Nord Stream 2 Baltic Sea gas pipeline project after Russia formally recognized two breakaway regions in eastern Ukraine. Despite the potential benefits, the pipeline had faced opposition from the EU and the US on the grounds that it would increase Europe's energy dependence on Russia as well as deny transit fees to Ukraine, host another Russian gas pipeline, and make it more vulnerable to Russian invasion, according to Reuters.

Between January and June 2022, the volume of natural gas flows running via the pipeline Nord Stream 1 from Russia to Germany was measured at nearly 1.8 billion kilowatt-hours daily (bkwh/d). Then, the flows fell over between June and August 2022 from nearly 1.8 bkwh/d to about 0.3 bkwh/d. As a result of the explosion of the Nord Stream 2 pipeline, the flow of natural gas stood at zero from September 2022 to January 2023, according to Statista data.

B. Largest Importers of Russian Crude Oil

A year on from Russia’s invasion of Ukraine, EU imports from Russia declined dramatically. As a result, Moscow has successfully re-routed crude oil shipments to Asia and the G7 price caps are helping to keep the oil flowing.

In light of the sanctions imposed against Russia due to the invasion of Ukraine, Russia is struggling to find buyers. The country would curb output by 500 kbbl/d in March 2023 rather than sell to those that comply with the G7 price caps. Even if supply falls sharply, Russia will continue to play an outsized role in global oil markets, ranking as the world’s third largest producer behind the United States (US) and Saudi Arabia, Deputy Prime Minister of the Russian Federation Alexander Novak said in early February 2023.

RUSSIAN CRUDE OIL SEABORNE EXPORTS

RUSSIAN NATURAL GAS CUMULATIVE EXPORTS BY GAZPROM TO THE FAR ABROAD

C. Russia’s Reaction to the West’s Sanctions

In response to Western sanctions imposed on Russia, Moscow decided some measures to protect itself by redirecting import flows to non-sanctioning countries and re-routed crude oil shipments to Asia. Also, Russia has banned exports of more than 200 goods, including telecoms, medical, vehicle, agricultural, electrical equipment, and timber products. Moreover, it is blocking interest payments to foreign holders of government bonds, and banning Russian firms from paying overseas shareholders. Furthermore, it has stopped foreign investors who hold billions of dollars worth of Russian investments from selling them.

4: 2023 OUTLOOK

A. Crude Oil and Natural Gas Prices

There is anticipation regarding crude oil and natural gas prices predictions in 2023. The global brent crude oil price will rise from an average of $81 per barrel in December 2022 to an average of $83 per barrel in the first quarter of 2023. This increase follows the upcoming EU ban on seaborne imports of petroleum products from Russia. The brent price will stay relatively flat through the second quarter of 2023, stated by the EIA.

Surprise OPEC+ supply cuts announced on April 2, 2023 have relatively changed the forcastes. The average Brent crude oil price forecast rose to reach $85 per barrel in 2023. The higher price forecast reflects an expectation for less global production in 2023 and a relatively unchanged global oil consumption, according to the EIA.

Natural gas prices will decline in the second quarter of 2023 and then stay relatively flat throughout the rest of the year. This comes as a result of winter weather subsiding, reducing domestic consumption and dry natural gas production continuing to rise, as well as, US LNG exports remaining flat once Freeport LNG comes back online. As inventories remain above the five-years average in 2023, natural gas prices average less than $3.00 mmbtu for 2023, according to the EIA.

B. Global Institutions Expectations for Demand, Supply

The oil and gas market has been the focus of attention by many institutions worldwide, especially after the Russia-Ukraine war crisis. For 2023, major global institutions set their expectations and forecasts for the demand and supply of the market.

» The EIA

The EIA expects that global petroleum production will increase by 1% (1.1 mmbbl/d) from 2022 to 2023. The US and OPEC account for most of the increase in global production, offsetting declines in Russia. Russia’s petroleum production will fall from 10.9 mmbbl/d in 2022 to 9.5 mmbbl/d in 2023 as a result of sanctions related to Russia’s full-scale invasion of Ukraine. US production will grow by 5%, and OPEC liquid fuels production (which includes crude oil) will increase by 0.5% in 2023.

US natural gas production is to increase by about 2% in 2023, averaging between 100 bcf/d and 101 bcf/d for the year. Natural gas consumption to decline in the electric power sector as more renewable electric-generating capacity comes online.

» The IEA

According to the IEA Oil Market Report (OMR) published in March 2023, world oil demand growth is set to accelerate sharply over 2023, from 710,000 bbl/d in the first quarter to 2.6 mmbbl/d in the fourth one. Global oil demand is forecast to reach a record 102 mmbbl/d.

For the world oil supply, it is expected that the non-OPEC+ states will drive global output growth of 1.6 mmbbl/d in 2023, enough to meet demand in H1 of 2023 but falling short in H2 when seasonal trends and China’s recovery are set to boost demand to record levels.

» OPEC

OPEC expects a solid global oil demand growth in 2023, coming from the relation of China’s zero-COVID policies, as the country's oil use pushed into a contraction for the first time in years. Chinese demand is to grow by 590,000 bbl/d in 2023. World oil demand will rise by 2.25 mmbbl/d or about 2.3% in 2023.

» The WB

OPEC+ output will remain subject to quotes in 2023. According to the OPEC meeting on 5 October 2022, members agreed to cut their production target by 2 mmbbl/d starting in November 2022 through the end of 2023.

Around half of global oil production growth in 2023 is expected to come from the US, where total production is forecast to increase by about 1 mmbbl/d. About half of the growth in oil consumption in 2023 is expected to be accounted for by China, as the country gradually reduces pandemic restrictions.

5: FUTURE ENERGY SCENARIOS

The war has long-lasting effects on the global energy system. It has an essential role in accelerating energy transition worldwide. The structure of energy demand changes, ensuring the need for a growing share of renewable energy. Countries have taken strategies toward the transition to low-carbon economies and increased domestically produced renewables.

bp has three scenarios to consider a range of possible pathways for the global energy system to 2050. The scenarios are Accelerated, Net Zero, and New Momentum. These scenarios are not predicted what is likely to happen, but rather, span a wide range of possible outcomes out to 20250. bp’s Energy Outlook 2023 has been updated to take into account two major developments over the past year the Russian-Ukraine war and the passing of the Inflation Reduction Act in the US, according to bp energy outlook.

Fossil fuels share is expected to decline from around 65% in 2019 to 20-50% by 2050 across the three scenarios. The role of electricity increases substantially and broadly across all three scenarios, with consumption increasing by around 75% by 2050. While the share of renewables in global primary energy increased from around 10% in 2019 to between 35-65% by 2050, driven by improving the cost competitiveness of renewables, as well as, encouraging a shift to low-carbon energy. In all three scenarios, renewable energy penetrates the global energy system quicker than any previous fuel in history, according to bp energy outlook.

In the Accelerated scenario, fossil fuels would represent 29% of primary energy consumption by 2050. Renewable energy consumption would represent 57% in 2050. The Net Zero scenario expects that the share of fossil fuel in primary energy consumption would represent 18% by 2050. While renewable energy would represent 64%. Under the New Momentum scenario, fossil fuels would represent 55% of primary energy consumption. The share of renewables in energy demand could reach only 35% by 2050, according to bp energy outlook.

SHARE

B. IRENA

The

Renewable Energy Agency's (IRENA) World energy transitions Scenarios aims at achieving a climate-safe future in line with the goals of The Paris Agreement. The 1.5°C pathway positions electrification and efficiency as key drivers of the energy transition, enabled by renewables, hydrogen, and sustainable biomass. This pathway requires a massive change in how societies produce and consume energy. It would result in a cut of nearly 37 gigatonnes of annual CO2 emissions by 2050.

C. The IEA

The IEA medium to long-term outlook publications – the World Energy Outlook (WEO) and the Energy Technology Perspectives (ETP) - use a scenario approach to examine future energy trends relying on the Global Energy and Climate (GEC) Model.

The GEC Model is used to explore various scenarios, each of which is built on a different set of underlying assumptions about how the energy system might respond to the current global energy crisis and evolve thereafter.

The Net Zero Emissions by 2050 Scenario (NZE Scenario) is normative, in that it is designed to achieve specific outcomes, an emissions trajectory consistent with keeping the temperature rise in 2,100 below 1.5 °C (with a 50% probability), universal access to modern energy services and major improvements in air quality and shows a pathway to reach it.

The Announced Pledges Scenario (APS), and the Stated Policies Scenario (STEPS) are exploratory, in that they define a set of starting conditions, such as policies and targets, and then see where they lead based on model representations of energy systems, including market dynamics and technological progress. APS's main target is to show how current pledges get the world towards limiting global warming to 1.5 °C. On the other hand, STEPS aims to provide a benchmark to assess the potential achievements of recent developments in energy and climate policy.

D. OPEC

OPEC’s World Oil Outlook (WOO) is part of the organization’s commitment to market stability. It highlights and shows the energy outlook, possible future challenges and opportunities for the oil industry and is updated per year.

Global primary energy demand is expected to increase by 5.8% in the period between 2035 and 2045. Renewable energy share of global primary energy demand is expected to increase from 25.8% in 2035 to 30.4% in 2045. Gas is expected to follow the renewables increase. Oil and coal is expected to witness a decline of 4.9% between 2035 and 2045.

SECTION TWO

WAR'S LEVERAGE ON EGYPT

1: THE MACROECONOMIC FOOTPRINT

The Russia-Ukraine war hit the Egyptian economy, creating a remarkable inflationary wave, which resulted in an increase in the prices of fuel, food, and other strategic commodities. Also, the war triggered capital outflows and reduced the central bank of Egypt’s (CBE) foreign reserves and banks’ net foreign assets and caused several other economic imbalances. However, the applied economic reforms in Egypt offset this huge impact. In response to these adverse global developments, Egypt also undertook exchange rate, monetary and fiscal measures. This is in addition to adopting new IMF-backed economic reform that contributes to supporting Egypt's financial discipline.

A. Economic Growth

Economic growth seemed to recover from the reduction resulting from the COVID-19 pandemic at the end of FY 2020/21 until it achieved growth of 7.7% in Q4 2020/21. Then, it continued to increase in Q1 2021/22, yet the economic activities witnessed a declining trend over Q2, Q3, and Q4 for the same year. These activities have been impacted by multiple global shocks, notably the rising cost of domestic and imported inputs, global price dynamics, and exchange rate depreciation, as well as, domestic supply bottlenecks, according to the World Bank. The economic growth increased to reach 4.4% during Q1 2022/23 as continuing to pursue reforms and promoting the participation of the private sector in higher value-added and export activities for jobcreation and better living standards explained by the World Bank. However, the growth slightly declined in Q2 2022/23 to reach 3.9%.

B. Inflation Rate Vs. Interest Rates

Egypt's annual headline inflation rate skyrocketed in April 2023 to 33.9%. These inflationary pressures were triggered by the coronavirus pandemic and Russia's war in Ukraine. At the local level, there is a combined effect of several factors that impacts inflation, including the disruptions in the domestic supply chain, the depreciation of the Egyptian pound, demand side pressures raised because of the excess of real economic activity development compared to the maximum production capacity, and high broad money growth outturns, according to the CBE.

As part of the Egyptian government’s measures to deal with the repercussions of the war, the CBE has proactively raised key interest rates by 1000 basis points (bps) over 2022 and until March 2023. The Monetary Policy Committee (MPC) clarified that the main target of the CBE’s proactive policy is to counter inflationary pressures on the demand side.

The MPC clarified in its last meeting on March 30 that the CBE’s upcoming inflation targets 7% (±2%) on average by Q4 2024 and 5% (±2%) on average by Q4 2026, according to the CBE.

C. US Dollar Exchange Rate

Since Russia's invasion of Ukraine, the Egyptian pound slumped to a very low level against the US dollar, a sign that the Egyptian authorities are pressing ahead with a shift to a more flexible currency regime. The US dollar value against the Egypt pound (EGP) appreciated from EGP 15.76 in February 2022 to EGP 30.94 in April 2023, gaining around 96% over this period.

The CBE has sharply devalued the Egyptian pound three times since the war, exposing vulnerabilities in Egypt's finances. The first correction was on March 21, 2022, the CBE stressed the importance of the exchange rate flexibility to act as a shock absorber to preserve Egypt’s competitiveness, pushing the exchange rate of the pound against the dollar to reach EGP 18.27 for sale instead of EGP 15.76. The second one was decided in CBE's meeting on October 27, 2022, through moving to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the EGP against other foreign currencies, making the US dollar exchange rate to jump to EGP 22.96 for sale instead of EGP 19.75. Egypt’s third and latest correction so far, caused the pound value to depreciate to about EGP 32 per dollar on January 11, 2023, according to the CBE.

It is also worth noting that the CBE decisions to raise interest rates also pushed the price of the US dollar in the local market to its highest levels since starting to implement the IMF economic reform program in 2016.

E. Balance of Payments (BoP) Deficit

Egypt’s balance of payments (BoP) registered a current account deficit of $5.8 billion in Q3 of FY 2021/22, before it witnessed an improvement in Q4 of FY 2021/22, as the current account deficit fell by around 49% quarter-on-quarter (QoQ). This drop was due to a significant decline in petroleum imports by about 50% and non-petroleum imports by nearly 19%, according to the CBE. The reason behind this decline in imports may be the critical shortage of foreign currency since Russia invaded Ukraine, which happened because of the exit of dollars from the Egyptian markets and the drop in Russian and Ukrainian tourists coming into Egypt, according to the CBE.

In H1 of FY 2022/23, the current account deficit again dropped by about 77% to record $1.8 billion compared to $7.8 billion in H1 of FY 2021/22. This remarkable correction in the current account was primarily driven by the improvement in non-petroleum trade balance by around $6.5 billion, and the surplus in petroleum trade balance of $1.8 billion. This is in addition to the recovery in tourism revenues, and transportation receipts by 25.7%, and 45.1% respectively, according to the CBE.

2: FLOURISHING THE PETROLEUM SECTOR

F. Budget Deficit

Egypt’s budget deficit during FY 2021/22 rose to EGP 484.8 billion, compared to EGP 472.3 billion in FY 2020/21. This increase was due to the surge in Egypt's public expenditures compared to the collected revenues, and they are required to support economic growth and social protection. Also, the subsidy of basic commodities increased, as the war in Europe caused an overall lack of supply chains for strategic commodities and soaring fuel prices. Over H1 of FY 2022/23, Egypt’s general budget has witnessed a total deficit of about EGP 367.4 billion, to rise by 4% as a percentage of gross domestic product (GDP), up from a deficit of 3.6% during the same period of FY 2021/22. This hike was driven by the increase in expenditure by 19.7% in return for a rise in revenues by 14.6%, according to the Ministry of Finance (MoF).

D. Foreign Reserves

As a result of Russia's war on Ukraine and its repercussions on the global economy, Egypt’s net foreign reserves (NIR) have dropped considerably by around 16% over the period between February 2022 and February 2023. This was caused by the CBE's decision to temporarily mobilize its excess foreign reserves to calm the markets during these exceptional periods. This mobilization was aimed at covering high foreign investor outflows and partially covering local demand to ensure the availability of imported strategic goods and to repay external debt obligations.

On the positive side, Egypt’s NIR started increasing in September 2022 for the first time after April 2022, recording $33.2 billion compared to $33.14 billion the month before. This was in conjunction with the announcement of Hassan Abdalla, the CBE Governor, in October 2022 that the CBE seeks to double foreign reserves within four years. according to the CBE. By the end of April 2023, NIR recorded $34.55 billion.

A. Trade Movement

In August 2022, Egypt announced its decisive intention to provide the largest amount of gas to be exported abroad and obtain foreign exchange, in light of the energy crisis that the world is going through. Upon this, the government started to implement its national plan to rationalize electricity consumption to save a portion of gas used in power stations, according to the Egyptian Cabinet.

» Egypt Boosted Its LNG Exports

Recently, the global market witnessed a surge in global crude oil prices due to disruptions in Russian oil supplies and several other factors. The MOF put estimates of the prices of Brent crude in its general budget for FY 2021/22 at $60 per barrel. However, the price exceeded this level reaching $91 per barrel at the end of the FY. In FY 2022/23 budget draft, the estimates of the average price of Brent barrel reached $80. Every $1 increase in the global oil barrel price over the estimated price in Egypt's budget will increase the total budget deficit by more than $1 billion.

As a result, Egypt increases its spending on subsidizing petroleum commodities to cover any expected hikes in global oil prices. Hence, petroleum subsidies significantly increased by the end of FY 2021/22 to EGP 59.6 billion against EGP 18.4 billion allocated for the same FY budget. Also. estimates for petroleum subsidies in the draft of the state general budget for FY 2022/23 was about EGP 28.09 billion, and about EGP 119.4 billion in the budget draft of FY 2023/24, according to the MoF.

Egypt fostered liquefied natural gas (LNG) exports in 2022 to maximize the use of its terminals and further its role as a hub of Mediterranean and Middle Eastern supply to Europe and to help solve Europe’s energy challenges, triggered because of the Russian war on Ukraine. Accordingly, Egypt is classified as the highest-growing Arab exporter of LNG in 2022, according to the Organization of Arab Petroleum Exporting Countries (OAPEC).

In 2022, Egypt supplied about 7.5 million tons (mmt) of LNG to the global market, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). Egypt's LNG exports to the European Union (EU) have soared in 2022 by 359%, compared to 2021, after becoming a leading exporter to the region after the Russian war. It is worth noting that there is a striking leap in Egypt’s LNG total exported quantities and the imported volumes by the EU after the war. Over the period between March and December 2022, the average exported LNG quantities to the EU was about 350.6 mmcm, compared to 74.7 mmcm over the same period in 2021, according to Eurostat.

Also, LNG exports have been pushed after introducing the electricity rationing plan in August. The exported volume hiked from 0.17 mmt in August, to 0.89 mmt in November, and 0.94 mmt in December, according to CAPMAS.

In terms of value, LNG Exports topped the list of Egyptian exported commodities in 2022, with a total value of about $10 billion, compared to $4 billion in 2021, according to CAPMAS.

» Suez Canal LNG Carriers Tariffs

Suez Canal is a strategic waterway, one of the world’s most crucial maritime arteries, representing a major source of foreign currency for Egypt. As the Russia-Ukraine war continues, Egypt relies deeply on the Suez Canal to help in navigating the ongoing economic crisis and has taken steps to significantly increase Suez Canal transit tolls to boost national revenues. Accordingly, the Suez Canal Authority (SCA) canceled the 15% rebate granted to LNG carriers passing through the Canal, making LNG carriers pay full transit fees, since mid-March 2022. Recently, SCA announced on September 18, 2022, an increase in LNG carriers' transit fees by 15% starting from January 2023 to deal with the impact of the current global inflation, according to the SCA.

In this regard, the Suez Canal transit fees receipts soared by 17.8% to around $4 billion in H1 of 2022/23, compared to about $3.4 billion in the same period of the previous FY. During this period, the canal's net tonnage grew by 13.3% to reach around 753 mmt.

B. Upstream Highlights

Within the framework of facing the challenges in the global oil and gas markets by increasing production, Egypt managed to maintain its performance through implementing an intensive work program to increase oil and gas reserves by issuing international bids. This comes in addition to intensifying search and exploration operations, which will reflect positively on increasing domestic oil and gas production rates and will lead to a decrease in crude oil imports and other petroleum products. Cutting import costs while increasing local production will therefore significantly reduce financial burdens on the national budget.

» Bid Rounds

A year before the war, Egypt established Egypt Upstream Gateway (EUG) which became the first upstream digital platform and a tool for exploration and data preservation. Egypt is keen to continuously issue international bid rounds to promote and attract more exploration and discovery investments. Four international bid rounds have been published in different areas from February 2021 to March 2023. The first and second bid rounds have been issued with a total signature bonus of $48.7 million, $349 million in minimum investments, and 36 wells

drilling commitment. The third one was a limited bid round through the Egyptian Natural Gas Holding Company (EGAS). The fourth one, issued in March 2023 and will be open until June 1, 2023, is considered the first time of its kind bid round that offers brownfield blocks.

» Agreements, Research, and Exploration

The agreements of oil and gas exploration and exploitation are the backbone of the sector which increases direct and indirect investments to support oil and gas production, as well as, ultimately contributing to the state economy. The Ministry of Petroleum and Mineral Resources (MoPMR) is seeking to increase the number of agreements by attracting more major international companies to work in the Egyptian oil and gas sector to achieve its strategy of transforming Egypt into a regional energy hub, according to the MoPMR. During 2021 and 2022, 11 agreements were signed with minimum investments of $1.74 billion, and an $85 million signature bonus to drill 32 wells.

» New Natural Gas Discoveries

Egypt spares no effort to boost natural gas exploration and production (E&P) amid increasing international demand. Egypt has witnessed a spike in its discovering activities, with a new 11 natural gas discoveries, according to the MoPMR.

In January 2023, a new gas field was discovered in the Nargis block of the eastern Mediterranean. This discovery will help Egypt to attain its goal of being a central energy exporter in the region, according to the MoPMR.

NARGIS OFFSHORE DISCOVERY

Egypt achieved another significant discovery in the onshore Nile Delta. In January 2023, Wintershall Dea announced its latest gas discoveries in the East Damanhour exploration block. This discovery will support Egypt's gas reserves, as part of its continuous efforts to find additional hydrocarbon resources.

C. The Regional Role

» EMGF's Rising Role After the War

The pivotal role of natural gas in the energy transition has become increasingly clear. The East Mediterranean Gas Forum’s (EMGF) role as a key player in regional energy security became evident with its contribution to alleviating Europe’s natural gas supply crisis created by the ongoing Russia-Ukraine war. In this context, EMGF is keen to develop several projects to enhance regional natural gas cooperation among member countries for exploiting gas reserves in the region and decarbonizing gas to secure a low-carbon energy source. This is in addition to the importance of ensuring secure access to more diversified sources of natural gas and LNG, explained by EMGF.

about energy transition, but it is also about energy security. Access to hydrocarbon and clean energy investment and funding must be prioritized globally. Meanwhile, EGYPES has created a new look to the show to be more inclusive of the diverse energy mix, including renewable and non-renewable resources.

In this context, strategic, technical, and finance conferences and sessions in EGYPS 2023 took into consideration the war's impact on the oil, gas, and energy industry. The third edition of the Finance and Investment in Energy Conference discussed the impact of the Russia-Ukraine war on global oil and gas investment markets. In addition, the future partnership models for the new energy investment landscape, balance environmental, social, and governance (ESG) with energy security and net-zero targets.

The Russia-Ukraine war is still ongoing with significant impacts on various economic sectors, especially the oil and gas market. Despite the decline in the severity of these impacts, the conflict’s ripple effects are still being felt across the world. The conflict impacted not only oil and gas market dynamics but many aspects of the global economy as well. However, countries tried to reduce their dependence on Russian energy to mitigate the economic effects of the conflict while securing their energy needs.

As a result of the war, global efforts are focused heavily on diversifying energy sources to maintain energy security through building a robust and sustainable energy mix. The share of energy generated from renewable sources is expected to increase globally in the coming years, according to different energy scenarios drawn by international companies and global institutions.

Oil and gas market forecasts for the year 2023 indicate that crude oil prices will continue to rise slightly, accompanied by a minor decline in natural gas prices. Moreover, global demand is expected to surge throughout the year.

The effects of the war on Egypt have two different directions, one negative and the other positive. Egypt's macroeconomics indicators such as inflation rates, interest rates, economic growth, US dollar exchange rate and other indicators have been shocked. Yet, Egypt confronts the consequences of the war through different plans and decisions.

The surge in crude oil and natural gas prices was a double-edged sword. The increase in global crude oil prices has put pressure on the import bill, while the rise in natural gas prices enhanced Egypt’s position as a major LNG exporter to Europe, which is gradually giving up its reliance on Russia's energy exports.

EGYPES

The Egypt Energy Show (EGYPES), formerly known as the Egypt Petroleum Show (EGYPS), has become the region’s premier show for the oil, gas, and energy industry over the past years, attracting over 35,000 attendees, 2,200 delegates, 300 speakers, and 500 national and international exhibitors, as well as, over 80 conferences sessions from all over the world. EGYPES 2024 will be the seventh edition from 12-14 February 2024, according to the official EGYPES website. Within the context of current geopolitical tensions and unprecedented sanctions against the largest exporter of natural gas worldwide, it is no longer just

»

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