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