Egypt’s Oil and Gas Industry in 2021​

Over the past few years, the oil and gas industry has been fluctuating, and as the world shifts towards renewable clean energy, the situation is not getting any better soon. Although upstream investment has been on the decline in 2021, oil and gas investments are still profitable to investors who invest in hopes of the once quite successful industry regaining its strength, even with the unexpected demand post the Covid19 pandemic.

The Economist Intelligence Unit’s (EIU) forecast is an important indicator and can be used to guide the investors as to when and where to invest when it comes to oil and gas, especially after the turmoil in demand trends after the pandemic as mentioned above. In their most recent forecast, out of 67 countries, Egypt was ranked 17th when it came to natural gas consumption and 11th in national gas production. This is mainly due to the major contribution of the giant Zohr gas field, located in the Mediterranean sea with an area of 3,765 square kilometers, which has a total potential of 30 trillion cubic feet of gas, as estimated by Ente Nazionale Idrocarburi (ENI).

Similar to all gas and oil sectors that the pandemic had a negative toll on, the drilling sector was deemed unprofitable and less appealing to investors. In 2019 prior to the coronavirus outbreak, 73,000 wells were drilled, which when compared to the 46,000 wells drilled in 2020 explains the devastating decrease that led to innumerous losses to the industry. Moreover, during the pandemic investor interests in the oil and gas sector decreased as drilling was unprofitable due to the low prices of crude oil; however, since then oil prices have recovered. But despite the recovery there is still a risk of opposition to increases in fuel prices as subsidies are scaled back and inflation increases. Eventually though, the removal of subsidies will hinder demand growth. Furthermore, it is reported that even with the recent rising uptake of electric vehicles (EVs) and the increased use of gas for electricity that goes along with it, the pressure on oil demand will decrease during the forecasted period.

In addition, the development of Egypt’s transportation sector such as the monorail, the metro and other ongoing rail projects will hinder petroleum products demand, specifically for freight and urban transportation. The future for oil in Egypt is not the most promising, as the annual demand
is forecasted to become more restrained with each coming year, leaving more space in the upcoming decade for electric vehicles (EVs) on the streets. In 2020 the oil consumption was moderately well, standing at 33.6 mn tonnes oil equivalent (toe), it is expected to grow by 1.5%
in our current year to become 34.2 mn toe (toe being an equivalent to the amount of energy extracted from a tonne of crude oil). By the year 2030, it is forecasted that oil consumption will stand at 37.2 mn toe, with a growth rate of only 0.7% per year.

On the other hand, the gas sector has a brighter future. Natural gas consumption is expected to yield a steady growth over the next decade and that is indicated by the growth during 2021 of 2.1% that is expected to be replicated over the coming years. However, the issue stumping the gas sector’s growth is the increase in the generation of renewable energy and the enhanced efficiency of combined-cycle power stations. According to General Electric (GE), these plants use a combination of a gas and steam turbine that can produce up to 50% more electricity using the same amount of fuel than a simple-cycle plant. However, as stated by EIU the biggest source of demand for natural gas will remain the power sector followed by the fertilisers, metals, ceramics, and cement industries.

When it comes to coal, despite making a comeback in 2012, the growth in its consumption may decrease soon. Due to the natural gas supply decline in 2012, the steel and cement industries majorly depended on coal for use in factories and plants. However, with several natural gas fields starting operations in Egypt in an attempt to make it a gas hub, these sectors may go back to relying on gas. In 2030 the yearly growth of coal consumption is expected to increase by 0.1% leading to an increase in toe from 1.5 mn in 2020 to 1.6mn toe in 2030.

To conclude, with the current state and the decrease in subsidies along with the rise of EVs, the oil sector is not looking optimistic. However, according to the EIU, the future of gas in Egypt says otherwise, as the power sector will maintain its high demand for natural gas. As for coal, the
increase in demand is forecasted to be only 0.1%, which again leaves gas as the lead in increased demand for the upcoming years. The pandemic effect was surely an adverse one, however as normal economic conditions start to prevail and with the recent Covid19 vaccine available, the
repercussions caused by the virus are starting to slowly retire, leaving more room for industries to grow again, including the oil and gas industry. Even though renewable energy is being adopted worldwide and more people are being environmentally conscious, still the oil and gas industry is immeasurably significant, not to mention integral to multiple industries, such as petroleum, plastics, jet fuels and even textiles. To conclude, the oil and gas sector is a global powerhouse industry supporting other industries and is designated to stay that way for at least another decade.

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Sources:

https://www.bcg.com/publications/2020/oil-and-gas-investment-during-the-covid-era
https://www.ewg.org/news-insights/news/oil-and-gas-industry-decline
https://www.fool.com/investing/2021/08/02/why-oil-and-gas-stocks-are-crushing-the/
https://www.bp.com/en/global/corporate/news-and-insights/press-releases/egypts-super-giantzohr-gas-field-begins-production.html
https://www.houstonchronicle.com/business/energy/article/Life-After-COVID-Pandemic-topermanently-change-15518664.php