Egypt is one of the oldest energy producers in the Middle East, with a history of commercial oil production dating back more than a century. The country benefits from low production costs and a relatively large volume of both onshore and offshore oil and gas fields. Developed infrastructure has allowed the country in past decades to maintain a sizeable export market, through shipped products and pipelines, as well as a sizeable downstream sector.

However, recent years have seen production subject to more external pressures. Declining output from older fields, a traditional lack of investment in downstream sectors and a jump in domestic demand has led to the country wavering between being a net exporter and a net importer, while power plants and large-scale electricity consumers face load-shedding.

The long-term narrative of Egypt’s sector rests on managing domestic demand to free up production for export, along with diversifying electrical generation and the development of new upstream fields – all of which will take time and capital. But the past 12 months have seen a range of encouraging developments in this regard. The government, under President Abdel Fattah El Sisi, for example, has prioritised energy investment. Thanks to new regulations, the power sector is attracting large capital inflows. “The cornerstone of their economic policy is energy,” Thomas Maher, vice-president and general manager of Apache Egypt, told OBG.


According to the BP Statistical Review 2015, the country had 3.6bn barrels of proven reserves in 2014 while oil production was at 717,000 barrels per day (bpd), down from a peak of 941,00 in 1993. Egypt’s gas production was 4.7bn standard cu feet per day (scfd), down from 6.1bn in 2009. The country’s natural gas production is expected to continue to stabilise in the coming years. The Ministry of Petroleum estimates that Egypt will produce 4.85bn scfd in fiscal year 2016/17 (which begins July 1, 2016). That compares with 5.03bn scfd over the same period one year earlier.

The country is also a significant consumer of hydrocarbons. It uses more oil and gas than any other country in Africa, and in recent years it has been using progressively more. Oil consumption was at 813,000 bpd in 2014, an all time record and substantially higher than Africa’s second-highest consumer of oil, South Africa, which consumed 607,000 bpd in 2014. Natural gas consumption was 4.6bn scfd, down from 5.1bn scfd in 2012, but still near all-time highs. By the end of 2016/17, according to the government, the country will see a doubling of gas imports to 1bn scfd.

Upstream Geography

Nearly half of Egypt’s oil is produced in the Western Desert, which in 2015 was the site of a series of oil finds. Exploitation and production in the Western Desert is dominated by Shell, Apache, Eni and the Tunisia’s HSBI. The Egyptian General Petroleum Corp (EGPC) reported in April 2015 an oil discovery in the Abu Sinan area of the desert which could yield 2.2m barrels of oil and nearly 311.5m cu metres of gas. Apache has also had a successful 2015, announcing the discovery of two new fields in the Western Desert which could produce as much as 17,500 bpd by the end of 2015. In the Mediterranean and the Nile Delta region, the most active companies are currently BP, BG, IEOC, EGAS, Total, RWE Dea and Dana Gas. BG is active in five concessions. Dana Gas, a regional company, has about 10 producing fields. In the Suez region, a wide range of participants are active, including Pico, Gas de France, Dragon Oil, Ganope, NPC, GPC, Lukoil, Tri Ocean, Trident, IEOC and North Petroleum, while TransGlobe has five concessions in the Eastern Desert.

Egypt’s energy fortunes have also benefitted from the discovery of the Zohr field. The gas find, 150 km from Egypt’s north coast, is significant. Announced by Eni in August 2015, it has an estimated 30trn scfd of natural gas, making it the largest find in the Mediterranean. It is seen as a game changer for Egypt, increasing the country’s total gas reserves by about 40% and possible bringing the supply and demand back in line (see analysis).

The Majors

Apache is the largest oil and gas producer in Egypt, and one of the largest foreign investors in the country. While production slowed a bit after the revolution of 2011, output has recovered to 2011 and 2012 levels. The company started operating in Egypt in 1994 and by the end of 2014, it was one of the largest holders of land in the Western Desert, with about 27,114 sq km. Of the total, about 71% is undeveloped, leaving considerable potential for growth. Apache, whose Egyptian interests are one-third owned by the Chinese-owned oil firm Sinopec (since 2013), has an estimated 280m barrels of oil equivalent (boe) in the country. .

Apache has found particular success in the Western Desert, especially in the Berenice and Ptah areas, and overall its assets have been performing well recently. Its exploratory rate of success in the second quarter of 2015 was 78%, about 25 percentage points higher than the historical averages for the company, according to E&P Magazine. Apache has bet heavily on the Western Desert, and all indications are that this is a good place to be in a challenging market environment. In this area assets are less mature than they are in the Gulf of Suez. The resources are also relatively accessible and can be reached in most cases without the use of enhanced recovery techniques.

The company estimates that the break even point in the Western Desert is about $30 a barrel, and that operating expenses are about $8 per barrel. “The cost structure of producing from the Western Desert is relatively low, which when combined with the quality of human capital available as well as the infrastructure already in place, makes the region a good one in which to invest,” Jason Stabell, CEO of the US oil firm Merlon, told OBG. “With the current cost of oil, it is economically viable to develop a field if it has a few million barrels, depending on the proximity to back bone infrastructure,” he went on to add. Merlon’s sole asset in Egypt is the El Fayum Concession, which the company runs in a joint venture with the EGPC.

While Apache invests heavily in onshore projects in the Western Desert, Egypt’s other major producers, BP, BG and Eni, focus their investments primarily on offshore projects. BP produces about 10% of the country’s oil and about 30% of the country’s gas. The company had let the development of its North Alexandria Concession, which it received in 2010, stall for a number of years, but in mid-2014 it restarted the project. Its West Nile Delta (WND) project, which includes the North Alexandria, as well as the West Mediterranean Deepwater concessions, lies 65-85 km off Egypt’s western coast near Abu Qir Bay. The final agreements for the project were signed in March 2015, and the investment in phase one is expected to be $12bn. Production is scheduled to start in 2017, and it is forecast that at its peak output will equal 25% of the country’s gas production.

Recent Projects

In late 2015, BP increased its interest in the North Alexandria Concession by 22.75% and its interest in the West Mediterranean Deepwater Concession by 2.75%. The additional ownership was acquired from DEA Deutsche Erdoel. BP now has an overall working interest in the WND project of 82.75%. In the East Nile Delta, BP has the Salamat discovery in 649m of water. The well, which was the first explored in the 2010 and is part of the North Damietta Offshore concession, is considered significant. It was followed by nearby Atoll-1, which is the deepest well in Egypt. The discovery was announced in early 2015. In 2016, Shell and Apache will begin a shale gas project in the Western Desert.

The investment will range between $30m and $40m, while the price for the gas has been set by the authorities at $5.45 per million British thermal units (Btu). Three horizontal wells which could be as deep as 4267 metres will be drilled. Technically speaking it is possible that the wells being drilled should not be considered unconventional: news reports indicated that they were defined as such in order to fetch a higher price. While the country does have shale gas potential, it is not necessarily economic to extract at this point as it is isolated and expensive to move. The country also currently lacks the legal underpinnings to support the sector. In 2013, a number of experimental shale oil wells were drilled, but there appears to have been little follow up in subsequent years. “A lack of investment in new developments and technologies has resulted in decreased production over the past few years,” Johannes Finborud, managing director of GDF Suez/ENGIE, told OBG. “That said, the government and international oil companies (IOCs) have recently been talking of investing more upstream, which bodes well for the future.”


One of the major factors in Egypt’s evolving energy sector has been the rise in consumption, which in turn has put pressure on the status of the country as a net exporter. Egypt has gone from an importer to an exporter and back for a number of years. It bought more oil and related products than it sold in 2007 and then again starting in 2012. In 2015 Egypt’s Ministry of Planning reported that 28.6m tonnes of crude oil, liquefied natural gas (LNG), natural gas and other oil related products are estimated to be imported to Egypt in the 2015/16 fiscal year, at a total cost of $16bn. In terms of natural gas, it has been a net exporter until very recently.

The surpluses in recent years were the result of increased production in the Western Desert and in offshore areas, but the productivity of these finds has been falling and the assets cannot produce as much as before without major investments in enhanced recovery techniques. Egypt’s refining output declined by 28% from 2009 to 2013. In 2013 Egypt’s refined petroleum output stood at 445,000 bpd, which indicates that refinery utilisation was at 63%.


In 2013, following the removal of former President Mohamed Morsi, Saudi Arabia delivered $800m worth of oil shipments in August and September 2013, as part of $5bn promised to help stabilise the economy, while Kuwait sent two shipments in July and September 2013, worth a total of $480m. By May 2014, it was estimated that the country had received $6bn worth of oil from Gulf oil producers.

The country has not relied simply on Gulf states to meet the country’s energy needs. Egypt has worked decisively to deal with its own natural gas shortage. The country sought bidders for a floating regasification plant in 2012, but the project has yet to begin. In April 2015 it rented a floating storage and regasification unit (FSRU) from Hoegh of Norway. That was followed in September by an FSRU from BW Gas, a Norwegian company based in Singapore. In October 2015, the country said that it would buy 55 cargoes of LNG, or about 4.68bn cu metres of gas, from international suppliers. That order is 10 more cargoes than Egypt had originally planned to acquire.

In 2000 Egypt had a surplus of 255,000 bpd. It fell into a deficit in 2006, consuming 6000 more barrels a day more it produced. The following year, the daily deficit was 42,000 barrels, according to the EIA. The country moved back into surplus in 2009 (16,000 bpd) and stayed there in 2010 (29,000 bpd) and 2011 (8000 bpd). The following year, it moved into deficit again (33,000 bpd) and stayed there in 2013 (58,000). In 2014, the deficit was near 100,000 bpd, according to BP. “In 2008, Egypt began to import refined products as well as some crudes for its oil refineries,” Mohamed Saad, managing director of the Egyptian Refining Company (ERC), told OBG. “The refineries, however, are for the most part operating below design capacity, at around 80%,” he added.

Until the end of 2014, natural gas was still in surplus, but down from the peak and headed towards a deficit. In 2009, the surplus was 3.01bn scfd. By 2014, the surplus was 0.6bn scfd.

Oil Prices

The drop in the price of oil, to a low of $36.05 in December 2015 for Brent, has affected Egypt’s energy outlook. While on the one hand it has reduced the costs of the subsidy that needs to be paid (see Economy chapter), and freed up resources as a result, it also has the potential to reduce investment in the sector, especially investment in more difficult areas or in finds that require advanced technology.

Regulatory Overhaul

Egypt’s problems are also partially the consequence of less-than-competitive pricing policies. In terms of natural gas, the country had long maintained a price ceiling of $2.65 per million Btus. This was far below international rates and was especially low for companies looking to explore deep-water Mediterranean wells, where most of the country’s gas would be developed. To put this number in perspective, Noble Energy sold gas in Israel from the Tamar field for $5.57 per million Btus. However, in March 2015, Egypt agreed to lift this ceiling for a series of projects, agreeing to pay $3.95 per million Btus for natural gas and new developments to BG Group and to pay Germany-based DEA AG $3.50 per million Btus for natural gas. The decision to raise the price ceiling is a reflection of the governments desire to me Egypt’s rapidly rising energy needs.

The Egyptian production sharing contracts (PSC) have also come under scrutiny in recent years as they have the potential to exacerbate the disincentives. As oil becomes more difficult to locate and extract, and more advanced methods are used for recovery, the current model contract becomes a hindrance. Cost recovery is slow and the government has to sign off on additional investments. The government responds that the PSCs can be amended when needed in order to account for more difficult finds, but the sector has its doubts and is pushing for better agreements or waiting for changes to be made. “The evidence of the government’s push to increase upstream output has been most visible in terms of the granting of new licences, as well the structure of new contracts and agreements. Apache notes that it was given permission to develop the Berenice oil field in 13 days and Ptah in six. In the past, it could take as long as 100 days. Negotiations have also become more flexible. According to BP, the cost of producing gas locally can be 25% less than importing it, so the government is keen to get the assets explored and producing to replace expensive imports.


As the country works to adjust its fuel sources, it is also getting a handle on some of its existing problems. According to reports in early 2015, the sector paid a total of $2.1bn of debts owed to international oil companies, leaving arrears remaining at $3.1bn. Two batches of bills were already paid, one for $1.5bn in December 2013 and one for $1.4bn in October 2014.

As production declined and demand increased, the government needed the gas and diverted it to domestic use. “Confidence will be restored completely when the government pays back 100% of what it owes to IOCs,” Ahmed Mostafa, deputy general manager of Sigma Petroleum Services, told OBG. “That’s why domestic companies related to the oil and gas sector are now also looking abroad for expansion plans.”


The first refinery in Africa was built by the Anglo-Egyptian Oilfields company, a Shell and BP concern, in 1913. Eight more refineries have been built since then. The average age of the refineries is 50 years, and experts in the field quoted in the local press say that the facilities have not been well maintained. Egypt has the largest refinery capacity in Africa, but output has fallen a full 28% since 2009, according to the EIA.

In part, this is explained by the fact that foreign producers have had to export more product directly so that the country can pay off its debts. The EIA places total capacity at about 700,000 barrels a day, and this number has not increased since 2001. The ERC, which has been in the planning stages since 2006 but delayed due to the financial crisis of 2011, is to be operational by 2017 and Egypt’s total capacity is expected to increase by 96,000 bpd.


The Egyptian energy sector is starting to turn the corner. After a number of years of supply and demand imbalances, the market is coming back into line, in part as a result of imports, in part as a result of better regulation and management, and in part as a result of discoveries. Maintaining the momentum will be a challenge. Pricing will have to be changed, but it will have to be done in a transparent way with an eye to satisfying all stakeholders.

Egypt has been fortunate in 2015 due to a sizeable gas discovery, which will change the market dynamics in favour of the country. The government will need to encourage an increase in efficiency and diversification of domestic usage to improve stability.

Oil companies with deep experience in Egypt have remained committed to it. While the troubles of recent years may have slowed some of their development activities, they never stopped work in the country. Oil firms have been looking for innovative ways to cooperate with the government and to get the right assets explored and producing. Egypt is a challenging environment, given the fixed prices, but it is also importantly, a potentially rewarding environment.