Egypt Oil & Gas Report Q1 2008

The latest Egypt Oil & Gas Report from BMI forecasts that the country will account for 5.65% of Middle Eastern and African (MEA) regional oil demand by 2011, while providing just 1.47% of supply. MEA regional oil use of 8.70mn b/d in 2001 rose to 10.94mn b/d in 2006. It should average 11.19mn b/d in 2007 and then rise to around 12.44mn b/d by 2011. Regional oil production was 30.39mn b/d in 2001, and in 2006 averaged 35.69mn b/d. It is set to rise to 40.04mn b/d by 2011. In terms of natural gas, the region in 2006 consumed 384bcm, with demand of 555bcm targeted for 2011, representing 44.7% growth. Production of 509bcm in 2006 should reach 869bcm in 2011 (+71%), which implies net exports rising from 126bcm in 2006 to 314bcm by the end of the period. Egypt in 2006 consumed 7.48% of the region's gas, with its market share set to be 6.67% by 2011. It contributed 8.80% to 2006 regional gas production and, by 2011, will account for 9.21% of supply.

Global oil demand growth is now expected to be 1.9% in 2007, down from our June forecast, but with Asia Pacific and the CEE regions dominating. While oil demand growth assumptions remain robust, there are early signs that future revisions will be on the downside as factors such as the credit crunch kick in.

The overall demand outlook for the period to 2011 remains healthy, but subject to review if the macroeconomic outlook deteriorates. Our projections for 2007 as a whole are revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$64 per barrel, compared with the US$59 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl, and Urals at US$64.43/bbl.

Egyptian real GDP growth is now forecast by BMI at 6.8% for 2007, unchanged from 2006. We are assuming 5.9% growth in 2008 and 4.9% in 2009, followed by 4.7% in 2010 and 3.8% in 2011. We expect oil demand to rise from 612,000b/d in 2006 to 703,000b/d in 2011, subject to national efforts to conserve oil and increase the use of gas. State oil company Egyptian General Petroleum Corporation (EGPC) operates in partnership with various international oil companies (IOCs), and alone accounts for just 20% of the country's oil output. In spite of higher recent IOC investment, combined oil and gas liquids output is forecast to decrease from 678,000b/d in 2006 to 590,000b/d in 2011. Gas production should reach 80bcm by 2011, up from 45bcm in 2006. Consumption is expected to rise from 29bcm to 37bcm by the end of the forecast period, providing exports of 43bcm.

In the BMI Business Environment Ranking matrix, Egypt receives an unchanged composite score of 29, which still ranks the country 12th out of 16 states included in the MEA region. Egypt's overall business environment can be considered fairly unattractive in a regional context. While long-term economic risk is moderate, the political risk is above average. The state benefits from an effective licensing regime and relatively benign competitive landscape. The country has a relatively low reserves-to-production ratio (RPR) and cannot boast much in the way of production growth.