The turmoil of Egypt’s 2011 uprising and the subsequent military coup in July 2013 have caused a paralysis in the oil and gas sector that the government is struggling to reverse.

Egyptian officials are in talks with British oil and gas majors BG Group and BP to try to restart large gas projects, but both have been reluctant to resume investment due to the country’s uncertain operating environment and the large amounts of money already owed to them by the government.

Debt burden

On 3 August, Egypt’s oil minister, Sherif Ismail, told reporters the total sum owed to foreign oil companies as of the end of June was $5.9bn.

This large debt and the consequent reluctance of oil companies to invest in Egyptian assets has led to a decline in gas production. In the second quarter of 2014, BG Group’s total Egyptian oil and gas output amounted to just 57,000 barrels of oil equivalent a day, 52 per cent less than the same period in 2013.

In July, the UK oil and gas company told MEED that due to a natural gas shortage it is unlikely to export another cargo of liquefied natural gas (LNG) from Egypt for the rest of 2014. It also said it would not resume work on the planned $2bn West Delta Deep Marine offshore gas concession until it is paid some of the $1.5bn it is owed by the Egyptian government.

Although production has declined domestically, demand for natural gas has increased rapidly, driven by the country’s expanding population. This has led to gas producers complaining about gas being diverted away from their LNG facilities to feed local demand, damaging exports and profits.

Emergency measures are being taken to try to stabilise the sector and ease the country’s gas shortage, but Egypt’s problems may well get worse before they get better.

Cairo has announced that it is looking to borrow at least $1.5bn from local and international banks in order to repay its debts to foreign oil companies, but the state’s precarious financial situation means that obtaining a loan may be difficult and interest rates are likely to be high.

LNG terminal

It has also announced that a tender for a floating LNG import terminal will be finalised before the end of August, with the first LNG imports scheduled for December.

According to Ismail, the importing of LNG will be a stop-gap measure until domestic production is ramped up. But this will be far more expensive than producing gas locally and the extra cost comes at a time when the country can least afford it.