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Suez Canal and SUMED pipeline
Egypt plays an important role in international energy markets through the operation of the Suez Canal and SUMED pipeline, two routes for the export of Persian Gulf oil and LNG. Fees collected from operation of these two transit points provide a large source of revenue for the Egyptian government. Meanwhile, disruptions of shipments, as will be discussed below, would have negative implications on consuming markets particularly in Europe.
The Suez Canal connects the Red Sea and Gulf of Suez with the Mediterranean Sea, spanning 120 miles. The canal is a two-way street: crude oil and oil products are shipped in both directions, north to the Mediterranean and south to the Red Sea. Traffic of LNG through the canal is dominantly northbound, mostly from Qatar to Europe and the US.
In late 2000s about 1% of global crude oil supply, or 5% of seaborne oil trade, was shipped through the canal.7 This volume is substantially smaller than a few decades ago. Shipment through the canal was completely blocked in 1956 and 1967-75 due to wars with Israel. This disruption of shipments, among other developments, was a major reason for finding alternative shipping lanes.
The 200-mile long SUMED pipeline provides an alternative to the Suez Canal for those cargoes too large to transit the canal. It was built largely in response to the extended closure of the Suez Canal following the 1967 war with Israel.
SUMED connects the Red Sea with the Mediterranean with an estimated capacity of 2.4 million b/d (not all this capacity is utilized). It runs from south to north, supplying the Mediterranean with oil from the Persian Gulf. It is owned by the Arab Petroleum Pipeline Co., a joint venture between the Egyptian General Petroleum Corp., Saudi Aramco, Abu Dhabi's national oil company, Kuwaiti companies, and Qatar Petroleum Corp.
Total oil flows through the Suez Canal and SUMED have declined since 2008 due to three developments.
1. The global economic slowdown has led to large reduction in oil demand and consumption. The Organization of Petroleum Exporting Countries, mostly Persian Gulf producers, responded by cutting production and-or suspended adding new volumes. This caused a sharp fall in regional oil trade.
2. Since the mid-2000s there has been a fundamental change in the dynamics of global oil markets. Asian countries (particularly China and India) are consuming and importing more oil than Europe and the US. In other words, more oil has been shipped east instead of west.
3. Piracy and security concerns around the Horn of Africa have led some exporters to travel the extra distance around South Africa to reach western markets.
Unlike oil, LNG transit through the Suez Canal has been on the rise. Northbound transit is mostly from Qatar (and to a much lesser extent Oman) destined for European and North American markets. Southbound transit is mostly from Algeria and Egypt and destined for Asian markets.
Closure of the Suez Canal and the SUMED pipeline would divert oil and LNG tankers around the southern tip of Africa, the Cape of Good Hope, adding distance, transportation time, and shipping costs. During the 2011 uprising that toppled Pres. Mubarak there was no interruption in shipping via the canal or SUMED. Still, it is not clear if the Suez Canal authority will have the necessary funding to carry on the ambitious plans to enhance and enlarge the canal.
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