WATCHING THE WORLD EGYPT SHOWING PROGRESS

Dec. 24, 1990
with Roger Vielvoye from London One of the most worthy beneficiaries of the worldwide increase in crude oil prices is Egypt. Increasing fuel prices that are way below prevailing free market levels is never popular in the Third World. A reaction can sometimes be far more explosive than the response of pressure groups in the industrialized world.

One of the most worthy beneficiaries of the worldwide increase in crude oil prices is Egypt.

Increasing fuel prices that are way below prevailing free market levels is never popular in the Third World. A reaction can sometimes be far more explosive than the response of pressure groups in the industrialized world.

Even so, President Mubarak's administration stepped in where many other Third World leaders have feared to tread. Oil product prices were increased in a bid to prevent more of the foreign exchange earned by crude oil exports from being channeled into financing the high cost of importing products, notably gas oil and kerosine, needed to meet the growing deficit in the domestic refining system.

RESPONSE TO HIGH PRICES

The timing of the move was impeccable. During the first half of this year consumption of products dropped by 3%, a trend that appeared likely to continue the rest of the year.

The administration in Cairo is calculating the effects on net revenues of lower imports of refined products at a time when crude oil prices are back to healthy levels.

Even at pre-August price levels, crude oil exports were Egypt's biggest single foreign currency earner. Oil Minister Abdel Hady Kandil said the potent combination of higher prices and reduced consumption could double the country's oil revenues to $2 billion for the 12 months ending in June 1991.

Egypt's crude oil exports also have been preserved by the decision during the last decade to squeeze oil products out of parts of the domestic market by development of underexploited gas reserves in the Gulf of Suez and the Western Desert.

By introducing a gas clause into new and existing permits, the state surrendered its exclusive right to revenues from any commercial gas development and provided foreign companies an incentive to explore gas prone areas.

Efforts were made to develop a market for gas by building a national transmission network that currently exceeds 1,200 miles. It has a capacity of more than 1 billion cfd and is providing fuel to the state electricity authority and to a selection of heavy industrial plants.

The grid has traditionally been fed by associated gas from the main oil producing areas in the Gulf of Suez and from fields in the Nile Delta and off Alexandria. Those sources are supplemented by gas pipelines from new projects in the Western Desert.

OIL RESERVES, PRODUCTION

In the longer term there will be no alternative to replacement of oil reserves. Remaining reserves are about 4.5 billion bbl, most of which are in the Gulf of Suez where most of the large producing fields are in decline.

Crude oil production peaked at 930,000 b/d in 1986, but the price collapse that year accelerated the shutdown of several small, marginal fields. That cut production to an average of about 860,000 b/d.

The price plunge of 1986 and the resulting slide in oil company exploration budgets forced state owned Egyptian General Petroleum Corp. into a closer relationship with foreign operators.

This policy has borne fruit with more than 70 new exploration agreements and a commitment by foreign companies to spend almost $750 million on exploration.

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