Investment in Egypt’s Energy Sector: Opportunities and Risks

 

Oil and natural gas are some of the major sources of energy in Egypt and the major drivers of development in the country. Annual consumption in 2006 reached 50.97 ton of oil equivalent (toe), while natural gas constituted 54.9% of the total consumption. As foreign investment declined, in parallel with a decline in foreign exchange reserves by half over the last three years, importing fuel laid a burden on the state’s budget. Renewable energy projects to generate electricity contribute 1% only of the total energy produced in Egypt, while hydroelectricity constitute 9% only.

Points of strength in Egypt’s energy sector

  • Oil and natural gas is an important value added sector to Egypt’s economy; it has contributed about 17.5% of GDP in 2012/2013, while investments in this sector reached almost 26% of total investments in the same period. This makes it the dark horse leading the economic growth in the country,
  • Foreign companies are a major player in Egypt’s oil and natural gas industry. BP, Eni, Apache and Shell are the major players, as well as medium and small firms taking part in the exploration and production of oil and natural gas. Most of the production by foreign companies is consumed in the local Egyptian market to meet the growing demand for fuel,
  • The government alone cannot develop this sector due to the lack of the necessary funds. Therefore, Cairo must seek help from the private sector to invest in the electricity sector, which was monopolized by the government for years,
  • The Egyptian government adopted a draft law in Feb. 2015 to block appeals against contracts signed directly between the government and investors and bids awarded to foreign firms. This measure aims to create the proper investment environment and assure investors,
  • It is expected that investments in the renewable energy sector will reach $4billion over the coming two years,
  • Several international institutions support the Egyptian energy sector, such as the EU, which cooperates with Cairo through the Energy Sector Policy Support Program. It is a program based on assisting the budget of the energy sector and aims to achieve the objectives of the national energy strategy

Image Source: Reuters Pictures

  • Image Source: Reuters Pictures

 
 

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