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Egypt Energy
Egypt produced from domestic sources practically all the energy
it consumed. Electricity was generated from oil-powered stations
and hydro-powered turbines on the Nile, especially those of the
Aswan High Dam. Oil and, increasingly, gas and their derivatives
supplied other types of energy, and in 1990 Egypt was about to
begin mining coal in Sinai. Solar energy, an abundant resource, had
not been tapped because technology was not sufficiently developed
to enable it to compete with other energy sources.
Oil increasingly dominated the energy sector after the mid1970s . In 1986 petroleum constituted about 90 percent of production
and about 75 percent of consumption, in addition to being one of
the major foreign exchange earners. The first oil well was drilled
in Egypt in 1886, but commercial production began only in 1913.
Output remained minimal until the 1950s, when the government
entered into joint ventures with foreign oil companies for
exploration and development. Through the Egyptian General Petroleum
Company (EGPC), which was established in 1962, the government
pushed for production expansion after the 1974 oil price rise; by
1976 Egypt had an oil trade surplus. Production continued to grow
in the 1980s, from nearly 29.4 million tons per year (1 ton = 6.6
to 8 barrels depending on density) in 1981 to an average of 42.7
million tons per year between 1984 and 1988. The average was
lowered somewhat by the drop in output in 1986 when oil prices
plummeted from US$22 per barrel in the previous year to US$12 per
barrel. Egypt became an observer member in the Organization of
Petroleum Exporting Countries (OPEC) in 1984, but its production
policy was dictated less by OPEC's limits than by market
conditions.
About 75 percent to 80 percent of oil output in the 1980s came
from the Gulf of Suez fields, and the rest from scattered sites in
the Western, Arabian (or Eastern), and Sinai deserts and the Delta.
The major foreign oil company in Egypt was Amoco, which operated in
Egypt through its subsidiary, the Gulf of Suez Petroleum Company
(GUPCO). The firm produced about one-half of the country's oil
output. In 1987 it leased 19,000 square kilometers in Sinai for oil
exploration. Other concessions were given to companies such as
Shell and the Italian Azienda Generale Italiane dei Petroli (AGIP).
The drop in oil prices in 1986 compelled the EGPC to agree to
production sharing based on a sliding scale tied to the price of
crude oil. Egypt's recoverable reserves were put at 4.5 billion
barrels or the equivalent of less than fourteen years of production
at the rate of the late 1980s. At the end of the decade, however,
oil companies were confident that there was more oil to be
discovered in the Western Desert and possibly in Sinai. If more oil
should be found, it was likely that recovery costs would increase
because of the greater depths at which deposits might be located,
especially offshore.
In addition to oil, important natural gas discoveries were made
during the 1970s and 1980s, and gas was projected to gain greater
significance in the 1990s. Natural gas, condensates, and butagas
output increased steadily between 1980 and 1988, from 1.8 million
tons to 6.8 million tons (oil equivalent), or at an annual rate of
18 percent. Gas was expected to be used mostly domestically, as an
oil substitute, thus extending the period during which oil would be
available for export. Gas reserves were estimated at about 0.28
trillion cubic meters and could be as high as 1.12 trillion cubic
meters. In the Second Five-Year Plan (FY 1987-91), gas output was
projected to increase by more than 76 percent over the 1986 level.
In 1989 the government signed thirty-five contracts for gas
exploration and development, mainly in the Western Desert. Many of
these had awaited signature for some time. The government at first
thought itself capable of producing gas on its own; however, the
debt pressure, the fall of oil prices, and the large investment
needed for the task forced it to reconsider its position. Moreover,
the government offered contracting firms better terms than
previously, including payment in cash and oil (which the companies
preferred) at international market prices, with a 15 percent
discount for the government as a compensation for building the
pipeline network. The company investing the most was Shell.
Egypt's electric power capacity grew substantially between 1952
and 1969 and leveled off for the next ten years. It increased from
21,000 megawatts in FY 1981 to 35,200 megawatts in FY 1986. Nearly
20,000 megawatts of the latter was power supplied by the Aswan Dam
and the Aswan High Dam; the rest was thermal power. The country was
in near panic by 1988 because the long drought in Ethiopia, where
most of the Nile water originates, lowered the water in the Aswan
High Dam's Lake Nasser to levels that threatened complete stoppage
of the turbines. Fortunately, the rains came before this happened,
but the event pointed to the danger of heavy reliance on a single
source of power. The government planned to increase power capacity
to 40,500 megawatts by 1992.
A final source of energy in Egypt was coal from the Magharah
mines in northeastern Sinai. The mines were thought to contain 25
million tons of recoverable reserves. They were closed in the 1960s
but were expected to produce 600,000 tons per year from 1989
onward. The fuel would be earmarked mainly for the 2,500-megawatt
Zaafaranah complex on the Gulf of Suez.
Overall energy consumption grew rapidly after the mid-1970s.
The growth was estimated at 10 to 13 percent annually beginning in
the mid-1970s and throughout the 1980s. Energy consumption per
capita was estimated at 588 kilograms of oil equivalent in 1987,
commensurate with Egypt's status as a low-middle-income country in
World Bank classification. Industry was the largest energy
consumer; its share, for example, stood at 55 percent of total
consumption in the 1970s and probably higher in the 1980s. The
electric grid reached practically all villages by 1984.
The high growth of energy consumption was attributed to rising
incomes, the price subsidy, and the building of an aluminum
smelting plant. The implicit subsidy was estimated at US$3 billion
in FY 1983 and at double that amount in FY 1986. In spite of two
price hikes, electricity prices in 1988 were put at about 23
percent of the cost of generation, transportation, and
distribution. Fuel prices were set at about 25 percent of
international market prices. Both private domestic consumers and
public industries received the subsidized rates.
The price issue clouded negotiations between the government and
its creditors. In 1988 the World Bank held up a US$800-million loan
for building power stations because of the issue. The government
did, however, raise prices more than once. In 1985 prices were
raised by 40 percent, on a graduated basis so as to protect lowincome consumers. They were also pushed up drastically in 1986: 276
percent for fuel oil, 67 percent for kerosene, and 73 percent for
diesel. The capacity of the government to raise private consumer
prices to anywhere near their economic prices in the near future
was limited; the government said that in 1987 the energy bill
constituted about one-quarter of the average civil servant's
salary.
Data as of December 1990
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