Egypt: new energy scenarios in the Eastern Mediterranean

In recent years energy geography in the Eastern Mediterranean is experiencing a reconfiguration of the balance of power between the different states along its shores. Disputes increased over exclusive economic zones of the various countries. Aphrodite field, located in the Economic Zone of Cyprus, cause tensions with Turkey; Leviathan is disputed between Israel and Lebanon; gas fields in Palestinian waters of Gaza are put under the control of Israel but claimed by the Palestinian Hamas. The certainty of enormous energy reserves in the region has aroused the interest of many companies, both European and American, who undertook the exploration of the seabed of the Mediterranean area.^{1 2}

The energy security in the Mediterranean area is a topic of primary interest for Italy’s foreign policy, in harmony with the parallel diplomacy conducted by third parties such as Eni.

Eni’s goal is to make the first “hunter wells” in the world upstream (extraction).³ In this sense, the strategy focuses towards the creation of an “energy hub of the Mediterranean”, whose ideal scenario is the Maghreb, and Egypt, Cyprus and Israel. A hub capable of receiving gas from various manufacturers in the eastern Mediterranean and moving it towards Damietta, in Egyptian territory, where Eni controls the liquefaction plants. After that, gas could reach Italy (allowing its emancipation by gas imports from Russia) and be sorted in Europe.

Eni and Egypt have a very old relationship, which began in 1954 with Mattei. The numerous discoveries of oil and gas fields, carried out in recent years by the Italian company, in the areas of Sinai, the Nile Delta and the Western Desert have made Eni the first international operator in the hydrocarbon sector in Egypt.

The recent agreement between Eni and the Egyptian Minister of Petroleum and Mineral Resources, the investment and exploitation of Zohr gas fields (with a reserve of 850 billion cubic meters of gas free of sulfur and carbon dioxide) and Nooros (with a capacity of 15 billion cubic meters of gas) are a piece of the future project of the Italian company.⁴

In 2011, Cairo rose from an exporting countries to an importer, forced to meet its growing domestic needs thanks to the gas imported from Israel. According to the latest report of the Energy Information Administration last June, Egypt is the largest consumer of oil and natural gas of the entire African continent. In recent years the consumption of oil and gas has gone hand in hand with the growth of some specific sectors: transports and industry. On august 31, 2016 the Egypt’s Ministry of Petroleum and Energy signed in Nicosia, Cyprus an agreement to transfer the natural gas discovered off the coast of Cyprus to Egypt through an undersea pipeline.⁵ The gas entered in surplus in the Egyptian national network for domestic consumption, would be re-exported through pipelines and storage platforms, allowing the country to become a regional energy hub.⁶ The discovery of Zohr has further revolutionized the scenario in that area.⁷

According to the data relating to 2013, Egypt has a gas consumption rate of 46 billion cubic meters a year. The new extractions could allow Cairo to become indipendent within 5 years and to eliminate the contract of $ 15 billion that Egypt was ready to sign for the delivery of Israeli gas. The absorption of the market is not yet well-defined. Fuel oil is now used in 22% of the plants in the industrial and power generation sector, and it takes time to convert them to gas. Despite the government’s optimism, the timing of the basin exploitation is likely to be postponed to 2020.^{8 9}

Egypt aims at the development of energy resources to reorganize an economy damaged by the threat of new terrorist attacks and which today lacks the important income of the tourism sector. Egyptian President Abdel Fattah al-Sisi, has announced the launch of a wide program of economic reforms, with a focus on the energy issue.¹⁰ Al-Sisi reiterated that the government will invest in the renovation of power stations, in the diversification of supply and the launch of major projects in the agricultural, industrial and touristic fields. It launched big infrastructure projects: ports and industrial zones along the Suez Canal, the extraction of phosphate in the western desert, a new industrial triangle between the ports of Safaga and el Queseir on the Red Sea and the city of Qena, a new urban and industrial expansion on the Mediterranean coast around El Alamein. The other area on which Egypt has decided to increase investments is that of renewable energies. In particular the development of the Africa Renewable Energy Initiative (AREI), for the construction of plants powered by renewable energy for all in Africa by 2020, made possible thanks to the contributions of foreign investors (France will invest 2 billion dollars).¹¹

But other issues could jeopardize al-Sisi’s dream to transform Egypt into an energy hub.

Egypt is active in Libya since February 2015. It’s the main supporter of General Haftar, the Libyan National Army Chief expression of Tobruk Parliament (which does not recognize the legitimacy of the national unity government of Tripoli) and has conducted numerous acts of war against Isis stations. The recent US air raids in the Sirte region, however, have strengthened the position of the militias supported by Western countries, in particular those of Misrata, weakening Haftar, strong man of Cairo in Libya, and downsizing the role of Egypt, which however still has a relative image stabilizer in the region, thanks to the contribution in the fight against Islamic terrorists and control of the masses of migrants.¹²

To guarantee an economic stability, Egypt needs financial support from Saudi Arabia, while providing its political and military support in the war waged by Riad against Yemen and implementing the internal repression campaign against the Muslim Brotherhood.

Moreover, in order to obtain the loan of $ 12 billion that the International Monetary Fund is ready to give him, the Egyptian government will have to practice a hard policy of austerity, with privatization, cuts in state subsidies and public sector layoffs, with the hope of reducing the public deficit of about $ 36 billion.

In an article published in August 2016,¹³ the Economist has used harsh tones against Al-Sisi, picturing him more repressive than Mubarak and more incompetent than Mohammed Morsi, stressing its failure in stabilizing the country. A completely different picture from that of March 2015, when in Sharm el-Sheikh the international conference “Egypt the future” was opened. During the event, agreements were signed for 38.2 billion dollars and arrangements for potential 92 billion, but most of the projects are now on standby.

The Pharaonic dream of creating a new capital east of Cairo, in Dubai style, has been realized in small part thanks to the agreement with China State Construction Engineering Corporation, while the project of building the bridge between Egypt and Saudi Arabia was blocked after the controversy following the decision to return two islands of the red Sea, Tiran and Sanafir, to Riyadh, which were under Egyptian administration. The widening of the Suez Canal, on which the Egyptian government had relied upon as a means to improve the country’s economy, has not paid off many major investment due to the contraction of global trade.¹⁴

Finally, severe tensions were born with Italy, because of the Regeni case (the student found dead in Cairo on February 3, 2016). An unclear episode that casts shadows on the protection of human rights in Egypt.

The socio-economic benefits in the near future, Zohr and potential mineral wealth could make the entire country dependent, therefore, from the Egyptian government’s ability to maintain a stable internal political and financial situation, while ensuring greater respect for human rights.

Antonciro Cozzi

Master’s degree in International Relations (LUISS “Guido Carli”)

---

Notes

1^Cararo, S. (2015, settembre 2). Il gas egiziano. Uno scossone alla geografia energetica che preoccupa Israele. From http://contropiano.org/news/internazionale-news/2015/09/01/il-gas-egiziano-uno-scossone-alla-geografia-energetica-che-preoccupa-israele-032594