Implications of Egypt’s Turmoil on Global Oil
and Natural Gas Supply
Michael Ratner
Analyst in Energy Policy
February 11, 2011
Congressional Research Service
7-5700
www.crs.gov
R41632
CRS Report for Congress
P
repared for Members and Committees of Congress
Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Summary
The change in Egypt’s government will likely not have a significant direct impact on the global
oil and natural gas markets. There may be some short-term movements in price, mostly caused by
perceived instability in the market place, but these would most likely be temporary. However,
prolonged instability that raises the specter of spreading to other oil and natural gas producers in
the region would likely add to upward price pressures. Although Egypt is considered an energy
producer or net exporter overall, its oil and natural gas exports are not large enough to affect
regional or global prices. The most serious impact would be on regional recipients of its natural
gas exports.
Egypt’s main influence on energy markets is its control of the Suez Canal and the Suez-
Mediterranean oil pipeline (SUMED). The current low utilization of these two pieces of
infrastructure would likely limit any affect of their closure in the near term. Both the oil and
natural gas industry would, over time, find alternative routes to circumvent the canal and pipeline
if necessary.
Congressional Research Service
Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Contents
Introduction ................................................................................................................................ 1
Closing of the Suez Canal and Suez-Mediterranean Oil Pipeline.................................................. 3
Natural Gas Supplies: A Regional Issue....................................................................................... 4
Oil Exports Already Minimal ...................................................................................................... 6
Global Oil and Natural Gas Markets: A Short-Term Concern....................................................... 6
Figures
Figure 1. Egyptian Oil and Natural Gas Infrastructure ................................................................. 2
Figure 2. Egyptian Primary Energy Production and Consumption................................................ 3
Tables
Table 1. 2009 Egyptian Natural Gas Data .................................................................................... 5
Contacts
Author Contact Information ........................................................................................................ 6
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Introduction
The potential outcome of the resignation of long-time Egyptian President Hosni Mubarak is
unknown and any ramifications for the oil and natural gas sectors are uncertain.1 This paper
examines the impact of a disruption of Egypt’s oil and natural gas sector or a complete halt to
exports of either oil or natural gas and closure of the Suez Canal and the Suez-Mediterranean
(SUMED) oil pipeline, and the impact of those actions on world oil and natural gas markets. It is
important to keep in mind that even the most nationalistic, isolationist, or anti-western
government would most likely not undertake all these measures. Oil, natural gas, and transit
generate large amounts of revenue for Egypt and taking these measures could precipitate outside
intervention, particularly closing the Suez Canal.2 Additionally, the timing of these actions would
also change the impact on oil and natural gas markets, i.e., whether they occurred during the
summer driving season or the winter heating season.
1 For additional information on the current events in Egypt please refer to CRS Report RL33003, Egypt: The January
25 Revolution and Implications for U.S. Foreign Policy, by Jeremy M. Sharp.
2 This paper does not discuss the internal impact of the scenario for Egypt, nor does it speculate on the global reactions
of various governments.
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Figure 1. Egyptian Oil and Natural Gas Infrastructure
Source: CRS Cartography
An additional factor mitigating the impact on world oil and natural gas markets is that in 2009,
Egypt consumed much of the energy it produced and had to import coal, highlighting the limited
importance of Egypt as a global energy producer, see Figure 2.3
3 2009 is the latest year for complete production and consumption data.
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Figure 2. Egyptian Primary Energy Production and Consumption
2009 total: 559 million barrels of oil equivalent (mboe) produced and 695 mboe consumed
450
400
Production
350
300
Consumption
250
boe
m 200
150
100
50
0
Oil
Natural Gas
Coal
Hydroelectric
Source: BP Statistical Review of World Energy 2010, http://www.bp.com/sectiongenericarticle.do?categoryId=
9033088&contentId=7060602.
Closing of the Suez Canal and Suez-Mediterranean
Oil Pipeline
Closing the Suez Canal would be one of the most visible actions a new government could take,
particularly for the oil and natural gas industry.4 Although it would probably take only several
weeks to re-route and re-size5 oil and natural gas tankers along with a possible drawdown of
inventories, a closure of the canal would cause an immediate and most likely short-lived rise in
global oil prices. Despite there being adequate spare production capacity in the world, oil prices
tend to react quickly to market disruptions before settling back to their pre-existing price range.
However, if the canal remained closed indefinitely, shipping costs would likely increase, adding
upward pressure on oil prices. The same would likely be true for liquefied natural gas (LNG), but
4 In addition to oil and natural gas, many other commodities traverse the Suez Canal as well as U.S. and other nations’
naval ships.
5 Currently, Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC) class tankers are unable to
traverse the Suez Canal because of their size, and oil must be put on smaller ships or shipped through the SUMED
pipeline between the Red Sea and Mediterranean. If the canal were closed, more oil would be transported by VLCCs
and ULCCs to make the journey around Africa’s Cape of Good Hope, adding an additional 15 days of transit to Europe
and 8-10 days to the United States Gulf Coast, according to the U.S. Energy Information Administration’s country
report on Egypt (see footnote 6 below).
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
the effect would be less. Most LNG is sold under long-term contract and there is currently a glut
of LNG around the world to make up for any disruption.
In 2009, an estimated 1.8 million barrels per day of oil (Mb/d) (of the world’s roughly 80 Mb/d of
production) moved through the canal—almost 1 Mb/d northbound and 0.85 Mb/d southbound.6
This is down from 2.4 Mb/d in 2008. The decline is mostly attributed to lower global demand for
oil, production cuts by the Organization of the Petroleum Exporting Countries (OPEC),
particularly from the Persian Gulf producing countries, and piracy.7 More oil is also flowing to
Asia from the Middle East, while more West African oil is going to Europe and North America,
and does not have to traverse the canal. 2010 data shows an increase in cargos, but is incomplete
for the year. The last time the canal was closed, in 1967 until 1975,8 approximately 60% of
Europe’s oil supplies had been passing through the canal. Currently, only about 15% is shipped
through the canal.9
Similar to the decrease in cargos through the canal, the SUMED oil pipeline—which is owned
through state companies by Egypt (50%), Saudi Arabia (15%), the United Arab Emirates (15%),
Kuwait (15%), and Qatar (5%)—is operating below its capacity of 2.5 Mb/d. In 2009,
approximately 1.1 Mb/d moved through the pipeline, a decrease of about 50% compared to 2008.
The reduction resulted from many of the same causes as the canal’s drop-off in oil transportation.
In 2009, 331 billion cubic feet (bcf) of LNG traversed the canal, which represents 4% of global
LNG trade and less than 1% of natural gas consumed globally. Unlike oil, LNG cargos through
the Suez Canal have been steadily rising. Between 2008 and 2009, the volume of LNG passing
through the Suez Canal increased over 40%, more than doubling northbound cargos. Data for the
first ten months of 2010 show a 66% increase in LNG shipments through the canal compared to
the 2009 total. The rise in LNG cargos is mostly attributable to the large increase in Qatar LNG
exports. Nevertheless, there is ample supply of LNG in the global market, and rerouting LNG
cargos to demand centers could be accomplished in a relatively short time frame.
Natural Gas Supplies: A Regional Issue
While Egypt is a relatively small player in the global natural gas industry, it can have a larger
impact on regional natural gas supply. Egypt produces all the natural gas consumed in Lebanon,
almost all the natural gas consumed in Jordan, and more than half the natural gas consumed in
Israel. On a world scale, Egypt accounted for only 2.1% of global natural gas production and
2.1% of global natural gas trade in 2009. Egypt holds 77 trillion cubic feet or 1.2% of the world’s
proved gas reserves.
6 U.S. Energy Information Administration, Country Analysis Briefs: Egypt, February 2011. http://www.eia.doe.gov/
emeu/cabs/Egypt/pdf.pdf
7 Marsoft, Marsoft Flash Report: New Suez Canal Crisis?, February 2011.
8 The Suez Canal has only been closed twice in its 141-year history: for 17 months during the 1956 Suez Crisis, and for
almost eight year after the 1967 Six Day War with Israel.
9 Marsoft, February 2011.
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Table 1. 2009 Egyptian Natural Gas Data
Units = billion cubic feet (bcf)
Imports from Egypt
% of Total
Region/Country
(bcf)
% of Total Imports
Consumption
Asia 36.73
<1%
<1%
Europe
235.20
1.5%
1.3%
- Spain
144.79
11.4%
12.0%
Middle East
194.23
17.6%
1.6%
- Israela
60.03
100.0%
52.3%
- Jordan
100.65
100.0%
91.9%
- Lebanon
1.41
100.0%
100.0%
- Syria
32.14
100.0%
12.8%
North America
175.16
3.5%
<1%
- United States
160.33
4.3%
<1%
South and Central
5.65
1.0%
<1%
America
5.65
- Argentina
6.0%
<1%
Exports (bcf)
Production (bcf)
Consumption (bcf)
Egypt
646.97 2,213.88 1,566.91
% of World
2.1%
2.1%
1.5%
Source: BP Statistical Review of World Energy 2010, http://www.bp.com/liveassets/bp_internet/globalbp/
globalbp_uk_english/reports_and_publications/statistical_energy_review_2008/STAGING/local_assets/
2010_downloads/natural_gas_section_2010.pdf, and other industry sources.
a. For additional information on Israel’s natural gas use, see CRS Report R41618, Israel’s Offshore Natural Gas
Discoveries Enhance Its Economic and Energy Outlook, by Michael Ratner.
Egypt exports natural gas through two pipelines and two LNG facilities. Currently, the Arab Gas
Pipeline connects Egypt to Jordan, Lebanon, and Syria. There are plans to expand the pipeline
further, enabling Egypt to export natural gas through Turkey to Europe.10 In 2008, Egypt opened
an export pipeline to Israel. There was an explosion in early February that shut down both
pipelines for a short time although the damage was primarily to the Arab Gas Pipeline.11 Egypt
has almost 600 bcf of LNG export capacity, with one facility in Damietta and one in Idku. Egypt
accounted for approximately 5% of global LNG trade last year, with most cargos going to
Europe.
10 Egyptian natural gas would feed into the planned Nabucco pipeline or other natural gas pipelines. See CRS Report
RL34642, Turkey: Selected Foreign Policy Issues and U.S. Views, by Carol Migdalovitz, for more on the Nabucco
pipeline project proposal.
11 Batsheva Sobelman, “Israel: Egypt Gas Pipeline Explosion Raises Energy Concerns,” Los Angeles Times, February
5, 2011.
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Implications of Egypt’s Turmoil on Global Oil and Natural Gas Supply
Oil Exports Already Minimal
Aside from its role as a transit center, withdrawal of Egypt’s own oil production from the global
market would likely have limited impact on world oil prices. In 2010, Egypt was a small net
importer of oil, producing approximately 0.66 Mb/d while consuming close to 0.71 Mb/d.12
Egypt’s oil production has been in decline since the early 1990s, a trend not likely to be
reversed.13 The country—which has the largest refining capacity in Africa, with 975,000 barrels
of processing capacity—did export some refined products, such as naptha, but imported others.
Cutting off exports of naptha, an oil product that can be used in making petrochemicals and
gasoline, could put minor upward pressure on European prices, which is a main market for
Egyptian exports.
Global Oil and Natural Gas Markets: A Short-Term
Concern
Global oil prices have already reacted to the unrest in Egypt despite no disruption to Egyptian
production. The reaction comes from two concerns: (1) the near-term risk that any disruption to
oil transit through Egypt could delay oil shipments for several weeks (as they are rerouted around
the Cape of Good Hope, adding extra shipping time) and (2) the more significant concern that
political unrest could spread to other, more important energy exporters in the region, such as
Saudi Arabia, Iraq, or Kuwait. There has been some upward pressure on natural gas prices as
companies scramble to hedge against a disruption of Egyptian exports, but the benchmark natural
gas price in the United Kingdom is actually down.
Should the scenario described above come to pass, there would likely be little impact on the
global oil and natural gas market in the long-term. Both industries will take some time to
recalibrate flows, but should be able to accomplish that with minor or no disruptions.
Additionally, the strategic petroleum reserves of member countries of the International Energy
Agency, which are mostly from the Organization for Economic Cooperation and Development
(OECD), could also be utilized to bridge any gap in oil flows should a disruption prove to be
significant.
Author Contact Information
Michael Ratner
Analyst in Energy Policy
mratner@crs.loc.gov, 7-9529
12 U.S. Energy Information Administration, Country Analysis Briefs: Egypt, February 2011.
13 Ibid.
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