Prime Minister Sherif Ismail may owe his job to the fact that he succeeded in resuscitating Egypt’s offshore upstream sector by winning back the trust of international oil companies hard-hit by the 2011 revolution.
But dark clouds looming over Egypt’s economy are threatening the nascent recovery in the oil and gas sectors.
When Ismail was appointed Oil Minister in July 2013, he inherited an industry in complete chaos, with falling production and oil companies reluctant to invest amid deepening payment problems.
Major projects were halted by the likes of BP, which found it impossible to negotiate an attractive enough gas price for its deep-offshore fields.
Meanwhile, offshore licensing rounds failed to sparkle as established players saw no reason to deepen their involvement in a country plagued by financial and economic problems, and adverse to initiating the necessary reforms to kick-start the oil sector.
Ismail, a veteran oilman, immediately embarked on reforms that soon led to a transformation of the oil industry.
His priorities included reducing mounting debts to oil companies and offering them attractive prices for the development of offshore gas.
Investors responded by reviving shelved projects and resuming offshore exploration.
BP stepped up investment on its flagship $12 billion West Nile Delta project while Eni, the largest producer of oil and gas in Egypt, boosted offshore exploration that resulted in the discovery of the super-giant Zohr field in August.
President Abdel Fatteh el-Sisi moved quickly to reward Ismail, appointing him prime minister in September with a mandate to improve Egypt’s ailing economy.
But the oil industry’s renaissance is suddenly facing strong headwinds amid an economy battered by falling revenues from tourism in the aftermath of the bombing of a Russian passenger plane in October.
Egypt is also grappling with weak revenues from the expanded Suez Canal. Furthermore, donations from the rich Persian Gulf states to Sisi’s government have dwindled.
Egypt managed to pay back more than $2 billion to international players last year thanks to grants from Saudi Arabia, Kuwait and the United Arab Emirates, who see Sisi as a bulwark against threats posed by Islamic State.
With the Gulf’s largesse under threat amid falling oil prices, Egypt seems to be shifting its focus away from the oil industry to more urgent needs, thus making it increasingly unlikely that it will clear the backlog of debt to international players by the end of this year as promised.
In fact, the debt to oil companies has now risen to $3.8 billion and is growing. Egypt has so few dollars to pay for imports, including such necessities as gas and refined products, that it has had to impose import controls, which have stifled the manufacturing sector, further constraining economic growth.
Its fight against Islamist militants is costing it dearly in financial terms, and is causing damage to its human rights reputation.
Amnesty International accuses Egypt’s security apparatus of using torture, excessive force, arbitrary detention and enforced disappearance to crush all forms of dissent.
It is against the backdrop of deteriorating economic and political instability that state-owned Egyptian Natural Gas Holding Company, or Egas, was forced recently to postpone its licensing round by at least six months, hoping for an improved oil price.
Having helped to save the oil industry from revolutionary chaos, the Ismail government more than ever needs ingenuity to keep the trust of oil companies by addressing their financial needs and keeping them active.