Oil, Gas, and the Egyptian Economy

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According to Reuters, “The partners in Israel’s Tamar natural gas field said on Tuesday they had signed a letter of intent with Union Fenosa Gas to export up to 2.5 trillion cubic feet (tcf) of gas over 15 years to a liquefied natural gas (LNG) plant in Egypt. Tamar was discovered in the eastern Mediterranean in 2009 and holds an estimated 10 tcf of gas. The larger Leviathan field was discovered nearby a year later and turned Israel into a potential energy exporter.”Egypt has long had the necessary equipment to transport, liquefy, and market natural gas; however, officials may build additional infrastructure, such as a pipeline, to accommodate the new deal.

Economists believe there may not be enough gas resources to sustain the project in the future.

Bloomberg reports, “Egypt used to export gas to Israel until a series of bombings directed against the Sinai supply pipeline led to its closing in 2012. Relations between Israel and Egypt had deteriorated after the overthrow of former President Hosni Mubarak in 2011, and his eventual replacement by Muslim Brotherhood leader Mohamed Mursi. The ouster of Mursi last July by the Egyptian army has led to better ties with Israel.”

This news comes on the heels of the resignation of oil producer BG Group Plc’s CEO. The company’s oil manufacture operation resulted in less than three percent quarterly earnings. As a whole, Egyptian extraction fell 35 percent in Q1.

Meanwhile, other sectors of the Egyptian economy could see a boost as officials work to finalize a stimulus package.

According to The Wall Street Journal, “Cairo is planning to roll out a 1 billion-Egyptian-pound ($143.3 million) stimulus package over 18 months to subsidize a restructuring of the telecommunications, manufacturing and tourism industry, through lower borrowing rates, he said. The government also plans to expand the value-added tax to include a broader swath of the sectors, instead of just manufacturing.”

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