Event

Egypt’s energy sector has received a boost by the discovery of a 'supergiant' gas field off Egypt’s Mediterranean coast, the Zohr field, on 30 August. The field is estimated to hold gas reserves the size of nearly a tenth of Saudi Arabia’s proven natural gas reserves and is larger than Oman’s reserves according to EIA. If Eni's estimates are accurate, the field will increase Egypt's gas reserves of 65.2 trillion cubic feet by almost half. The Zohr field will be able to use the existing infrastructure, so drilling can start in 2016 and production could be initiated by 2020.

Impact on country risk

The discovery of the gas field promises to solve the country's medium-term supply problems. Egypt's gas production has declined by almost one third in the past five years and is inadequate to satisfy the demand. This has resulted in gas shortages in recent years, hurting (energy-intensive) industries and curtailing output. It also dampened plans of the government to develop new industries to create jobs since unemployment is high, notably among the youth and an important concern. The discovery of gas should also generate savings on fuel imports in the future. Moreover, additional supply can give Egypt the option to restart gas exports. Both can boost Egypt's balance of payments, which has been in deficit for years. The discovery of the gas field came shortly after the inauguration of the new Suez Canal, resulting in a renewed vibrancy about the Egyptian economy. However, economic recovery will remain contingent upon political stability, as such addressing the systemic two-digit fiscal deficit while redeeming public expectations of improving living standards will continue to be crucial.

Analyst: Jolyn Debuysscher, j.debuysscher@credendogroup.com