Gift glut gives Egypt oil trade new headaches

Reuters, Friday 1 Nov 2013

Egypt has gone from fuel famine to glut thanks to gifts from Gulf, state oil company and foreign traders face new challenges

Fuel shortage
Drivers wait alongside their vehicles in long queues at a gas station during a fuel shortage in the country, in Alexandria June 24, 2013 (Photo: Reuters)

Many Gulf rulers are suspicious of the Muslim Brotherhood, which has international affiliates across the Arab world. They were disturbed by Morsi's election last year and have welcomed the new interim government.

Saudi Arabia has become the biggest fuel supplier to Egypt, sending gasoline and gasoil as well as cooking and heating gases like propane and butane. It has been supplying the bulk Cairo's gasoline needs since August, traders said, to the extent that Egypt does not need to import any more.

"I'm 100-percent covered for gasoline but as for gasoil, we still need to import," Molla said last week. "As for propane and butane, we still need to import."

Saudi Arabia is providing some propane and butane. Kuwait and the Emirates do not, he said. All three are sending gasoil.

The Emirates started sending $1 billion of fuel products in July as part of a $4.9-billion agreement.

Kuwait has allocated some 5 million barrels of oil products to Egypt for the August-December period, a source familiar with the matter said, equating to around 130,000 tonnes a month.

Kuwait is also delivering 2 million barrels of crude oil per month, Molla said. This is up from about 1 million barrels per month, delivered erratically, during the year Morsi was in office. That has allowed Egypt to increase its naphtha exports as it can refine slightly more, one naphtha buyer said.

But while Egyptians can enjoy the period of plenty, underlying problems have not been dealt with. Little has been done to reduce the 20 percent of state spending that goes on fuel subsidies, which many economists say are inefficient.



Among other side-effects of the flood of donations has been disruption for Egypt's refineries.

Already short of crude due to the Morsi administration's budget problems, Egypt's biggest Mediterranean refinery, Midor at Alexandria, is now struggling to buy more on the market, traders and Molla said.

Before the Arab Spring uprising of 2011, traders would make part of their return for selling crude to Midor by selling some of the resulting refined products to local Egyptian buyers.

But with that once lucrative market awash with gifts from the Gulf, tenders from Midor for crude reprocessing deals have not been filled, traders said. Midor declined comment.

"(Midor) is not doing well because it not running at 100 percent of capacity," the EGPC's Molla said. "Now we are trying to get some solutions in coordination with Midor and some bank facilities support to get them some crude."

He declined to give details but traders close to the refinery's business said it was running at about 60-percent capacity, with a blend of crudes not best suited to its needs - raising a risk of technical problems at the plant.

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