Energy & Entrepreneurs

Egypt and Oil

by Raymond J. Keating

Egypt is not exactly an oil-producing powerhouse in the Middle East-North Africa region. In fact, the country ranks 29th in the world in terms of oil production (according to The CIA World Factbook 2011).

It is also 15th in natural gas, though gas production has increased in recent years.

But Egypt matters a great deal in terms of the transportation of oil and liquefied natural gas through the Suez Canal, and oil via the Suez-Mediterranean Pipeline. According to the January 31 Wall Street Journal, 1.9 million barrels of crude and refined products travel via the canal each day, and 1.1 million barrels of crude flow through the pipeline daily. The canal and the pipeline together carry 2 percent of world oil output.

Beyond oil, 8 percent of seaborne global trade passes through the Suez Canal.

Egypt also has the largest oil-refining sector in Africa, according to the U.S. Energy Information Administration.

One major concern is that protests in Egypt wind up affecting the canal and/or the pipeline. The Journal pointed out that if the canal were closed, it would add 10 days to the trip of Mideast oil to the U.S. and 18 days of Northern Europe.

A second worry is that unrest spreads to other nations, and causes problems in oil-producing nations. Jordan's King Abdullah II just cleaned out the government and named a new prime minister. Jordan, though, is not a player in energy markets at all.  However, Saudi Arabia is.

And a third concern is the uncertainty as to what change actually brings in the end. Obviously, the Middle East is a key source of oil production, while also being a source of Islamic extremism. Therefore, what change results could have implications for U.S. economic recovery - the price of oil (which has increased over the past several days), and our national security. Greater freedom and stability would be a positive, while opening the door wider to Islamic extremism would be a big negative.

While this area of the globe will, for the foreseeable future, play a significant role in global energy markets, that does not mean that the U.S. must stand still in terms of its own energy policies that affect domestic production. Any move in the direction of opening up offshore and onshore domestic regions to exploration and development would be positive.

While the U.S. foreign policy has a role to play in Middle East, changes in domestic energy policies are important - such as opening up areas currently off limits in the Outer Continental Shelf (OCS), the Arctic National Wildlife Refuge (ANWR) and the Rockies, and expanding Marcellus Shale natural gas development - in order to expand access for U.S. consumers, entrepreneurs and businesses to affordable and secure sources of energy.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.