Monday, June 04, 2012

Egypt's imminent fuel crisis

From Egypt Independent:
Egypt has struggled to obtain bank payments for its fuel purchases, trade sources said, delaying diesel supplies for transport, industry and agriculture ahead of the second round of an election vote.

The payment problems have caused shipping delays and prompted some suppliers to think again before offering oil into a forthcoming US$1 billion import tender, half a dozen trade sources, including current suppliers, told Reuters.

They said delays of up to two weeks in deliveries were a regular occurrence ahead of peak summer demand for diesel, blaming Egypt's difficulties in obtaining letters of credit from banks.

An official at the Egyptian General Petroleum Corp (EGPC) denied this.

A trader involved in the transactions said banks were increasingly nervous with loans and required additional assurances as Egypt's stretched finances made it harder to pay for its heavy fuel subsidies bill.

"There has been a queue of (oil) product vessels in Egypt that are waiting for letters of credit," said a second trader working for a Swiss-based trading house.

Fuel shortages have already caused anger this year and have delayed the harvest. Long lines at fuel stations in central Cairo were forming on Thursday, causing large traffic jams in some main thoroughfares.

Shipping delays can cut or eliminate oil traders' profit margins through additional waiting fees — "demurrage" costs.

Traders said these amounted to between $15,000-$25,000 a day depending on the size of the vessel.

The recent delays could further shrink Egypt's pool of suppliers participating in tenders, which has already fallen since the revolution, the traders said.

"Taking into consideration extra demurrage for sure there are some companies not offering anymore," said a trade source. Another source said that those able to continue supplying Egypt are likely to ask for premiums on fuel sales.
Things are going to get much, much worse in Egypt. And it is going to happen sooner rather than later, since peak energy usage is in the summer.