COUNTRY PROFILES

Regional Energy Analysis

Socio-economic Outlook
The 7 Mediterranean Countries region is an economically diverse region that includes both the oil-rich economies and countries that are resource-scarce in relation to population.

Most of the countries in the region share a common cultural background. The main challenge for local economies in the near future will be the achievement of sufficient economic growth in order to confront with the demographic growth.

The region's economic fortunes over much of the past quarter century have been
heavily influenced by two factors - the price of oil, and a legacy of economic policies and structures that emphasize a leading role for the state.

Despite the improved performance, the region continues to face important economic
and social challenges. Unemployment rates average close to 20% regionally and the public sector's share of the region's economy is one of the highest in the world. [4]

Energy Outlook
The energy production of all 7 countries of the Mediterranean region is significantly higher than consumption, driving, thus, the region as a significant net exporting region. The 7 Mediterranean Countries region presents the following intrinsic characteristics:
[5-6]

• Oil
The Mediterranean region is on the one hand an oil-producing region and on the other
a strategic area of maritime and land transit for oil.

There are differences between the 7 Mediterranean Countries as regards domestic oil resources. Algeria and Egypt have important production, when compared to their
energy needs. The rest of the 7 Mediterranean Countries have only a very limited production, or non-production at all.

•Natural Gas
There are substantial differences between the 7 Mediterranean Countries as regards domestic gas resources. Algeria and Egypt have important production, when compared to their total energy consumption.

The promising additional reserves in Egypt develop expectations of this country to become an exporter in the medium-term. Algeria holds the second row among non-member countries of the European Union for gas supply to the European Union.

The rest of the 7 Mediterranean Countries have only a very limited production, ensuring less than 5% of their supply for, or even a negligible (Jordan and Morocco) or non-existing production (Lebanon and Palestinian Authority).

•Solid Fuels
The 7 Mediterranean Countries have limited reserves of solid fuels. Morocco and Egypt have the only currently known resources, which can be exploited.

For the other Mediterranean Countries, solid fuel recourses are either very limited (not exceeding 3% in Algeria and Egypt), negligible (in Tunisia), or even non-existing (in Jordan).
Renewable Energy Sources
Concerning renewable energy sources, 7 Mediterranean Countries have an important potential for their development, but the current situation shows a limited use of these energy sources. The region appears to have a substantial hydroelectric potential, especially in its eastern side, with Egypt holding 89% of the total hydroelectric capacity
in 2001.

The region is considered to have a large amount of wind and solar energy potential. Geothermal energy is used to a very small extent. Biomass and energy from waste contribute a small portion to consumption, its main application is for heating purposes.

•Final Demand
Final Demand increased in all sectors and regions of 7 Mediterranean Countries
between 1980 and 2000. Overall, the industrial sector consumed the biggest share of energy.

The CO2 Emissions
With the exception of Algeria and Egypt, commercial energy consumption and energy-related carbon emissions per capita in 7 Mediterranean Countries have remained essentially low for two decades.

Most of the 7 Mediterranean Countries are relatively non-industrialized, have low levels of automobile and home appliance ownership per capita, and consume high proportions of “non-commercial” energy (i.e. biomass). As a result, per capita levels of energy consumption and energy-related carbon emissions tend to be relatively low in the
region.

Demand Projection
Energy planning can be realised on a macro-economic level via the distinction among
the demand sectors and the estimation of the corresponding sectorial demand globally. More specifically: [7-8]

•Industrial Sector
The industrial sector is extremely diverse in term of energy use. It includes highly
energy intensive sub sectors, (such as the production of steel and petrochemicals)
which have divergent prospects and are subjects to different driving forces.

Primary energy use in the industrial sector—which includes the agriculture, mining, and construction industries in addition to traditional manufacturing—is projected to increase approximately 6 percent per year. Electricity (for machine drive and some production processes), oil and natural gas (given its ease of handling) are the major energy
sources for the industrial sector. Industrial delivered electricity use is projected to increase with competition in the generation market keeping electricity prices low. Industrial petroleum use is also projected to grow whereas coal use is expected to remain essentially constant, as new steel making technologies continue to reduce demand for metallurgical coal, offsetting modest growth in coal use for boiler fuel and
as a substitute for coke in steel making. Energy efficiency in this sector is expected to improve in the two decades 2000-2020.

•Residential Sector
Energy efficiency in this sector is expected to improve in the two decades 2000-2020. The major energy uses that take place in residential sectors are space conditioning (heating and cooling), cooking, water heating, lighting and appliance utilisation. The major driving forces of energy use in the residential sector include the number and the size of households, their degree of wealth and the average private income of each household and climatic and cultural conditions.

Most of the growth in total energy use is related to increased utilisation of electricity. Sustained growth in housing in the 7 Mediterranean Countries, (where almost all new residences use air conditioning), is an important component of the national trend, along with the penetration of consumer electronics, such as home office equipment and security systems. While its share of total residential primary energy consumption
remains about the same over time, natural gas use in the residential sector is
projected to grow through 2020. The number of residential buildings heated by natural gas is expected to increase more than the number heated by electricity or oil. Further reductions in residential energy use per square foot could result from additional gains
in equipment efficiency and more stringent building codes, requiring more insulation, better windows, and more efficient building designs.

•Tertiary Sector
The most important similarity is that the bulk of energy consumption takes place in buildings (like office blocks, hospitals, schools) due to heating, cooling, cooking, lighting and the use of appliance. The energy demand of the tertiary sector is influenced by key factors, such as the weather, population characteristics GDP/levels per capita and the expected quality of services that will be linked to the increasing living standards.
Energy efficiency in the tertiary sector is expected to improve in the two decades 2000-2020.

•Transport Sector
The transport sector is extremely important in terms of energy consumption and environmental impacts. Petroleum products dominate energy use in the sector. Motor gasoline use as well as alternative fuels are projected to increase.

Energy efficiency in this sector is expected to improve in the two decades 2000-2020. The expected higher personal income will have an impact on the procurement of larger and more powerful vehicles. Average horsepower for new cars in 2020 is projected to increase, but advanced technologies are expected to have a positive impact on energy efficiency.

Analysis of Supply Options

•Solids Sector
Solid fuels are increasingly becoming almost exclusively used for power generation. The only other significant use of solids, is the consumption in the iron and steel sectors.
[1,9]

Table 2.1 shows that coal reserves in the Mediterranean region were 0,026 billion
metric tonnes in 2001. The 7 Mediterranean Countries have limited reserves of solid fuels. Morocco and Egypt have the only currently known resources, which can be exploited.

Table 2.1: Proven coal reserves in billion metric tonnes (2001)

•Oil Sector
The exploration map of the region highlights the fact that more than 70% of Algeria’s mining domain, 50% of Tunisia’s domain and 60% of Egypt’s domain are still to be explored. The figures related to recent discoveries and the number of new exploration licenses awarded in the recent years as well as the expected upstream technology improvements, are good reasons to predict with good likelihood that the region will produce far more than the predictions of the current optimistic scenario. On the basis
of existing data, it is not possible to quantify the production levels by 2010 and
beyond, but an increase of 20 % of the present levels is likely to occur keeping positive primary energy balances in the region. This situation will definitely contribute to the economic and social development of the 7 Mediterranean Countries. [3]

On the basis of current production rates, oil reserves of the region are expected to last for 40 years. Algeria is expected to maintain its position as net oil exporter for at least the next two decades. It is, however, likely that the present production in Egypt will have to be increased in order to meet local demand and retain some quantities for export.

Table 2.2 shows that oil reserves in the 7 Mediterranean countries region was 13,2 billions barrels in 2001. [1,9] There are differences between the various 7
Mediterranean countries as regards domestic oil resources. Algeria and Egypt have approximately 12,9 billion barrels of proven oil reserves. Official estimates of Algeria's proven oil reserves remain at 9,2 billion barrels, ranking it in the top 10 worldwide.

Table 2.2: Proven Oil Reserves in billion barrels (2001)

However, with the recent oil discoveries, plans for more exploration drilling,
improved data on existing fields, and use of enhanced oil recovery (EOR) systems, proven oil reserve estimates are expected to be revised upwards in coming years.

Algeria's oil reserves are expected to be more than 9,5 billion barrels in 2010. The Jordanian government discusses with some foreign experts the possible development
of an oil shale extraction facility. Morocco has oil shale deposits in the Atlas Mountains, but these have not been exploited for economic reasons yet. Tunisia has more than 0,3 billion barrels in proven oil reserves, with estimated recoverable reserves significantly higher than that and an important hydrocarbons area in the Gulf of Gabes, where fields contain 1,5 billion barrels of recoverable oil.

Over the last decade, there has been a market increase in areas open for petroleum exploration and development. IEA analysis has shown that some of the 7
Mediterranean Countries (Algeria and Egypt) have been successful in attracting foreign investment by improving their fiscal terms for oil and gas development.

In recent years, the industry has focused on cost reduction through advanced
computer and engineering technology as well as the streamlining of company structure. Recently, investments in this sector have been increasing as companies have been forced to drill in deeper waters and in more technically difficult environments. The improvement in data processing techniques and evaluation as well as technology improvements in drilling and enhanced recovery are leading to significant results in oil and gas project development and production.

•Natural Gas Sector
The main drive for natural gas demand will be its use in power generation. On the Eastern side of the Mediterranean region, gas demand expectations are much larger than the supply available; Imports from outside the region (Gulf region, Russia or
central Asia) will be needed to fulfill these demand expectations. The importance of
these countries for transit purposes towards the European Union markets will be increased as regional networks develop.

In the Western side (Morocco, Algeria and Tunisia) advantage is taken from the availability of natural gas. This part of the 7 Mediterranean Countries region is
providing some 16% of the European gas market thanks to the successful regional cooperation in relation with energy transit. [10]

Table 2.3 shows that natural gas reserves in the 7 Mediterranean Countries region are 6.821,1 Bcm. [1,9] There are substantial differences between the various 7 Mediterranean Countries as regards domestic gas resources. Algeria holds the second row among non-member countries of the European Union for gas supply to the
European Union. The promising additional reserves in Egypt develop expectations of
this country to become the exporter of the region, in the medium-term. The rest of the
7 Mediterranean Countries have only a very limited production, ensuring less than 5%
of their supply for, or even a negligible (Jordan and Morocco) or non-existing production (Lebanon, and Palestinian Authority).

Table 2.3: Proven natural gas reserves in billion cubic metre (2001)

However, with the recent natural gas discoveries, plans for more exploration, proven natural gas reserve estimates are expected to be revised upwards in coming years. Algeria's natural gas potential reserves are more than 6.900 m3. Egypt's government released a revised estimate of proven natural gas reserves in September 2001, which put the figure at 1.558,0 Bcm. It was also stated that, based on initial seismic survey work in offshore areas, probable reserves were 3.400,0 Bcm. Morocco has some additional reserves at Talsint. It is estimated that Palestinian Authority has gas
reserves, which reach the figure of 85,0 Bcm but there is no production nowadays.

•Renewable Energy Sources
This section covers a large number of diverse fuels ranging from hydro, biomass and waste to relatively novel ones like bio fuels. The supply of these sources of energy is expected to increase modestly including the hydropower which will be the most
dominant source of renewable energy in the next two decades.

According to the international publications, the use of wind is expected to expand by nearly 19,2% per year in the first decade and by over 10,5% per year after 2010. Similarly, solar systems in the final demand are projected to grow by an average 5,3% per year during the next twenty years. However, renewables as a whole are expected
to remain a small part of the overall primary energy supply of the 7 Mediterranean Countries.

The modest growth of renewables takes place despite the projected continuation of current subsidisation policies and is due to the growth in fossil fuel prices. This does
not favour the competitiveness of some modern forms of renewables energy, such as wind or solar power. [10]

The term “biomass” includes any plant material derived organic matter available on a renewable basis, including dedicated energy crops and trees, agricultural crops wastes and residues, wood wastes and residues aquatic plants and animal wastes. Bio-energy technologies use renewable biomass, resources to produce an array of energy related products including electricity, liquid, solids and gaseous fuel, heat, chemicals and other materials. [11]

•The Electricity Generation
The electricity generation is one of the most important sectors for the energy perspectives. This is because the sector’s output is an intermediate good that is necessary for all other sectors of the economy. Furthermore, the demand for electricity has been growing faster than all other final energy fuels and is expected to continue to do so in future. Electricity generation is due to grow rapidly in 7 Mediterranean
countries. It is highly required that the power sector ensures the population with a decent access to modern comfort, in expanding urban areas as well as in the traditional rural environment. [12]

Strained public resources cannot cope with looming electricity capacity needs especially in those developing countries where increases in electricity demand are greatest. The need for power sector financing, along with a desire to increase economic efficiency has led many countries to seek private sector involvement in electricity supply systems. Private sector involvement brings not only financing, but also market-oriented management skills, access to the latest technology, and usually quicker implementation than would be the case under public sector management. Private investment may also allow governments in 7 Mediterranean Countries to redirect public funds to other
needs.

•The CO2 Emissions
The rise in electricity demand and the increased fossil fuel use by the sector will result
on an increase of CO2 emissions from the sector in the 7 Mediterranean countries. Compared to the first decade, the increase of CO2 in the second decade is modest. The total CO2 emissions in the 7 Mediterranean Countries region are expected to increase.

The Kyoto Protocol was adopted during the third Conference of Parties to the
Framework Convention on Climate Change (COP-3 of the FCCC) in December 1997. The Protocol defines commitments for developed countries with a view to reduce their
overall greenhouse gas emissions by an average of at least 5,2 % below their 1990 levels in the five years after 2008 (the first budget period). The commitments differ among the Annex-1 Parties - every party has a different level of so-called ’Assigned Amounts’ (AA’s) of greenhouse gas emissions. Palestinian Authority has not yet ratified the UNFCCC. According to that, Algeria, Jordan, Lebanon and Palestinian Authority have not yet ratified the Kyoto Protocol. [5,12]

Energy Investment Prospects

•Overview
Financing requirements vary by region depending on the level of economic
development, industrialization, motorisation, etc. Despite varying estimates of the
level of investment needs in 7 Mediterranean countries, most studies conclude that
there will be no shortage of capital resources to meet these needs. The problem is how to mobilize that available capital into investments in energy infrastructure. Furthermore, the relatively low share of the region in flows of Foreign Direct Investment (FDI)
towards the emerging countries and in total direct investment by the EU is also explained by inadequate infrastructures, which have a negative impact on decisions to invest in the area. The primary energy production of the region is dominated by the oil- and gas-producing 7 Mediterranean Countries (Algeria and Egypt), with the rest of
the 7 Mediterranean countries showing high rates of fuel imports. Most of the Mediterranean Countries confront an adversative situation, on the one hand urban and industrialized centers display huge consumption, and on the other hand, rural areas present low energy consumption rate and limited access to energy. According to the international publications, it is estimated that 154-211 billion € in investment will be needed in the energy sector in the next twenty years on the basis of the economic growth in the countries on the southern and eastern fringes of the 7 Mediterranean Countries region. [1,11]

The following table 2.4 delineates the range of investment figures for each energy
sector and each Mediterranean country, as well as the contribution of each sectorial investment to the national and regional investment prospects for the
period 2000-2020. [1,2,6,9,11] These figures are the outcome of 7 Mediterranean countries energy perspectives and investment prospects for the time period concerned.

Table 2.4: Investment Prospects for the period 2000-20

•Oil sector
The Southern Mediterranean basin is embellished with many oil fields, which are mainly concentrated in Algeria and Egypt. Algerian oil accounts for one-fifth of EU oil imports in 2001. Approximately 90% of Algeria's crude oil exports go to Western Europe.

According to the international and national official sources, it is estimated that 31-42 billion € in investment will be needed in the oil sector during the next two decades on the basis of the economic growth in the 7 Mediterranean Countries region. Most upstream oil and gas investment is financed directly by large multinational oil
companies or by funds borrowed by private sector. Ultimately, the investor’s
willingness to commit resources depends on projects’ ability to meet the return expectations of shareholders and lenders. Banks usually base their project loans on profitability of and control over assets/production and need to have confidence in investor to operate and fund its share.

•Gas sector
The Southern Mediterranean basin is embellished with many gas fields, which are
mainly concentrated in Algeria and Egypt. Algeria was the second largest exporter of
LNG in 1998, with 22% of the world's total LNG, exported mainly to Western Europe
and the United States.

Investment requirements for natural gas present analogous features collated to those
in the oil sector. Both require large upfront capital investments and often long terms payouts. The transfer of gas through pipelines or via LNG facilities is critical part of investments. Gas demand could be multiplied by four or more during the next 15 years. The main drive for gas demand will be its use in power generation. The reason for the choice of gas in comparison to other hydrocarbons in addition to its availability is the environmental advantages and the efficient technology of combined cycle. On the Eastern side of the Mediterranean region, gas demand expectations are much larger than the supply available. Imports from outside the region (Gulf region, Russia or
central Asia) will be needed to fulfill these demand expectations. The importance of
these countries for transit purposes towards the European Union markets will be increased as regional networks develop.

•Electricity sector
According to the international and national official sources, the required investments for covering these needs in energy production, transmission and distribution infrastructure, are estimated to be in the order of 79-108 billions € until 2020. This rather ambitious target can only be met by an involvement of the private sector and especially foreign investors. This presupposes a favorable environment for investors and so to face present obstacles as: the absence of a sufficiently detailed institutional framework; the political risks; the exchange rate risks; the difficulty of drawing on local savings; the complexity of organizing projects.

• Conventional Energy Sources
  The new plants will use mainly natural gas. So, it is estimated that 70-95
  billion € in investment on thermal plants and transmission and distribution projects for these plants will be needed during the next two decades.
  
• Renewable Energy Sources
  Electricity generation by renewable energy sources concerns the 22% of the current total electricity generation capacity of the region and, despite its significant growth that is expected for the next two decades, its relative contribution to the total capacity will remain stable until 2020.
  
  The region appears to have a substantial hydroelectric potential, especially in
  its eastern side. It is estimated that 9-12 billion € in investment on hydro plants and transmission and distribution projects for these plants will be needed
  during the next two decades.
  
  The region is considered to have a large amount of wind and solar power potential. Solar thermal energy is still undeveloped with the exception of hot water systems. Photovoltaics could make a significant contribution to the rural electrification, especially in Morocco. So, investments in the field of power generation from RES seem quite attractive, provided that they will be
  supported with the appropriate incentives.