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OPEC deal gives Suez Canal hope for revenue: Fuel for Thought

January 01, 1900

Despite higher crude prices being a negative on the surface for net importer Egypt, the Arab world’s most populous country hopes OPEC’s move to cut production will actually breathe life into the moribund traffic in its Suez Canal and provide badly needed foreign currency. Egypt’s has been a net importer of crude since 2012, and lately has started importing LNG to meet the rising demand for fuel and power. Typically energy importers prefer lower energy prices, but Cairo might be keen to see oil and gas prices rise as the market slump for both commodities since 2014 has had a disastrous effect on the government’s plans to raise more revenue from shipping through the Suez Canal. The need for revenue is acute particularly after Egypt fast-tracked an $8.2 billion canal expansion that was inaugurated in August 2015, only a year after the start of construction. Sailing through the 164-km canal can knock 11 days off a typical intercontinental voyage for which the alternative route would normally be around the Cape of Good Hope. However, tariffs are steep, estimated by shipping line Maersk at around $350,000/vessel. The fees are still too high compared to the extra cost of bunker fuel needed for longer voyages around the cape as the price of the heavy marine fuel has fallen by about two-thirds since mid-2014.