With the unprecedented increasing rates of oil prices worldwide, risks of supplying the required amounts of oil products have became a point of concern to consider and investigate. Such worries reflect the reason why the Egyptian government represented in the Egyptian General Petroleum Cooperation (EGPC) maintains a stake in any new oil refinery constructed in Egypt

Due to the attractive offers and incentives set by the Egyptian government to encourage the construction of oil refineries, many companies have expressed their interests to invest their money in the refining sector. Three major companies asked to construct oil refineries in the country, which are the Kuwaiti “Khourafi group”, the Egyptian “Citadel” and “Dana Gas”.

The Ministry of Petroleum is expected to give its approval for these requests within the coming month, said an official in the ministry. He added that the three projects fulfilled all the technical and financial terms of the project.

The Khourafi group plans to invest $1 billion in constructing a refinery with a capacity of 150 thousand barrel of heavy oils daily. The project is to be located near the Sokhna port and its construction phase is scheduled to terminate in two years. The project will produce diesel, gas, and heavy oils, and will target the domestic markets, which will save the country the costs of importing nearly a million ton of diesel yearly.

As for the Citadel group, it succeeded in forming a consortium of Egyptian and Gulf financial institutions to invest nearly $2 billion in an oil refinery to be located in Suez. It is worth mentioning that Citadel is getting ready to launch the first energy fund in the Middle East.

By its turn, Dana Gas asked for a license to construct an oil refinery with one of the private Egyptian oil companies and financed by an Emirati bank.

As a matter of fact, the EGPC is to hold a stake in each of these projects by an average of 15%. The reason behind this trend is to ensure the flow of required supplies of different oil products through its stake in refineries.

“The Arabic private sector is definitely capable of undertaking refinery projects according to the EGPC standards,” said Prof. Hassan Abdullah, the petroleum expert. The ministry of petroleum set some standards to control the refining sector’s investments; among these conditions is the use of the fifth generation of the petroleum refinery that satisfies environmental conditions and at the same time provides the most efficient production.

Prof. Abdullah added that such technology is very expensive, and the current refineries need some high cost upgrades. That is why the government decided to invite the private sector to invest in these projects. He also pointed out that the government tries to take advantage from the current lack of oil refineries worldwide. Thus, it decided to increase the production capabilities of its refineries in order to supply the major oil consumers, such as USA and Europe, with oil.

Part of the government’s plan is to construct the refineries in areas that enjoy a high competitive advantage such as Upper Egypt.

The EGPC is hoping to avoid shortage problems the market has suffered lately. Therefore, one of its main conditions when approving one of the refineries is to take a stake of its production.

The market has suffered from a shortage about a year ago when the MIDOR refinery went out of service. The authority had to import high quantities of gasoline at a very high cost, in addition to the loss of the refinery’s exportation profits.

From his side, Marawan El-Arabi, the delegated member of Citadel financial group welcomed the invitation of the government to the private sector to invest in this strategic sector, adding that increasing the number of refineries in Egypt will not have negative effects on the market, on the contrary it will trigger profitability chances; since the market is still in need of more refineries to satisfy the gap between supply and demand.

Hisham El Khazendar, the delegated member of Citadel Investments said that the company’s decision to enter the refinery industry is a step in its strategy to invade some risky sectors such as transformational industries and marine transportation. El-Khazendar asked the government to add state-owned refineries to its privatization plans; as one of the high barriers for entering the industry is the high costs of constructing a new refinery.

The new projects are assumed to have about $2.1 billion investments. It’s projected that their production capacity would reach 200 thousand barrels daily in the first phase, to be increased to 300 thousand in the second one. The projects will heavily depend on oil products provided by the Ministry of Petroleum. Moreover, it will import some of its needed oil through the SUMID pipeline. Its output will be exported to the rest of the world through the Sokhna port.

“The production of these new projects will fill in the gap between supply and demand of different oil products consumed in Egypt. This is expected to remarkably decrease the total oil bill for the government. This bill has been expanding recently with the continuous rise in oil prices and the increasing costs of transportation,” commented Mohamed Ayad, the head of the pipelines production company AYBEK.

He added that one of the major pros of the new flows of foreign investments to this industry is the emergence of new high quality generations of refineries. This is expected to increase the value added of the oil industry in the country. He mentioned that the new refinery would cost no more than $2 billion, while upgrading the already built refineries would cost about $8 billion.

Ayad pointed out that one of the major factors to contribute to the success of these projects is the availability of oil products needed for operating and producing new products that are not available in the Egyptian market. He pointed out that these projects would benefit from SUMID pipeline that transfers the Gulf oil to Alexandria. It is worth mentioning that Gulf countries welcomed providing Egyptian refineries with required products provided that there are well established feasibility studies for those refineries.

Recently, it was announced that a consortium of investors under the leadership of Ramez Daloul, the Saudi oil investor are studying constructing a complete fourth generation refinery project. The project is estimated to cost nearly $9 billion. The consortium is studying the ability of constructing this project through a major holding company that contains four peripherals. The first will be assigned the tasks of refinery, the second for generating electricity, the third for imports and exports and operating and the last one for petrochemicals.

According to the oil expert Sayed Abu ElNaga, Egyptian refinery industry is facing a major challenge represented in environment preservation. He pointed out that the concept of comprehensive development encompasses the environmental side. He added that the old refineries in service right now will have to be upgraded to comply with the international laws and protocols.

By Ashraf Said

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