2018: A Cornerstone for The Egyptian Oil and Gas Sector; An Interview with Petroleum Minister, H.E. Eng. Tarek El Molla

2018: A Cornerstone for The Egyptian Oil and Gas Sector; An Interview with Petroleum Minister, H.E. Eng. Tarek El Molla

The Ministry of Petroleum and Mineral Resources achieved outstanding results in oil and gas activities throughout 2018. These are the fruits of intensive work and new successful projects developed in Egypt’s fields, refineries, and infrastructure under the umbrella of the ministry’s Modernization Project. Petroleum minister Eng. Tarek El Molla shared with Egypt Oil & Gas the sector’s achievements and their impacts to the economy and the Egyptian society.

Last year was an important year for the natural gas market. Could you tell us about the country’s journey towards natural gas self-sufficiency?

In 2018, we have witnessed continuous growth in natural gas production. This increase was the result of the Ministry of Petroleum’s vision to speed up the development of discovered natural gas fields in order to add them to the production map across the year. As a result, the current total natural gas production exceedsed 6.6 billion cubic feet per day (bcf/d), which enabled us to achieve self-sufficiency of locally produced natural gas at the end of September. This allowed us to halt liquefied natural gas (LNG) imports for the first time in more than three years, which eventually led to rationalizing the usage of foreign currency allocated for imports and decreasing imports bills.

Many projects contributed to this achievement. We finalized new phases of four mega-projects in the Mediterranean Sea – Zohr, North Alexandria, Nooros and Atoll fields – in which the total investments exceeded $27 billion, and maximum production rates will reach 6.5 bcf/d by the completion of all the fields’ phases.

The Zohr field, which had its first phase of early production inaugurated by president Abdel Fattah El Sisi in January after its first real production in December 2017, developed new phases to maximize its production more than six times since the inauguration, to reach more than 2 bcf/d.

We are continuing the development of the coming phases of Zohr with an overall investment of  $12 billion, with production expected to reach over 3 bcf/d by the end of 2019.

In December, we have started the early production from the second phase of the development and production project of North Alexandria and West Delta Deep Marine (WDDM) at the rate of 400 million standard cubic feet per day (mmscf/d) from Giza and Fayoum fields, which gradually increased to 700 mmscf/d. Ravin field will be added to the production map in 2019, completing all phases of the project, with more than $10 billion investments and 1.6 bcf/d total production.

Meanwhile, the Nooros field in the Nile Delta has reached 1.2 bcf/d of natural gas due to drilling new successful wells, which led to continuity in achieving the highest natural gas production in the history of the Nile Delta region.

As for Atoll, efforts are being conducted to develop the fourth well to increase its production  to  reach 400 mmscf/d by October 2019. Atoll started operations in 2017 at a production rate of 350 mmscf/d of natural gas and 9,000 barrels per day (b/d) of condensates.

I would also like to add the linking of the 9B phase natural gas project, in the WDDM in the Mediterranean, to the production map through an initial production from the first well reaching 20 mmscf/d of the 400 mmscf/d maximum production capacity, in addition to 3,000 b/d of condensates through drilling eight development wells and two exploratory wells with total investment cost exceeding $870 million.

In light of the increase in the natural gas production rates, after linking a number of big fields to production and reaching self-sufficiency, re-exporting natural gas to Jordan has started with trial quantities in October, and will gradually reach the contracted quantities by 2019.

The year of 2019 promises a new focus on increasing development of Egypt’s crude oil sector along with further development of our thriving natural gas sector.

How has Egypt’s crude oil production map changed throughout 2018?

We made 61 new oil and gas discoveries in 2018, of which were 43 crude oil discoveries and 18 were natural gas discoveries. In the Western Desert, we had three important oil discoveries in the Faghour basin, operated by Eni. Two of them were oil discoveries, which reflects promising probabilities in the Western Desert basins and opens new scopes to attract more investments from international oil companies (IOCs) to intensify activities in this area.

Egypt’s current production average of crude oil and condensates reached around 660,000 b/d due to the efforts exerted last year in exploration and production (E&P) and development, adding 36 new exploratory crude oil wells to the production map with initial production average of 27,000 b/d of crude oil, and 175 development wells with initial average of 113,000 b/d.

In addition to that, we have also succeeded in compensating natural decline of production from brownfields due to the decrease in reservoirs’ pressure, through the performance enhancing program, which is a part of the Modernization Project. This contributed to compensating the decline of almost 100,000 b/d of crude oil.

What are Egypt’s new mechanisms to attract foreign investment into the oil and gas sector?

We have decreased arrears of IOCs to reach an unprecedented value of $1.2 billion by the end of the fiscal year in June 2018, which is the lowest debt level since 2010. This assures the credibility and commitment of the government with its international partners, and sends a message from Egypt to the world, to encourage new investments. This further has direct positive effect on the petroleum sector through the increasing  turnout of IOCs in E&P tenders and increasing investments in the field of E&P activities, and field development,  which is positively reflected in the production of Egypt’s natural hydrocarbon resources.

Through the Modernization Project, we have also applied new untraditional mechanisms to encourage and increase E&P investments. We have enhanced E&P agreement models to explore and  produce oil and gas in new areas, which contributes in attracting investors, and encouraging IOCs to work and invest in these areas with big exploration challenges that will also require huge capital with the use of advanced technologies.

We have also taken new steps in establishing the Egyptian Online Gateway for promoting E&P areas in cooperation with specialized global firms, which not only attracts foreign investments but also enables business to be made with a modern and advanced concept. In 2018, the ministry signed cooperation agreements regarding this project with both Schlumberger and Baker Hughes GE (BHGE) global firms.

In addition to that, two international bid rounds were launched for the Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS) for the exploration and production of oil and gas from 27 areas including the Gulf of Suez, Western Desert, Eastern Desert, Nile Delta and Mediterranean.  Participating companies bids are now being evaluated to announce the winning companies.

We are also ready to launch the first E&P international bid round in the Red Sea, based on the results of  10,000-kilometer seismic survey and data collection that was conducted in 2018 with the cooperation of Schlumberger with a total investment $750 million. This represents one of the fruits of the demarcation agreement between Egypt and Saudi Arabia, which enabled us to explore the area’s untapped potential.

Recognizing the results of the initiatives made through the past couple of years, last year we signed 12 new agreement with IOCs for oil and gas exploration for several concessions in the Mediterranean, Gulf of Suez, Nile Delta, Western Desert and Sinai, with total investments reaching at least $1.3 billion and around $95 million signing bonuses to drill 41 wells. In the past four years, the total number of agreements reached 63 since June 2014.

Additionally, we signed a number of new partnership agreements for the development of Zohr field, according to which Russia’s Rosneft became a partner with 30% shares, and UAE’s Mubadala with 10% shares, with Itlay’s Eni, the main operator, and British BP, which owns 10% shares. I am personally glad to see these new agreements coming through as it represents new partners entering the project and supporting the oil and gas sector with major expertise and new technologies.

Another important indicator to highlight is that, as steps are being taken to attract investments, fiscal year (FY) 2017/18 has witnessed investments of around $10 billion that were injected in oil and gas E&P and fields’ development. FY 2018/19 is planned to witness the same value of investments.

In addition to the initiatives you have mentioned, what other steps were taken in order to turn Egypt into a regional energy hub?

During 2018, the ministry took positive concrete steps towards achieving the national project of turning Egypt into a regional energy hub. In February 2018, we prepared the legislative environment to achieve this vision through issuing executive regulations for the natural gas law aiming at regulating the natural gas market’s  activities. With this, we have established an independent authority to regulate the market’s activities. The authority is one of the most important steps and main factors that support achieving Egypt’s goal to become a regional hub for trading oil and gas as it encourages international firms and private sector’s companies to contribute and invest in the natural gas trading market in Egypt.

The authority organizes the process of receiving and supplying gas from and to the Egyptian market, which leads to boosting investment opportunities in logistics and supporting private sector’s contribution in all the activities related to the gas market, whether it is importing, shipping, transporting, distributing, or storing.

In the framework of boosting cooperation with major international and regional partners, April 2018 witnessed the signing of a memorandum of understanding (MoU) for the strategic partnership in the energy field between Egypt and the European Union (EU). The EU countries represent the final markets for east Mediterranean gas, which will be re-exported by Egypt as a part of its role as a pivotal country and a regional hub for trading oil and gas

At the end of September, we signed a joint governmental agreement between Egypt and Cyprus in Necosia, capital of Cyprus, which stated establishing a direct subsea pipeline between the two countries to transport natural gas from the Cypriot Aphrodite field to Egypt’s gas liquefaction plants on the Mediterranean coast to liquefy gas and re-export it through Egypt to different markets.

In October, Egyptian, Cypriot and Greece leaders also met in the Crete Summit to establish the gas forum for the east Mediterranean countries, with headquarter in Cairo.

We are very satisfied with those partnerships and we look forward to increasing even more Egypt’s role in the international market. For this, during 2018 Egypt has participated in many international events and conferences related to the natural gas and petroleum industries in a way that reflects Egypt’s growing value internationally and regionally. Most importantly in June, Egypt participated in the meeting of the Organization of the Petroleum Exporting Countries (OPEC) as an observer. In addition, Egypt participated as the main speaker in the International Petroleum Week in London and the World Gas Conference in Washington, both in February. We were also present at the Arab European Summit in Athens that I had the pleasure to attend on behalf of the President Abdel Fattah El Sisi.

The list of Egypt’s participation in events continues. We attended the conference of the Organization of the Arab Petroleum Exporting Countries (OAPEC) in Morocco in October, the Mediterranean Dialogues in Rome, and the Abu Dhabi International Exhibition and Conference (ADIPEC 2018) in November. In addition, Egypt hosted many international and regional events including the second Egypt Petroleum Show (EGYPS 2018); the 15th Arab International Mineral Resources Conference in November, which had a presidential inauguration by president El Sisi; and the 9th Mediterranean Offshore Conference for Petroleum (MOC 2018) at Alexandria in April.

The country has also witnessed the advancement of key infrastructure projects. How do they impact the current energy supply?

Last year, we did a great job connecting homes at different governorates to the natural gas grid, especially in Upper Egypt governorates and areas with high population density. This was done under the national project of connecting households to the natural gas grid which aims to replace butane with natural gas to ease the government burdens of foreign currency spent on importing part of the local consumption needs of butane. Natural gas was delivered to more than one million households, which is the biggest number achieved since starting the project of delivering natural gas to households in 1981. The total number of households connected stands at 9.3 million units.

At the end of July, we extended the installment initiative by offering households the opportunity to get connected to the gas grid without paying any contracting deposit, with installment fee of EGP 30 over six years without any interests, to be collected with the gas consumption bill. With this initiative, we look at easing the citizens’ economic burden and enhancing their quality of life.

Under this framework, the year saw us delivering natural gas to 72 high population cities and villages at different Egyptian governorates to benefit for the first time from the natural gas services that were never delivered to them before. The new connected areas include El Ayat, Awsim, Tanash at Giza, Hadaek Helwan, Siklam, Askot in Alexandria, Abu Kebir in El-Sharqia, and Maghagha in Minya.

In parallel to that, we operated the first phases of the platforms and facilities of Egypt’s Arab Petroleum Pipelines Company’s (SUMED) offshore for receiving and trading liquefied natural gas (LNG) and butane, as the first phase of the project for establishing offshore platforms with SUMED’s facilities. Moreover, 2018 witnessed moving forward in conducting the second phase of storage and trade facilities for imported petroleum products at SUMED, aiming to establish three mazut storage tanks with 105,000-cubic-meter total storage capacity at Ain Sokhna, and is expected to be complete by March 2019 with investment cost for the two phases at around $415 million.

We also went ahead in conducting the bulk-liquids terminal in Ain Sokhna for Sonker, aiming to establish six diesel and butane storage tanks with 250,000-cubic-meter total storage capacity, with the aim to boost storage capacity of strategic products, in addition to establishing two lines to transport butane and diesel. The project is expected to be completed by June 2019 with an investment of $220 million.

In addition, we have the new butane storage facilities in Alexandria with seven butane storage tanks established operating with total storage capacity of 8,400 tons to secure strategic reserves of butane. The project’s total investment cost reached EGP 150 million.

Speaking of petrochemicals, could you tell us more about the petrochemical projects developed in 2018?

The petrochemical projects have superior economic benefits, providing the local market with basic needed materials, and have the ability to greatly increase job opportunities. This is why developing this industry is a key target for us. In 2018, Egypt witnessed the beginning of the implementation of four new industrial petrochemical projects with investments around $1.5 billion. This includes a project for producing methanol derivatives in Damietta port for the Suez of Petroleum Services Company (SOPSC), with investments around $60 million.

Additionally, Egypt started to implement a project for the production of industrial rubber (Poly Butadiene) at the Egyptian Ethylene and Derivatives Company (ETHYDCO)’s complex in Alexandria, with investments around $105 million. The project’s final product will be used in 13 industries, including car tires, conveyer belts for cars and factories, and building and construction industries.

Egypt also started implementing the expansion project of Sidi Kerir Petrochemicals Company (Sidpec), containing two new factories to produce propylene and polypropylene with investments reaching $1.2 billion, as well as a project to produce medium-density fibreboard (MDF) at Kafr El-Sheikh. Last year, we also laid the cornerstone to construct the new offshore exporting platform of Misr Fertilizers Production Company (MOPCO) at Damietta port with investments reaching $180 million to serve the exporting operations of urea fertilizer and liquid ammonia to the world.

In addition, we have executed and operated a project for producing high-octane benzene 92 and 95 at the Alexandria National Refining and Petrochemicals Company (ANRPC). The project is part of the ministry’s plans to develop the refining industry and increase the local production from the high economic value petroleum products, such as benzene, diesel, and butane, as well to provide high-quality petroleum products according to global standards. The economic and strategic importance of the $219 million project is represented in adding new production capacities of high-octane benzene, up to 700,000 tons, to boost production to 1.5 million tons per year directed to the local market, in addition to the production of butane and hydrogen.

I would also like to mention that we moved forward with the implementation of the Egyptian refining project at Mostorod, which is considered the biggest development for the Egyptian refining project; in addition to the implementation of the biggest project for petroleum refining at Upper Egypt to establish a production complex of benzene and diesel through transforming mazut to high-valued petroleum products. This is one of the projects developing the Assiut Refinery with $1.9 billion investments.

Last year additionally witnessed the signing of contracts to implement and finance the expansion projects of the Middle East Oil Refinery (MIDOR) in Alexandria, with investments reaching $2.3 billion to increase the refining capacity by around 60%. MIDOR is one of the largest refineries in Egypt and the Middle East, reaching 7.5 million tons annually.

You have previously mentioned the connection of households to the national natural gas grid. What about electricity stations?

In 2018, many projects were successfully implemented to provide the giant electricity stations established in the New Administrative Capital, Beni Suef and Burullus with their natural gas needs through a number of gas transporting lines with 322 kilometers length and an investment cost of around EGP 2.2 billion and $93.5 million –  the gas providing project for the electricity station in the New Administrative Capital has a cost of EGP 399 million and $21.2 million; the project for the electricity station in Beni Suef has a cost of EGP 991.6 million and $47.2 million; and the electricity station in Burullus feeding project has a cost of EGP 839 million and $25 million. With this, the number of electricity stations operating with natural gas reached 58 stations across the country.

What improvements has Egypt witnessed at its fuel stations?

Under the framework of improving the services introduced to the citizens and launching petroleum products with global quality standards, in February we introduced the new version branded 95-octane benzene to the stations of Mobil and Total, aiming to help improve engine performance and save fuel consumption, which will secure surplus for consumers. The new product is suitable for a big tranche of benzene consumers.

At the beginning of December 2018, the new 95-octane benzene was also launched at the stations of Misr Petroleum Company and Co-operation Petroleum Company (COOP) under their own brands, which contributed to increasing its distribution centers over the country to cope with the continuous increase in the product’s sales.

The year saw a leap in the 95-benzene sales and consumption, in the light of launching the new 95-octane benzene in the local market, boosting sales from 2 million liters to 33 million liters that have been distributed through 316 car stations instead of 179 stations at the end of 2017.

Additionally, 18,784 cars were converted to operate with natural gas from January to November 2018, reaching, since starting the activity, around 255,600 cars at the end of November 2018.

On top of that, we have increased the number of services and car maintenance stations operating in the Egyptian market by 100 new stations, which has greatly increased the outlets and stations to 3,651. It is worth noting that the distribution centers of butane cylinders over the country have also been increased by 75 new distribution centers, boosting the total number centers to 3,028.

How has the ministry’s Modernization Project supported last year’s achievements?

There were actual steps in 2018 implemented in the seven pillars included in the oil and gas Modernization Project, which includes the different activities of oil and gas industrial fields aiming to increase the performance efficiency, improve the economics of existing petroleum projects and activities, and develop the human resources.

I would like to add that, alongside the ministry’s Modernization Project, the national economic reform also played a major role in the development of the oil and gas sector in 2018. We took new steps in the government’s program, started in 2014, to rationalize and reform energy subsidies over five years, in which the cabinet has decided to increase the prices of different petroleum products and natural gas. The money spent on subsidies can now be used to promote social welfare programs and develop services of education, health and public transportation.

The achievements of oil the gas sector are very impressive. Has the mining sector witnessed similar achievements?

In 2018, a group of real reforms were implemented to develop the mining sector. During the year, the legislative proceeded to amend the mineral wealth law, issued in 2014, with the participation of specialists, investors and the concerned authorities in the country aiming to create the suitable climate in the mining sector to inject more investments. This has been done according to international models and helps the country achieve sustainable growth through establishing economic projects that reach the added-value of the mineral wealth.

We are expected to discuss the amendments in the parliament, and the executive regulation will be issued within six months from its issuing date in cooperation with many concerned authorities from ministries and industrial rooms working on the mining sector.

We have also established a roadmap to develop the mining sector in cooperation with a global specialist consultant. The roadmap considers the balance between achieving economic returns for the country from its mineral resources and opening wider horizons to attract new investments and encourage the investors. The sector is planned to be one of the most important sources of national income and public revenues for the country. While putting the roadmap, successful models applied in many countries were studied, especially those in Latin America and Africa. Additionally, experts have been working on benefiting from these models in a way that is suitable for the Egyptian experience in that field.

Las year also saw many steps taken to implement the project of the phosphoric acid production complex at Abu Tartor in the New Valley area with a capacity of one million tons per year and with a cost of $750 million that contributes to increasing the phosphate value-added.

Moreover, we proudly established the first Egyptian company specialized in marketing the Egyptian phosphate, under the name of the Egyptian Company for Marketing Phosphate and Fertilizers. This represents a new step in the Ministry of Petroleum and Mineral Resources’ strategy to reach the best economic use of raw-phosphate, increase its added-value and boost its returns to the country.


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