Growing gas reserves at home and Kyoto Protocol drive up investments in Egypt’s petrochemicals industry
Egypt’s Ministry of Petroleum is according a top priority to investment in petrochemicals viewing the industry as promising and capable of attracting an estimated US$10 billion investment under the national plan. The scheme, being carried out jointly by the Ministry and the Egyptian Petrochemicals Holding Company (ECHEM), includes a host of projects due to be completed by 2022. The new projects are expected to generate US$7 billion in revenues. Annual petrochemicals output is estimated at 15 million tons per annum. The Ministry seeks through these projects to create nearly 100,000 jobs.
An economic landscape being shaped for the national petrochemicals includes the launch of 10 complexes operated by gas derivatives and capacity upgrades and expansions in the national gas grid from 14,000 to 30,000 kilometers in order to supply gas to around six million households and hundreds of factories.
Egypt has used the liquefied natural gas (LNG) technology for the first time through two projects in the Delta cities of Damietta and Edku. The plan also includes expanding the Arab Gas Pipeline project, which supplies gas to Jordan for a period of 30 years, renewable for an additional 10 years.
Egypt’s petrochemical industry is growing at a ten fold pace, having increased from $328million in 2004 to a projected $3 billion in 2007. Currently, four projects are in progress and are expected to produce 2.6 billion tons of petrochemicals in 2008-2009.
Another two projects to produce polypropylene and polystyrene are under negotiations and are expected to cost $800 million. This is part of the Government’s 20-year ambitious master plan to produce petrochemicals for export, in addition to covering the demands of the local market.
The plan, scheduled to be executed in three phases, is estimated at a cost of $10 billion. The estimated cost for the first phase is $3.8 billion and will be completed in 2008.
“Interest in the petrochemicals industry was prompted by a drop in oil production and an increase in gas reserves, which contain raw materials used in the petrochemicals industry such as propane,” says Sanaa el-Banaa, EChem Chairman. “These materials are being produced at the Gas Complex in the Western Desert and the Gas Derivatives Company in Port Said,” she adds. Tracing the history of petrochemicals in Egypt, the expert clarifies that the heavy industry prospered in Egypt after it declined in the West as it runs counter to its countries’ obligations under the Kyoto Protocol. “Reliance on petrochemicals, which depend on costly naphtha has declined in favor of petrochemicals operated by cheap gas derivatives, which are in abundance in the Arab world,” she notes.
Meanwhile, Hamidi Abul Nagaa, an oil advisor at the Arab Experts’ Union, argues that the stringent environmental obigations observed by the advanced nations, particularly the US and the European Union following the Kyoto Protocol, have prompted industrialized nations to move their pollution-causing plants, including petrochemicals facilities to countries, which do not observe such strict stipulations like Egypt and Middle Eastern countries.
“In fact, most of these factories are geared towards serving overseas markets, not meeting the local needs. In view of long-term contracts concluded by these factories with foreign agencies at high prices, it is hard for the local market to depend on these factories to have its needs satisfied,” he says.
Attracting more investments
The Egyptian government has started an ambitious plan to implement the first part of projects charted under the national plan for petrochemicals. The first stage of this scheme includes eight plants for petrochemicals with US$4.6 billion investments. These projects will represent the mainstay of a vigorous petrochemical industry in Egypt as part of a larger plan aimed at setting up 14 giant petrochemical complexes composed of 24 plants.
“Egypt can attract up to US$20 billion in local and foreign investments to its petrochemical industry in the next two decades. Egypt has one of the world’s best 20 petrochemical refineries. The first part of the Egyptian petrochemical strategy started in 2002 and is scheduled to run until 2008 with an estimated investment of US$3.5 billion, including US$1 billion in direct foreign investment. This stage includes facilities for production of methanol, urea, polypropylene and acrylic fibers,” highlights says Mustafa El-Salab, the Undersecretary of the Parliament’s Economic Committee.
Underlining the importance of the petrochemical industry, El-Salab says that this industry could generate nearly 100,000 jobs and that the increase in gas reserves brightens up the prospects for this sector. “Egypt has a strong basis for the petrochemical industry due to a number of projects, which started in 1981, as well as its highly qualified manpower” he adds.
U.S. technology is in great demand. The majority of the existing petrochemical plants are producing under license from U.S. companies. Polypropylene is produced under license from Union Carbide, Polyvinyl Chloride from Oxy-Vinyl, while the 80,000 tons produced by the new Alkyl Benzene plant (which will be operational in 2007) is under license from Universal Operations Project (UOP Oleflex).
The petrochemical industry is in need of feasibility studies, technology transfer, project and equity participation, investment opportunities, and long-term product off-takers.
It is worth mentioning that EChem is now the entity responsible for managing and supervising the establishment of any petrochemical project in Egypt.
This company is under the umbrella of the Ministry of Petroleum.
By Ashraf Fekry