Calling for modifications, asking for more production, warning of energy exploitation, boosting Egypt’s reserves…etc are all factors either supporting or threatening the development scheme in Egypt. Egypt Oil & Gas invited the petroleum industry’s well-known figures and experts to its first round-table discussion to share views, analyze the development potentials and draw a plan for the future.
Who said oil & gas are depleting?
The round-table discussion was headed by the former minister of petroleum and Head of the Commission of Electricity and Energy of the Specialized National Councils, Dr. Hamdy El-Banby who stressed at the beginning on the importance of connecting various concepts together, such as petroleum reserves, advanced technologies, human skills…etc, to the main topic of field development as they are all inter-related and lead to our aim.
“The inaccuracy of stating our reserves, whether oil and gas, leads to a state of confusion among citizens that affect the petroleum industry credibility,” said El-Banby. “There is a difference between proven reserves and the yet-to-find ones. Therefore, we should not mix them.”
The exact volume of Egypt’s reserves should be announced once a year, whether at the beginning of each year or at the beginning of the fiscal year of the Ministry of Petroleum that starts in July. There are some factors, such as the availability of advanced technologies and the rate of discoveries put on production line that have direct affect on the volume of reserves. He further added that the field development, which is the theme of this round-table discussion, plays a crucial role in bolstering the country’s reserves. “The foreign direct investment, specifically in the petroleum sector, observe closely any country’s reserves before choosing where to invest their money. And, gladly, Egypt is a focal center for various investments in the region and we should maintain this distinctive endowment,” the former minister highlighted.
El-Banby criticized the voices claiming that the hydrocarbon reserves (oil, gas and coal) are depleting worldwide. “Who said that the hydrocarbon reserves are on the depletion route? Analyzing the data of the volumes of reserves, we will find that in January 1990, the crude oil reserves counted for 1006 billion barrels, jumped in 10-year period to 1086 billion barrels in January 2000. Over the following decade, this number even increased to 1333 billion barrels.”
Similarly, the gas reserves have been increasing as well worldwide. “In January 1990, the gas reserves averaged 4322 trillion cubic feet (tcf), went up to 5346 tcf in January 2000 and reached a total of 6621 tcf in 2010.”
Consumption vs. Reserves
El-Banby clarified that despite the increasing vigorous consumption rate, it has been met with a steady development and production rate. “There is a balance in the reserves equilibrium worldwide. In other words, countries that are going low in reserves are compensated by other countries, which are intensifying their discoveries and hence increasing their production levels.”
According to the recent report “International Energy Outlook 2010”, published by the U.S Energy Information Administration (EIA), the total production of equivalent oil is expected to stand at 5.6 billion tons in 2035, which would consist of 30.7% of total energy production during that year. Also, the natural gas production is estimated to reach 4.1 billion tons in 2035. “This means that both equivalent oil and gas production will represent 53% of total energy used worldwide in the year of 2035,” explained El-Banby.
Compared to the current production figures, a total of 4.5 billion barrels of equivalent oil and 3.5 billion tons of gas were produced in 2010. “Based on the EIA report, over the coming 25 years, production will be increasing at a rate of 0.6%.”
El-Banby believes that societies all across the world should keep an optimistic view about the oil and gas industry, highlighting the previous references as a proof.
Maintaining this same viewpoint to some extent, Dr. Shawky Abdin, General Manager of PICO Oil, stressed on the fact that the oil and gas production nowadays has become much more difficult compared to the past. “We should realize that the production process is no longer simple or uncomplicated as before. Currently, most companies have been conquering new area that were not discovered beforehand in order to initiate their E&P programs, which require high investments.”
Challenges facing development
Dr. Abdin added that field development has become a necessity, yet it is considered very costly. However, the present updates technologies sustain these development operations, which should be conduced, disregard the ups and downs of oil prices.
“In 2009, the beginning of a recovery from the global economic crunch was felt. The total upstream investments exceeded the 20% and counted for nearly 350 billion worldwide,” said Dr. Abdin.
Eng. Ismail Karara, former first secretary of the Ministry of Petroleum for gas, supported Dr. Abdin’s comment about investments and clarified, “the international prices are kind of recovering and have been increasing. This will make it then more attractive and feasible for companies to reset drilling programs”.
“Producing gas from deserts used to be very cheap compared to today’s production from deep waters, which requires enormous spending and the utilization of sophisticated technologies to produce gas and develop the fields.”
“Gas price should be equivalent to the costs of gas exploration and production from deep waters. I believe that there should be no worries from the upcoming period, on the contrary, we expect more gas discoveries to be announced soon.”
Karara supported Dr. El-Banbi’s optimistic view and confirmed, “The growing number of companies applying for the various bid rounds released by the EGPC or the Holding Companies is a clear evidence that we are on the development route”.
Representing one of the major services companies, Eng. Yasser El-Khazindar, VP and General Manager, East Mediterranean at Schlumberger, asserted that there was a clear increase of the number of operating rigs in 2010, compared to 2009, which translates the upsurge of development rates that aim at amplifying production rates and hence augmenting the volume of reserves by its turn.
From an operator point of view, Dr. Hany El-Sharkawi, President of Dana Gas Egypt stated that cash flow was one of the main factors hindering the “development wheel” in Egypt. However, this financial plan has been eased lately.
El-Sharkawi added that the energy demand is increasing from countries where economic development rates have been boosting considerably, such as China, India and East Asia.
Agreeing with Dr. El-Sharkawi, Eng. El-Khazindar highlighted that the OCED countries recorded the largest energy demand. “Surprisingly, the year of 2010 witnessed the highest energy demand ever in the last 30 years.”
Being in the kitchen of development expertise, Eng. Abed Ezz Al-Regal, the newly appointed Chairman of the Tanmeya Co. for Field Development, emphasized that field development operations are considered as one of the effective solutions to meet the soaring energy demand.
“The mounting slope of price can be considered a good element for the petroleum industry, yet there should be a balance to keep a stable economy,” added El-Khazindar to Ezz Al-Regal’s comment.
On the other side, Geologist Sami Shahin, Consultant of Industry and energy Committee of the People’s Assembly and former vice president of the EGPC for exploration and agreements had a different opinion. “All previous views are much appreciated, however, I do not think this optimistic view can be generalized on both oil and gas productions.”
Shahin pointed out that oil and gas prices were interrelated in the past; when oil prices increased/decreased, gas prices increased/decreased correspondingly. “But, at the present time, we cannot apply the same measures on both oil and gas prices. Observing crude oil prices, as going up does not necessarily lead to an equal gas price lift, although gas fields’ development is produced nowadays from the costly deep waters.”
“There is a vital need for special incentives to lure more investments into the country to hold development operations, especially amid the acute competition of the neighboring countries.”
Answering Shahin’s concern, Ezz Al-Regal affirmed that there is a large number of discoveries that needs to “strong-minded” decisions to start their development. Also, Dr. El-Banby replied back, “Egypt, like most of other nations, turns the weak point to an opportunity for its strength.”
Asked about means to raise rate of discoveries up, Shahin clarified, “we should first increase our reserves through development activities, which can be attained via strong legislation, modifications of contracts and terms and classification of foreign investors as main partners.
Dr. El-Sharkawi added secured and stable environment as the main factor behind the large investments of Dana Gas in the country, which supports the company’s future expansion plans. “Yet, the economics of any gas project can be a barrier to further development… some of our discoveries have been suspended due to the instability of oil and gas prices.”
The President of the sixth highest natural gas producer in Egypt affirms that once the fund problem eases, the fields’ productivity improves as well.
Answering El-Sharkawi’s point, Karara referred to the recent modifications of already signed contracts to amend the gas prices agreed upon to cope with the continuous changes of the market.
In addition, Shahin added that flexibility in negotiating the contracts’ terms is mandatory to attract investments. “Contracts should support the idea of equal outcomes for the interests of both sides.”
The People’s Assembly figure warned of the virtually complete dependence on oil and gas as prime means to generate electricity. “For long, 80-85% of electricity is generated by the oil and gas in Egypt, which is against the international trend that limit this percentage to an average of 40-60%. The remaining share of electricity is generated by alternative energies.”
Interrupting Shahin’s suggestion for an immediate alternative energy plan, Dr. El-Banby clarified that the social aspect is a very influential key when it comes to decision-making. “The Egyptian government, like many others, studies well and takes into consideration the social reaction towards whatever decisions it makes, specially the ones related to energy, such as electricity. For instance, the stations of electricity generation are state owned; therefore, the government is responsible to provide it to citizens at affordable prices, especially for the needy and low class citizens who top the list of priorities. But, since Egypt does not have coal required for electricity generation, the government has to depend on gas that is high-valued compared to Mazot.”
“I agree with Shahin; there should be alternative sources for electricity to depend on.”
The petroleum geologist enlightened that among the richest alternatives, the country has, is the oil clay. “Latest studies showed that Egypt holds up to six billion barrels of oil clay.”
“Energy resources are not limited to oil and natural gas solely. There is a national energy multiplicity plan to create new basis for friendly-environment energies, but we still need to expand the development activities to meet the increasing demands,” highlighted Ezz Al-Regal.
Karara had another say concerning the development challenges. “Bureaucracy and investment laws are the key enemies to the development path.” The petroleum sector has always been concerned about the adequate investments incentives that boost the development operations and at the same time ensure the fruitful outcomes for both parties (investor and sector).
“We used to have special duty-free and taxes regulations for investors, but if we do not stick to them, the sector would lose its credibility,” warned Karara. “Honestly speaking, the petroleum sector made various strategic incentives to encourage more investors to join this dynamic sector, but the problem lies in some bureaucratic legislative bodies that hold back all the positive efforts.”
In addition to all the mentioned challenges, the former minister added the inefficient energy consumption to the list of development challenges. Unfortunately, efforts exerted to raise production and reserves levels are confronted by overpopulation and misuse of energy. “
El-Banbi added, “The bill of subsidies is another heavy burden on the sector’s expenses as it absorbs large share of the ministry’s budget and unfortunately, it does fulfill its target to reach the real deprived and poor classes”.
This chief hindrance consumed nearly 73 billion Egyptian Pounds last year and is estimated to rise up to 80 billion this year, he declared. “There should be a mechanism to ensure the delivery of subsidized petroleum products to the targeted recipients.”
Asked about the role of Gas City project initiated by Dana Gas last year, Dr. El-Sharkawi stated that the aim of this project is to amplify the value of gas instead of being burnt for generating electricity. “This venture serves our calls for development, yet more efforts should be exerted to bring this to fruition.”
Altering challenges in favor of development
“Sometimes, we neglect the culture of teams’ hard work and replace it with the perception of difficult-free work duties,” Karara criticized those who please the citizens by providing more energy without developing another means that would protect our energy resources.
The former first secretary of the Ministry of Petroleum for gas highlighted the new housing compounds as the present ideal place to introduce solar energy, for instance, as an energy source suitable for these new areas. “The government can even encourage this drive by inviting specialized companies and granting tax-free privileges.”
From a service company perception, “there should be a bunch of regulations to enforce the long-term development plans,” said Eng. El-Khazindar. “Besides, engagement of technologies in the development operations is of an effective result for the sector’s wealth. In bid rounds and tenders, selection should be based on high quality rather than on cheap prices.”
He further highlighted that low prices do not necessarily mean inferior quality or vice versa, however, some types of fields require advanced technologies that can be more costly than the techniques used in other fields. “The technologies deployed in this first genre require a business model modification, which is necessary for extracting the exact value of reserves.”
“Looking to the existing technologies utilized in Egypt, we will find out that they are diminishing! Over the past five years, the domestic market has been decreasing the volume of technologies used, while it should have been increasing for a healthier sector.”
Abdin supports the given incentives and flexibility of the Ministry that promote the development strategies.
“Although our gas reserves count for approximately 78 trillion cubic feet, and expecting more from the Nile Delta, we should study how to direct our gas utilization, for instance, gas should not be directed towards the heavy industries as this is a waste of our energy,” underlined Shahin.
“Recent studies revealed the existence of oil clay with large amounts in the area from Kosair and Safaga to Abu Tartour that are nearly 15 billion tons, out of which six billion can be produced at the present time in the context of available technologies,” explained Shahin. The price of energy extracted from this clay averages $35-$55, which is cheaper compared to oil and gas prices.
Based on a technical analysis, Ezz Al-Regal clarified that the development process differs from one place to another, i.e. deep-water development in the Mediterranean Sea is completely different than in the deserts.
Karara, being one of the officials who supervised the modification of many agreements, declared that contracts should match the international prices and include terms that cope with the market changes. “Each agreement comprises a main term that allows the price modification at any time based on the market. For instance, when oil prices exceeded the $150 edge, prices agreed upon in signed contracts were revised.”
The petroleum expert stated that tenders and bid rounds should be adjusted as well to strengthen the whole development body.
Sheding light on the release and procurement of tenders, Eng. El-Khazindar said that most service companies provide the adequate service needed in each tender, yet this does not necessarily reflect the good quality.
“Though prices can be a factor in any tender, evaluation of offers aims at achieving the best outcomes for the whole society,” replied Karara.
The flexibility of agreements led the conversation to another factor, which answers the question of how to expand in the non-developed area? Dr. El-Sharkawi gave a clear example of how an investor can conquer new areas, such as Upper Egypt where the company had unprecedented record. “The area of Upper Egypt is one of the most difficult ones, which requires large funds. However, the incentives we received from the Ministry were the motive behind our challenge there.”
Dana Gas had production records in Kom Ombo concession that holds now a daily production rate of 1100 barrels a day.
“Among the incentives offered to Dana Gas were the early production facilities that did not exist before by law,” added Shahin.
Analyzing the development of Upper Egypt, Karara stated that the establishment of Ganope has been “a strategic push” to boost this area. “There is a complete database for the spots where E&P activities can take place in Upper Egypt.”
Confusion veils Tanmeya’s real mission
The newly appointed Chairman of Tanmeya summarized the vision and mission of the company in detailed points: employing and developing the sector’s human resources, conducting focused studies and holding workshops to study the un-developed fields and set plans to develop new areas, being the link between companies seeking reliable studies or searching for trained calibers to join their work force, providing solutions to better utilize the available production facilities in each area…etc.
“There is confusion about the basic mission of Tanmeya. We are not a medium between operators and service companies. We are not even competing with service companies.”
“When we conduct a study about the Western Desert, for example to evaluate the operations of existing companies, assess the available facilities in the area, determine the status of fields whether producing or need to be developed, this study will be beneficial for all in general as it opens the door for more activities and suggests new means to better utilize the area’s facilities.”
Ezz Al-Regal further added that at the beginning of the company’s establishment, there was a preparation phase to appoint the right calibers for each segment needed in the petroleum industry, as a part of the company’s mission.
“Tanmeya has never been a medium for any company. At the beginning, the idea behind Tanmeya was to magnify the value of skilled personnel and experts who were working in secondary positions. So, we gathered all this expertise to occupy decision-making positions through which they can better develop the sector.”
Moreover, Ezz Al-Regal clarified that the company provides the information, studies and database needed for any new investor seeking to join the Egyptian petroleum sector.
“The major role of this company is to alleviate the obstacles challenging the development operations, such as assisting companies to share the present facilities instead of building new ones, which would ease the financial burden especially at the time of the global economic crisis,” declared Karara. “Tanmeya would play the role of a medium in this case, which is an exception.”
El-Banby contributed to the discussion by referring to San Misr and Petromint as holders of similar visions as Tanmeya. “All companies have a complete maintenance department that does not hold maintenance works on daily basis and the capabilities of their teams are not fully employed… that is how the idea of both companies came up; to gather all the skilled teams of the maintenance administration in one or two entities to be responsible for all maintenance operations in all other companies.”
“Why do not we acquire a maximum profit from the unexploited skills by assembling them all in one strong entity?” questioned Ezz Al-Regal.
Answering this inquiry, El-Khazindar believes that Tanmeya would invite back all the Egyptian calibers that left to the Gulf due to the catchy wages and working packages and it would stop the “brain drain”.
On the other side, Abdin had another opinion and suggestion to Tanmeya’s Chairman. “The company’s mission should not be limited to the previously mentioned tasks. Why does not it expand into exploration sector?” suggested the President of PICO Oil.
Interrogated about the possibility of appointing Tanmeya in Dana Gas upcoming operations, Dr. El-Sharkawi made it clear, “if Tanmeya keeps the high standards that Dana Gas is always sticking to and provide reasonable prices, there will be definitely a cooperation between the two companies”. Compared to any other parallel company, I believe that Tanmeya has the privilege of being a holding company that ensures more flexibility in holding operations, added El-Sharkawi.
From his side, El-Khazindar expects the cooperation between Tanmeya and Schlumberger can be in the form of exchanging expertise. “We are not competitors, on the contrary, this cooperation will be an integration of the know-how between both sides. Exchanging expertise would be fruitful for both sides, taking into consideration that most of the logging knowledge is part of Schlumberger’s proficiency.”
Drawing all attention to Tanmeya, Ezz Al-Regal said that the company abides by the international quality standards that would never be forgone for any reason.
“The word Tanmeya was mistakenly translated to services at the first glance, which is not the fact. It will not take over the role of Baker or Schlumberger or Halliburton. It is a company that would fill in the gap human resources and field development,” stressed Karara. “This is Tanmeya’s key role in the petroleum sector.”
“Nevertheless, this company can help reducing the cost recovery; having an in-depth database would direct companies to utilize the present production facilities instead of spending large sums of money to construct new ones. This would reduce financial cost and speed up the field development operations.”
Lack of information transparency
Egypt Oil & Gas, as an information provider, has always been keen on strengthening the effective role of media in such a dynamic sector as the petroleum industry. Hence, this first round-table discussion was a chance to address a vital point, which is the lack of information transparency.
“First of all, we have to agree that some media employees, lack the petroleum knowledge, cause a chaotic status among readers through their inaccurate reports and writings,” said El-Banby. “Therefore, to avoid the leak of inexact news and rumors about the petroleum sector, I suggest having a specialized press office to release news and information, assist all media types by providing needed data and be a credible communication channel between the Ministry of Petroleum and media.”
Besides, the former minister suggested having an exact schedule to announce the country’s counts of reserves, bid rounds and tenders that should be publically broadcasted at a specific date each year. “Making specific dates for these strategic announcements would draw the attention of companies and organizations interested in Egyptian tenders to set their business calendar based on the Ministry’s agenda.”
“I am calling the press office of the Ministry to face the bias media by providing detailed information on whatever press release it publishes and also intensifying its communications with the media to avoid any misleading piece of news that would threaten the sector’s credibility,” warned El-Banby. “I deduce that the Ministry is taking a side from the media for a reason or another.”
Karara had a different say. “When it comes to announcements about latest discoveries, there is a specialized committee responsible for finalizing the exact volume of findings and expectations of each discovery and then it gives the green light to publicly announce any discovery news. “Unfortunately, some media networks are misleading, seek propaganda on the expenses of the sector’s credibility.”
Asked about how cooperative is the Ministry of Petroleum in terms of media, Shahin said that some media channels give space to people who claim being petroleum experts, while in fact they have never worked in the field and are not knowledgeable or related to the petroleum industry from any side. “This group of fake experts ruins the image of the petroleum industry in the media through their petroleum ignorance.”
“We can attribute this weak connection between media and the petroleum sector to the officials’ daily busy agenda. However, there should be a re-organization of the Ministry’s official media source to issue information and data, specially that nowadays the opposition presses have been dominating the attention of most citizens and can easily mislead them by false news,” cautioned Karara.
Proving that the public opinion can be easily misinformed, El-Banby recalled the example of Agrium project that was condemned by the opposition press as threat being a major source of environmental pollution. “This project was a friendly-environmental project of the first degree, which would not have generated any kind of pollution to the environment!”
“Being dominated by a one voice media has forged the truth and the project was not implemented.”
Looking to the other side of the story, Schlumberger VP and General Manager East Mediterranean made it clear that the lack of information does not only affect the image of the petroleum industry on the national as well as the international level, but it also weakens the sector’s trustworthiness as investors do not have access to required information. “I seize this opportunity to ask for a clear specialized media source that would help boost the development activities.”
Visions and Recommendations
At the end of the round-table discussion, some recommendations concluded the outcomes of this gathering and reflected the desire for more development in the dynamic petroleum sector.
“I would recommend adding a new position of an energy supervisor in the administration hierarchy of all organizations and companies, who will be responsible for controlling and observing the energy consumption,” said El-Banby.
This position can be added to the crew of the Quality, Health, Safety and Environment (QHSE) department, which would save large amounts of energy waste. “If this entry existed earlier, the Shura Council would not have been burnt last summer! We should all adopt a new concept; Energy for Life.”
In a technical framework, Geologist Shahin shed light on the rate of energy consumption in Egypt. “According to data, Egypt is classified as one of the heaviest energy consumers; 147% higher than Turkey, 182% more than Tunisia, 300% beyond Mexico’s consumption and 364% higher compared to Greece.”
These figures reflect how far the Egyptians waste their energy due to their overconsumption, and the bill will be really expensive in the near future!”
Besides, there is the subsidies bill that keeps on increasing, which is a heavy burden on the Ministry of Petroleum. Moreover, the Ministry would suffer from funds shortage due to the pending unpaid bills of energy used by other sectors. The petroleum industry also bears 42% of the tax-free that is mainly granted to foreign investors with the purpose of luring more FDI into the country.
“I believe if the Egyptian petroleum sector does carry this long bill, there would be better development opportunities in the country with massive investments,” estimated Shahin.
Turning Egypt to an energy hub is another prime vision that we should make it true, declared El-Banby. “This can be achieved by initiating a similar project like the SUMED pipeline but for gas. The shares of SUMED pipeline, through which passes petroleum products from the Gulf to Europe via the Mediterranean Sea, is 50% held by Egypt, 45% held by Kuwait, Saudi Arabia and UAE (15% each) and the remaining 5% are owned by Qatar. This project adds up to $140 million a year to Egypt’s treasury as fees for crossing our lands in addition to the job vacancies it brings to the Egyptian youth. As a matter of fact, Egypt secured its right to get whatever quantities of the 30 types of crudes transported through this line, at the international price, excluding the transportation fees. Definitely, this is a good bargain for Egypt since it receives the needed quantities to utilize in its refineries at a lower price. It is worth mentioning that this line is a backup for Egypt’s crude oil energy security as more than 120 million tons are transported from Ain Sokhna to Sidi Kerir annually.”
Karara and El-Banby supported the idea of constructing a similar line for gas. “We can receive the natural gas from the Asian countries, such as Iraq, UAE and Qatar that will be sent to the gas liquefication stations in Damietta and Rashid and then exported to Europe through the Mediterranean Sea.”
Moderated by Yomna Bassiouni and Tamer Abdel Aziz