On the 24th of November INTERGAS VII Oil, Gas & Petrochemical Conference, one of the more prominent events in the petroleum industry, brought together leading executives under one roof, with the purpose of exchanging ideas, networking and more importantly, discussing the future of the Egyptian industry at this crucial time. Egypt is currently in the process of expanding its energy mix, dealing with shortages in foreign currency and energy, not to mention the governments work on economic reform through the implementation of changes in the industry.
The event was opened by Ahmed Shiha, Chairman of EIF, who delivered the speech of Mohamed Al Masry, Chairman of the Egyptian General Petroleum Company (EGPC). The speech began by noting that the Egyptian energy sector, during the last period, has seen many actions that contributed to the country’s economic reform, such as the restructuring of subsidies, approving the draft law for the launch of the gas regulatory affairs, which will allow private factories to import their own needs of gas; in addition to reducing dues of foreign partners by half, encouraging the acceleration of field developments and production process, signing of new exploration agreements, and securing sufficient sources of energy through imports.
The opening speech also highlighted Egypt’s largest gas discovery to date, Eni’s Zohr field. “Zohr discovery is the result of the continuous hard work and successful partnerships –here we talk about ENI- demonstrating confidence in the Egyptian economy, and the political and the economic stability,” said Al Masry.
The government has made it clear over the past few months that it fully intends to turn Egypt into an energy hub, both gas and electricity. The location of Egypt aiding the achievement of this goal was pointed out in Al Masry’s speech.
“I would like to emphasize that the government is aware of the challenges ahead but it is also very determinant that we meet the expectations of the Egyptian people and build up a sustainable future which is very important for the Egyptian people,” he concluded.
The second speech was presented by Aiden Murphy, VP Country Chairman & Managing Director, Shell Egypt. He began by explaining Shell’s long term vision for its ventures in Egypt. Murphy then noted the dilemma imposed due to the increasing energy demand, and the corresponding environmental challenges that the country is facing when meeting this demand.
“Diversification of the energy mix has to be mobilized to meet demand and this is where gas has a critical role to play,” said Murphy, pointing the good standing of Egypt’s reserves.
“LNG has a critical role to play as it provides supply security for Egypt and bridges the gap between grown demand and available supply. […] As a global leader in LNG, Shell will continue to work with EGAS to support Egypt’s energy security,” confirmed Murphy.
Murphy went on to note that Egypt can monetize its reserves by unlocking more difficult protocols, and liberating exiting infrastructure. “To be more precise, our gas fields within the existing Western Desert production sharing contracts cannot be commercially developed under the current licenses term,” he said adding “it is important for the government to work with downstream investors such as Shells to develop such challenging resources. In some instances, requiring new development terms to reflect the higher cost of production.”
He ended his speech by pointing that the role of natural gas cannot be taken for granted, saying that policy makers have a unique opportunity to ensure the policies and regulations that recognize the many benefits of natural gas.
The Head of the Economic & Commercial department at the Italian Embassy, Pietro Tombaccini, took the stage next. He began his speech by noting the benefit of events like Integas VII in helping to address Egypt’s energy needs. “The energy mix is actually a key factor for economic growth, together with universal access to energy, developing cleaner and more efficient systems, and restructuring the mix of energy sources,” said Tombaccini.
He discussed the need for a coherent energy policy framework to deal with Egypt’s increasing population.
“If I can add a personal note: I have been here for only 3 months now and I am still quite shocked when I see polar temperatures 24 hours a day in shops, cafes and restaurants. There should be a limit to such a waste of energy,” pointed Tomaccini.
He then moved to a broader focus, discussing Egypt in terms of the North Africa, and the Mediterranean region, explaining why hydrocarbons will remain key to the countries of the region, particularly for a country like Egypt.
“I wish to confirm the Italian full backing of Egypt in energy sector, in terms of technical assistance, technology, know-how transfer, construction, and financing of strategic infrastructure,” Tomaccini concluded his speech.
Meanwhile, Eng. Mohamed AL Masry, gave a brief press conference after finishing a tour of the exhibition, greeting exhibitors.
Eng. Khaled Abou Bakr, Chairman of the Egyptian Gas Association (EGA), and Head of TAQA Arabia, began the second series of sessions. The speech began with an explanation of the role of both the EGA, and its parent association, the International Gas Union, which he acts as its Middle East and North Africa Regional Coordinator.
“The global gas market is encountering numerous challenges in an overall growth context. Whether the current weakness is cyclical or structural remains to be seen,” said Abou Bakr.
He noted that the lower oil prices are providing quite a challenging environment for project development; pointing out the need for business owners to develop new business models.
He discussed the East Mediterranean region, noting the sufficient reserves for the growing needs of the area.
“The reserves provide an opportunity to improve geopolitical tensions, improve the quality of life, present a good source of government revenues and can be used as a tool for regional peace,” said Abou Bakr adding, “excess reserves can be exported, however for efficiency, they will likely need to be brought to a single hub: Egypt being the most logical location.”
Discussing the dilemma presented by conventional energy methods, Abou Bakr said “fossil fuels are attractive not only because they are available and relatively inexpensive but also because we have learned to use them so effectively. Concern about the climate however may ultimately limit the use of them.”
Abou Bakr concluded his speech by explaining the current energy mix, which stands at 50% gas, 45% oil, 3% renewable, and 1% coal. He supported diversification of energy resources to ensure energy security. Abou Bakr said that the ideal scenario for 2025 from his perspective stands at 45% gas, 15% oil, 20% renewable, 10% coal, and 10% nuclear.
The following speech was presented by Christoph Schilchter, Senior Vice President of Production for North Africa, DEA. He began his speech with an overview of DEA activities in Egypt.
Schilchter focused the remainder of his speech on possible ideas to encourage further investment for Egypt. One of the suggestions was to develop concession models which allow faster cost recovery of investments, enabling and extending field life in the last production phase; other suggestion was to continue liberalization of gas market and gas pricing, improve possibilities to hire the best local talents and to support them with highly skilled and experienced international staff, improve project governance bad commercial terms allowing faster project execution and development of marginal fields, and finally to secure more reliable cash flow and contractual payments to international production sharing partners to be received without delay.
Following Schilchter, was the Managing Director of Qarun Petroleum Company, David Chi. His speech revolved around what investors look for and the suggested recommendations. Chi, explained that investors are in search of fair sustainable and competitive return on investment; safe, stable, political, economical and social environment; easy and streamlined operating environment; and an ability to get paid and repatriate the profits.
A key recommendation was continued reduction of subsidies, further payment of dues, additional bid rounds, increase in gas prices, additional reform, among others.
“Great opportunities exist for Egypt, the government and investors can, and must work together as partners to create a win-win relationship to realized the nation’s full potential,” he concluded.
The last speech of the day was by Gabriel de Lastours, Senior Banker at European Bank for Reconstruction and Development (EBRD). “Egypt must consider increasing the domestic gas price, this is something that we see as extremely positive, and will promote domestic production, reducing at the same time the need for more expensive energies,” de Lastours said.
He pointed out that gas flaring is a huge waste for Egypt, equivalent to 4% of the country’s electricity production. “In order to recover all the gas currently flared and expected to be flared over the next 5 years, $4b investment would be needed. So this is one of the reasons why we think gas price should be higher,” he concluded.
The second day began with a session on “Capitalizing on Opportunities in Egypt’s Downstream Sector: Modernization, Expansion and Enhancing the Value Chain.” Pakinam Kafafy, CEO of TAQA Arabia, opened the session with an overview of economic indicators for Egypt. She explained that the expected population growth rate for 2015/2016 is 2.6%, while GDP growth is expected at 3.8%, thus boosting Egypt’s GDP per capita by 2.2%. “These indicators show that the energy sector will boom in addition to the explorations and current reforms,” said Kafafy.
Kafafy then moved to discuss TAQA Arabia’s major targeted customers, beginning with the major energy demanding sector, electricity. Discussing power plants that use diesel she said “In the next three years we are looking to change [from diesel use] to the new mobile CNG to be green and to work with a more efficient product.” TAQA is also working on two 150 MW solar plants. Kafafy said that the company is aiming for its energy mix to be mostly focused on green energy and natural gas, rather than mazot (fuel oil) and diesel.
Other sectors the company is targeting are residential and industrial. Exploring the dynamics of those two sectors, Kafafy said “although the residential sector is only 3% of the consumption of gas, this is the main and important sector that we would like to go from LPG to natural gas. You can see that each house you convert from LPG to natural gas will save the country around $200 per year per home.”
When addressing the industrial sector she said “currently we have 2,296 factories supplied by gas, 70% are high intensive users and industrial is growing by 6%.” The speech went on to discuss how most factories are not operating at 100% capacity.
The second speaker of the session was, Basil El Baz, Chairman of Carbon Holdings, the speech revolved around the role of petrochemicals in the Egyptian economy. “The only way Egypt can move up towards an acceptable per capita would be through capital intensive manufacturing; and to engage in capital intensive manufacturing, that means that we must put on the ground here today, raw materials- mainly, petrochemical products,” he said.
El Baz stressed during his speech the importance of producing raw materials in Egypt, and moving up towards expanding the list of locally produced finished products. “What can we say today is ‘Made in Egypt?’ Very few products, which in turn means there is tremendous opportunity, because it is not as if we attempted to put in place raw materials and it didn’t work – we never tried,” he said, adding that the process if we begin today should take up to 10 years.
“Producing enough raw materials to you [Egypt] can attract any kind of industrial manufacturer to come and invest. And more importantly, to create a domestic manufacturing industry who will service our local economy. And with time our products will start to advance and will be competitive internationally,” he concluded.
The second session of the day was titled “New Horizons in Egypt’s Gas Sector: Optimizing Resource Potential.” The first speaker to take the stage was Luca Bertelli, CEO of ENI.
Bertelli began his speech by stressing the importance of the relationship between Eni and Egypt. “We have a historical, long-term, win-win relationship with Egypt,” he said.
After presenting an overview of the company’s recent and very famous gas discovery, Bertelli went on to explain why drilling operations began prior to commitments. “Drilling before commitments existed was the result of a new investment incentive coming from Sharm al Sheikh [conference] in March of last year, where the Egyptian government showed proactively again in encouraging exploration, and development activities in the country. […] The new investment language convinced ENI to invest again in Egypt and immediately we achieved outstanding results.”
He concluded his speech by noting that Zohr has the potential of helping Egypt become an energy hub, which he believes the country will eventually achieve, with the help of its unique location.
The following speech was presented by Amira El Mazni, Vice Chairman for Gas Regulatory Affairs (GRA), EGAS. El Mazni speech revolved around explaining the concept of the newly launched GRA, pointing that the purpose is to protect the consumer.
“Gas market reform is a task for the collective ministers in the Egyptian government yet the regulator will assist, and participate in setting the eligibility criteria for the various auctions. These auctions are based on level of consumption, or sector of consumption, or combination of both. The gas regulator will also participate in the auction for gas pricing,” she explained adding “Market reform requires market opening and price reform. They go hand in hand.”
Tarek Shalaby, Commercial and Business Development Manager for Edison International, took the stage next presenting a brief overview on the operations of Edison in Egypt. The company mainly operates in the Eastern Mediterranean and Gulf of Suez, and has recently received new concessions in the Mediterranean.
Edison has invested $1.6b in Egypt, where 54% of the company’s production comes from. Making Egypt extremely important to the company’s strategy, he noted. “Abu Qir is Edison’s major play, which began in 1979. Over the past few years, Edison has drilled many new wells there,” he stressed.
Ragnar Wisloff, CCO of Hoegh LNG, took the stage next. The company is known as the provider of Egypt’s first LNG floating regasification and storage unit (FRSU).
“The world of LNG is today changing. We will, in the next few years, see 50% in addition to production capacity, mainly in the US and Australia. So the supply side is driving the change. In addition to that, we see changes to the technological field… There are many more tools available,” he said.
Wisloff explained that FRSUs give any country access to worldwide energy, making the country’s growth an easier task.
“The level of gas consumption and production in Egypt is on level with the large European counties and it has been an exhibit here in Egypt for a long time, and that means that EGAS is an experienced company. […] This has helped tremendously in the FSRU implementation,” he concluded.
The final session of the day was titled “Unleashing Unconventional Potential in Egypt.” David Ryan, Managing Director of ThyssenKrupp Industrial Solutions. The speech began by an overview of the company, noting that it focuses on smaller projects in its operations. “Smaller gas developments can ease your demand, they can be delivered and they can be attractive to operators. They must be followed to make sure of full use of a country’s reserves,” he said, pointing out that Small gas developments “can expand a country’s technology base, whilst bringing gas to market will also up the speed of gas delivery.”
The last speech of the day was by Mr. Mohamed Atwa, Production Technology Engineer at Kuwait Energy Egypt.
Atwa outlined Kuwait Energy’s East Abu Sennan Gas Project in the Western Desert, describing Kuwait Energy’s operations in this field from initial concept and evaluation to project development and completion. According to Atwa, the major challenges in the site’s development were “permits,” finalizing the agreement; “time,” acquiring and installing new gas plant equipment; “economics,” covering the cost from EGPC collection; and “integrity,” overhauling facilities for employees. Atwa described the execution of the project in great detail, including the equipment and other necessary areas of site development. Despite delays for military contract approval, the site was completed on time and under budget, which Atwa credited to strong planning from the team and close cooperation with government agencies and other partner companies.
The third day of the Intergas VII Conference offered industry experts the opportunity to share, and hear information and experiences related to the Egyptian energy field. Atef Hassan El-Haddad, General Manager of the Abu Qir Petroleum Company began the morning with a discussion of his firm’s methods for recovering natural gas reservoir fluids, which are in many cases unrecoverable, through the use of lean gas injections and CO2 sequestration. He was followed by Mahmoud El Geoushy from the El Mansoura Petroleum Company, who discussed the geological and development challenges of the Tineh field in the Eastern Delta.
El Geoushy was followed by Khaled Aboud, Global Business Development Manager for MCS, who spoke about the company’s use of 3-D imaging for underwater structures and pipelines. He explained the technology’s applications for the energy industry, including pipeline measurement, subsea installation support, subsea decommissioning support, underwater inspections and other subsea surveys. Next to the stage was Said Ahmed, of the Assiut Oil Refining Company, who gave a presentation on the use of Ployesteramide resin as a strong alternative to asphalt cement for industrial coatings.
Ahmed was followed by Mohamed Matbouly, Projects Executions Section Head with WASCO, who discussed project management in the energy industry. He outlined how standardization of project management can achieve high results despite the varying circumstances that affect the joint ventures of Egypt’s energy industry. Next spoke Marzouk Abdel Wahed, Operations Senior with United Gas Derivatives Company, who discussed how the company’s engineers solved gas recovery problems through a modification of liquid stream distribution to remedy these problems. Finally, Ahmed Sarhan of the Gempetco Operations Department spoke about the company’s use of soda ash to dissolve gypsum deposits in the Gulf of Suez.
The event gave a positive outlook on the future of Egypt. There are definitely many challenges facing the country, but growth and prosperity are looming on the horizon.