After initiating oil, dominating gas, will Egypt master petrochemicals? An interview with HE Eng. Sameh Fahmy, Minister of Petroleum, reveals the ambitions of the sector and recent implementations of master plans
What are the current objectives of the Ministry of Petroleum?
The Egyptian Ministry of Petroleum is responsible for all oil, gas and petrochemical activities. Strategic goals of the Ministry of Petroleum can be summarized in the following:
Bolster Egypt’s oil and gas reserves and increase production.
Satisfy local demand of petroleum products and gas.
Contribute to the wealth of the Egyptian economy.
Realize mega export projects for gas and petrochemicals.
Develop human resources and create new job opportunities.
Adopt new technologies.
As a minister of one of the booming ministries in Egypt, you face many challenges to achieve these objectives. Can you mention some of them?
We are facing several challenges in the Egyptian Oil and Gas Sector; these can be summarized as follows:
Maintaining levels of oil production despite the natural decline of depleting fields.
Rapidly growing local consumption of petroleum products and natural gas.
Increasing subsidies for local oil and gas prices.
Upgrading of the infrastructure required to cope with the increasing local demand and export projects.
Improving services provided for the local market, and adding new and more advanced services despite fixed local oil and gas prices.
The increase in investments required for oil and gas exploration and development, especially as most of the recent gas discoveries are found in deep and ultra-deep waters, and the recent dramatic increase in costs.
We are aware that the challenges are great and need extraordinary efforts in order to overcome them. However, I believe we are ready for the challenge. Egypt possesses the required assets, including appropriate fiscal incentives, availability of skilled human capital, transparent regulations mandatory for successful cooperation and partnerships. Also we have maintained a positive relationship between the Egyptian Petroleum Sector and our partners for a long period of time, and the success already achieved this far in coping with our planned strategic goals is an optimistic sign for the future. Given all this I am confident that these challenges will be successfully met.
How does the Petroleum Sector contribute to the Egyptian economy?
The oil and gas industry in Egypt is one of the main pillars of the national economy; it is the main source of energy and an important source of revenue. It plays a key role in satisfying the energy required for social and economic development plans and providing a better life for the Egyptian people. Oil and gas accounted for more than 55% of Egyptian exports during the year 2005/2006.
What is the relationship between the JV’s and the government?
The petroleum industry in Egypt depended, mainly and for a long time, on the partnership with major oil companies. Egypt has taken the Production Sharing Agreements (PSA) model as a way to achieve such partnerships in order to offer the best terms and maximize revenues for the country to achieve a win-win situation. These agreements count on the foreign partner’s shouldering of all the expenses; exploration operations, technical, and economic risks alone, so that the government doesn’t bear any expenses at all in case of not realizing any petroleum discoveries, which evades the State’s Treasury mega investments as well as large financial burdens along with the high ratio of risks related to such exploration operations at various areas.
Moreover, the foreign partner takes upon itself all the expenses related to the operation, production and development works in case of achieving any crude oil or natural gas discoveries whereas the investment expenses will be covered from the share of production which is determined in accordance with the issued law of the petroleum agreement and the expenses will be retrieved over several years without interest.
The foreign partner acquires a share of the production representing a portion in profits, after expenditure recovery, which is being determined in all petroleum agreements that differ according to the nature of areas whether onshore, offshore, in deep, or ultra deep waters. These ratios are proportional to the degree of technical risks of various petroleum operations.
Accordingly, the foreign partner acquires a portion in profits in return for bearing risks along with providing the required finance, in addition to the technological capabilities available in foreign companies.
However, all the petroleum agreements state on the priority of attaining local requirements of the country from the foreign partner’s share, if needed, which is called, importing directly from the partner, to ensure the availability of all the local consumption needed requirements.
“We are aware that the challenges are great and need extraordinary efforts in order to overcome them. However, I believe we are ready for the challenge.”
What were the Ministry’s achievements during the past year?
The year 2006 witnessed the achievement of various accomplishments in the whole chain of the petroleum industry that resulted in: providing the natural gas and petroleum products growing requirements and exporting the surplus, which contributed actively to bolstering the social, economic, and development plan, which Egypt experiences.
Crude oil, Condensates, LPG and Natural Gases production reached about 72 million tons, due to natural gas production increase. Whereas, the petroleum sector’s exports of crude oil, petroleum and petrochemicals, LNG and derivates reached about $ 10.3 billion with an increase of 33%, over the previous year.
Moreover, the People’s Assembly has agreed on the signature of (14) agreements for the Egyptian General Petroleum Cooperation (EGPC), the Egyptian Natural Gas Holding Company (EGAS) and Ganoub Al Wadi Petroleum Holding Company (Ganope) along with the final signature of (12) agreements of them.
Additionally, during 2006, about 43 discoveries were realized of which 23, were crude oil at the Eastern and Western Desert, Gulf of Suez, Sinai, and the Nile Delta; whereas Natural Gas and condensates accounted for 20 discoveries at the Mediterranean, the Nile Delta and the Western Desert. Total added reserves of these discoveries were about 3 trillion cubic feet of gas and 108 million barrels of crude oil and condensates.
The Petroleum Sector has succeeded in achieving savings reaching about $ 9.5 billion, due to the gas pricing formula modification in the petroleum agreements, since the beginning of its application in July 2000 and till the end of March 2007.
What are the most significant projects implemented in 2006?
During the year 2006, numerous important petroleum projects were inaugurated and operated such as:
Idku Gas Liquefaction and Export complex.
The experimental operation of Arab Gas Pipeline’s second phase.
The operation of the Acrylic Fibers Production Project.
Start up of the Nile Oil Marketing Company activities at the South Valley.
Together with the expansion of natural gas utilizations such as:
The signing of a number of agreements to provide natural gas to 1.4 million new residential units nationwide. Currently, operations to provide gas to these units are being carried out within the context of the Natural Gas Master Plan, also, a pipeline of about 800 km length is underway in order to transmit natural gas to Upper Egypt. Additionally, the year 2006 witnessed the expansion of the Petroleum Sector’s companies operating in the field of petroleum services, contractors, and projects, as they have contracted on implementing services operations in about 11 countries with a total value of $ 1.7 billion.
What about the most important achievements in the domain of Mineral Resources?
In the domain of Mineral Resources Sector, currently, there are 3 companies (Al Sukari Gold Co., with an Australian partner – the Australian Company Gippsland – Hemsh Co.) performing exploration operations for gold in the regions of Al-Sukkary mountain, Al Alaaqi valley, and Hemsh area at the Eastern Desert which resulted in the gold reserves increment from 3 million ounces to about 70 million ounces at a total value of $ 4.5 billion.
The experimental production of the First Gold Bar in modern history was achieved by Hemsh Egypt Co. in April 2007. Production from the Sukkary Mountain will be realized in 2008.
Also, it has been decided to start legal procedures of inking 8 new agreements to explore for gold and associated minerals as well as exploiting them after having the cabinet’s approval on these agreements, which were the fruits of the 1st international bid round for the exploration of gold in Egypt, with partners from different nationalities; Canada, Russia, Cyprus, and UAE.
Moreover, the Mineral Resources Scientists Council was established so as to set up a mineral resources strategy in Egypt over the next 25 years. And in November 2006, a Memorandum of Understanding has been signed between the Egyptian Mineral Resources Authority (EMRA) and a group of specialized Canadian companies, led by Centurion Corp./Dana Gas, which includes conducting a feasibility study to maintain and confirm the Oil Shale reserves amounts as well as its optimal commercial exploitation.
And what are your plans for this year?
As for 2007, the Ministry of Petroleum is keen on carrying out its announced strategic goals throughout a well studied plan according to a specific schedule. The most significant features of it are represented in intensifying the Sector’s activities in the whole chain of the oil and gas industry in Egypt. Starting with the exploration operations nationwide, which are targeting towards realizing new oil and gas discoveries that may add to the Egyptian oil reserves and offset its production; extending the exploration operations to include deep water areas at the Mediterranean and the Nile Delta, which witnessed various changes, lately, epitomized in the achievement of numerous gas discoveries. Additionally, the exploration operations cover new areas at the Western Desert concession areas and the Gulf of Suez along with some areas at the South Valley.
Also, it is within the plan to sign new oil and gas exploration agreements and develop several gas production fields.
Also this year, the implementation of the Third Phase of the Arab Gas Pipeline by constructing a pipeline with a length of 30 km., from Al Rehab city in Jordan to the Syrian-Jordanian borders will commence. It is implemented via a consortium of Egyptian Petroleum Companies i.e. Enppi, Petrojet and Gasco.
In addition, this year will witness the initial implementation of the Master Plan for providing natural gas to houses and industrial zones.
The implementation of Taba/Sharm El Sheikh gas pipeline was completed. Projects that will be initiated include: the implementation of Beni Sueif/Menya gas pipeline; the procedures of executing Shukeir/Hurghada gas pipeline to supply both Hurghada and Safaga Cities.
In addition, there are plans to establish 25 new fuelling and service stations, 25 new natural gas fuelling stations, 15 centers to convert vehicles to be operated with natural gas, as well as converting 14 thousand vehicles to be operated by natural gas .
In the Petrochemicals Domain; the first phase of the Petrochemicals Master Plan’s projects will be completed .
In The Mineral Resources Sector; a Cooperation Protocol was signed in march 2007 between El Wadi El Jadeed governorate and the Egyptian Mineral Resources Authority (EMRA) to study the possibility of exploiting marble at the governorate through the New Valley Mineral Resources and Oil Shale Co. which was established, in addition to utilizing natural water. Two companies were established i.e. Wahet Paris Mineral Water Co., New Valley for Manufacturing Natural Water Bottles. Also, the Protocol included establishing Petroleum, Mines, and Administration Academy in El Wadi El Jadeed governorate.
Also the start-up of exploration activity for new gold exploration & exploitation companies which acquired concession areas in the international bid-round of 2006 will begin. In addition, the international bid-round for phosphate exploitation aiming at covering local demand and export with the highest value-added will commence. This year we will also be offering the 2nd 2007 bid-round for the Egyptian Mineral Resources Authority (EMRA) to explore and produce gold, it is projected to offer 5 other areas at the Eastern Desert, as well as, establishing a mineral drilling company for the first time in Egypt; developing gold and mines analysis labs; establishing and constructing gold concentration and production plant at the Sukkary Mountain area. Finally, there will be the commencement of the field and lab works at Abu Dabbab to produce tantalum, and the start-up of detailed engineering designs of the tantalum production plant.
You’ve mentioned that the Petroleum Sector has set the Petrochemicals National Master Plan. Does Egypt have the factors to be placed on the threshold of a distinctive petrochemical industry in its products? What are the steps actually taken in this domain?
Despite the competition in the global petrochemicals market and the presence of several countries excelling in such a field, Egypt has all the needed factors to be placed on the threshold of a distinctive petrochemicals industry in its products, and strong economics represented in the political, economic and investment stability, in addition to its distinctive geographic location near Western Europe and the Mediterranean markets, being the major markets for the Egyptian petrochemicals products.
In addition, the availability of reliable infrastructure encouraging investors to invest in Egypt, as well as comprehensive government support, and the availability of a remarkable technical expertise in different domains of refining, fertilizers, or the petrochemicals sector. As for the feed stock, which is the main factor for the petrochemicals industry, it is available in Egypt at competitive prices especially natural gas, therefore, it was necessary to set up a plan to monetize this natural resource and its use in natural gas value added maximization industries.
The Petrochemicals National Master Plan in Egypt has been already set up for the next 20 years, comprising 14 petrochemical complexes (24 projects, 50 production units) with estimated investments of about $ 10 billion (current value) over 20 years, to produce 15 million tons of petrochemical products per annum valued at $ 7 billion ($ 4 billion, the value of imports replacement and $ 3 billion, the value of exports revenues), in addition to availing 100 thousand new direct and indirect job opportunities. The Egyptian Petrochemicals Holding Co. with the view of creating a new strong entity has the vital task of putting the necessary mechanisms to implement the Petrochemicals Master Plan. Development of the Petrochemical Master Plan’s first phase projects was completed. Various implementation stages of these projects i.e. 8 projects were started with investment cost of about $ 6 billion, of which $ 3.5 billion are foreign direct investments. They bore fruit at the beginning of 2006 from the Acrylic Fibers Production project, production from the rest of the projects will be realized respectively until 2009 to produce 3.5 million tons per annum from petrochemical projects valued at about $ 3 billion. This phase aims at exporting products valued at $ 1.7 billion annually, in addition to replacing imports of about $ 1.3 billion.
These projects comprise:
Methanol Production Project, to produce about 1.3 million tons per annum.
Ammonia/Urea Production Project, with a capacity of 1.2 million tons of Urea annually.
Polystyrene Production Project, to produce about 200 thousand tons of polystyrene per annum.
Propylene and Polypropylene Production Project, with a designed capacity of about 400 thousand tons annually.
Linear Alkyl Benzene Project, with an expected capacity of about 100 thousand tons annually.
Acrylic Fibers Production Project, of which its first phase production reached about 18 thousand tons annually.
Polyvinyl Chloride Production Project, with a capacity of 150 thousand tons per annum.
The First Olefins Complex, to produce ethylene and polyethylene with a production capacity of about 750 thousand tons to 1 million tons of ethylene annually.
There is no doubt that the start-up of these projects will lead to opening new prospects to export Egyptian petrochemicals products, cover the needs of the domestic market and save large amounts of petrochemical imports.
What are our proven gas reserves? How do you see the future of gas industry in Egypt?
No doubt that intensive oil and gas exploration operations in both onshore and offshore areas, which were due to offering many international bid rounds, led to the increase of natural gas proven reserves to reach 69.5 tcf along with increasing gas production.
In fact, natural gas has become the cornerstone of the Energy Strategy in Egypt, in light of the remarkable progress in the gas industry, encouraging the major companies to intensify their oil and gas exploration activities particularly in the Mediterranean deep water within the context of the distinctive relations and credibility with the international companies, which are regarded as a substantial factor in adding more gas reserves, e.g. over the past 6 years, 33 tcf approx. were added to Egypt’s natural gas proven reserves.
Egypt possesses the required assets to set up a developed natural gas industry; the credibility, political stability that Egypt enjoys, reliable infrastructure, a well developed national gas grid that extends to 16 thousand kilometers of pipeline, in addition to tens of thousands kilometers of distribution network along with the availability of skilled human capital. In addition, plans were set to extend the gas network to cover all of Egypt, including Upper Egypt and Sinai throughout a National Master Plan to provide natural gas to 6 million residential units including industrial zones over the next 5 years.
Moreover, Egypt currently plays a major role in the gas export map; LNG or pipelines, supported not only by virtue of its unique strategic location, but also by the availability of adequate proven gas reserves, boosted by the extensive exploration program particularly in the Mediterranean deep water, reaching 2500 meters.
And the sector works closely with the foreign partners to secure the requirements for exploration and development activities especially those necessary services and offshore rigs.
Regarding the latest agreement signed with the AIB to finance some gas pipelines that support and develop the National Gas Grid. What are the future plans for local gas distribution?
A loan agreement has been signed between the Egyptian Natural Gas Holding Company (Egas) and the Arab International Bank in partnership with a group of international banks to finance projects aiming at developing and supporting the National Gas Grid which include the construction of gas pipelines to be extended to the new areas, with a value of L.E 355 million and $ 90 million, to be financed by the AIB as a general coordinator in partnership with 8 commercial banks; the International Arab Banking Corp., Misr Bank, Egyptian – Saudi Financing Bank, Piraeus Bank, United Bank, National Bank for Development and Audi Bank.
This agreement comes within the context of the Petroleum Sector’s implemented strategy to expedite providing natural gas to residential and commercial units as well as supporting and constructing main pipelines to transfer natural gas to the different areas including Upper Egypt.
In fact, this region is placed on the top priorities of the Petroleum Sector’s interest, in light of H.E President Mohamed Hosni Mubarak’s directions to speed up providing natural gas to Upper Egypt. And we’d like to call on the financial institutions to contribute to funding the Upper Egypt gas pipeline, which is regarded as a national strategic project that will lead Upper Egypt to great development and civilization.
This comes within the framework of the Natural Gas Master Plan which targets providing natural gas to about 6 million residential units over the coming 5 years with investments of about L.E. 30 million, together with participating in providing power to one thousand factories and 500 commercial units in the production sector.
“We’d like to call on the financial institutions to contribute to funding the Upper Egypt gas pipeline, which is regarded as a national strategic project that will lead Upper Egypt to great development and civilization.”
Egypt Oil and Gas Publisher, Eng. Mohamed Fouad,
with HE Eng. Sameh Fahmy
The lack of rigs in the market is a worldwide problem. How is Egypt tackling this problem? Will the recent Egyptian – Chinese rig agreement solve this issue?
The acute lack of rigs worldwide is considered one of the significant challenges confronting the Petroleum Industry, leading to the high costs of oil and gas exploration activities.
In order to overcome this problem in Egypt, the First Chinese – Egyptian Company for manufacturing onshore oil rigs was established in Egypt in late 2006, which is a joint venture between the Petroleum Sector’s companies; Petrojet, Ennpi, and Tharwa and the Chinese HH Co., marking the breakthrough of the Petroleum Sector into one of the crucial phases of the petroleum industry especially in light of the constant expansion and intensification of oil and gas exploration activities that Egypt witnesses nowadays.
The new company will begin the implementation of the plant which will bear fruit of 3 onshore rigs at the end of 2007, and will gradually expand production according to the company’s plan of action for up to 7 drilling rigs in the second year, 10 in the third year, 15 in the fourth year and 20 in the fifth.
It is noteworthy that the establishment of the company will contribute to providing the needs of the Petroleum Sector to bridge the shortage in onshore drilling rigs that are witnessing a significant increase in demand. It will also provide direct and indirect job opportunities, and it is expected to expand in manufacturing drilling rigs and maintaining wells on the Arab and African arena.
In addition, in mid 2005, the Egyptian-Chinese drilling company “Sino-Tharwa” was established as a joint-venture between the Egyptian Petroleum Company “Tharwa” and the Chinese company “Sinopec” to act inside and outside Egypt in the African and Middle East countries in the domains of drilling and fixing all types of crude oil and natural gas wells. The company started its activities with two onshore rigs in light of the growing demand on drilling equipment in Egypt, within the context of the incremental petroleum activities which Egypt currently witnesses. Through its two rigs, Sino-Tharwa Co. successfully drilled its 8th well, and it was agreed upon to increase the number of rigs owned by the company to reach seven in 2007, which will lead to acquiring promising operation opportunities resulting in high economic revenues for the company and the creation of new job opportunities.
Why isn’t Egypt an OPEC member?
Egypt has started to play a pivotal role, and is considered one of the influential states in the petroleum industry. Undoubtedly, Egypt’s presence as an observer in OPEC paves the way for it for the proper follow-up and participation in realizing the market’s stability mechanism, as well as allowing it to move easily and with broad flexibility for its welfare, being one of the oil producing countries. In addition, its presence as a member won’t change as much in its role, as it is cooperating with OPEC, and participating in realizing its major goals.
Scarcity of skilled petroleum employees is a problem facing many employers in the sector, what is the Ministry’s strategy to face this issue?
As the Oil & Gas Sector has become one of the leading sectors for the Egyptian economy, the Ministry of Petroleum realized the importance of developing the human resources (Managers, Geoscientists, Engineers and Technicians), which are considered to be the cornerstone of any future development plans for the Sector, especially in an open competitive market .
HR development plans are usually managed within the operating companies based on their business needs and the available resources, and they act individually, however, there are 6 big training centers available and there are common needs as well as common facilities that can be utilized more efficiently. Utilizing and managing these resources can be done through a dedicated body with a global vision for the sector’s current and future needs. There are plans to maximize the value of the existing resources from facilities and expertise, meeting the international quality standards of training, with appropriate facilities through applying a systematic scientific approach of skill matrix or a competency base map .
The Ministry of Petroleum has established the Egyptian Training Services. The new company is owned and governed by the oil and gas sector, and is the only company designed to meet all the training and education needs of the sector .
One of the important principles upon which this company is based, is that all the training and education activities will be provided according to the international industry standards, this is accomplished through cooperation with internationally recognized organizations such as OGCI/Petroskills, Northern Alberta institute of Technology (NAIT), Colorado School Of Mines (CSM), Gas Technology Institute (GTI), NEXT of Schlumberger, etc. and will be a response to the needs identified by the sector through a competency assessment process .
One of the benefits from current cooperation with the international educational organization is applying credit hours records of courses for all participants which will allow them to get a degree when attending enough short or long courses that give the required credit score for the degree after he/she passes through the required processes .
As the Egyptian Training Services is one of the sector’s companies, it should be the main training and education provider for the Oil, Gas and Petrochemical industry. The Egyptian Training Services plans to compile all the sector needs and prepare the future courses or schools to meet current and future industry needs though two way continuous open channels between the Egyptian Training Services and training managers or coordinators of the operating companies in Egypt and beyond.
By Egypt Oil and Gas