Egypt’s geographical location allows the country to become a key regional exporter of refined products. This dream can become a reality for the country in a near future. The Egyptian refineries overall designed capacity amounts to 704,000 b/d, according to EGPC, which would qualify the country to become petroleum derivatives exporter. In search for ways to achieve this, The Egypt Petroleum Show (EGYPS 2017) will open up the floor to discussions about apt strategies for this path.
The Technical Conference will host several sessions related to the refining sector on Day 2 and Day 3 under two umbrellas: Marketing and Distribution of Refined Products; and Downstream: Refining, Petrochemicals and Fertilizers Technology and Operations. The industry leaders will engage with international experts and foreign investors in a plethora of topics that could lead to an improvement in refined products exports.
The future of Egypt’s downstream business, indeed, hinges upon such expert debates and innovative solutions that can contribute to expanding on the sector’s potential and present capacities, while at the same time helping rationalize the consumption-production dynamics in the country.
Domestic Demand for Derivatives
Egypt has the largest refining capacity in Africa. However, the refined crude oil output has been steadily declining, which was a result of several factors related to the volume of produced crude oil and limited utilization of refining capacities to mention a few.
Egypt has also been recognized as the largest petroleum products consumer on the African continent. Domestic consumption due to the population growth has massively impacted on Egypt’s capacities to gain revenues from petrochemical exports. Subsidies were another factor in the equation. “Energy, of course, has to be affordable, but not so cheap as to result in waste or because of subsidies indiscriminately given to rich and poor as to inflict on the government a crippling budgetary burden,” noted Prof. Robert Marbo, Fellow at St. Antony’s College in Oxford and Former Director of the Oxford Institute for Energy Studies in his report ‘Egypt Oil & Gas: Some Crucial Issues.’
In addition to the volumes of crude oil available in the country and local consumption, from a macro perspective, the dynamics of the petrochemicals sector are also closely tied to the global oil prices. This is again of relevance to Egypt that imports crude oil for its refineries. Securing supplies of crude has turned to be a complex issue to resolve. The most recent deal Egypt has sealed was the one with Iraq that will deliver 1mb/d of light crude oil to the North African country as of January 2017.
In light of all this, Egypt’s petroleum products export is thus lagging behind what the country may wish to achieve and what it in fact has capacities for.
Declining Export Capacities
The export of refined products in 2014 generated $6.84 billion in crude petroleum and $1.34 billion in refined products, according to the Economic Complexity Index (ECI). However, since then, “Egypt’s exporting status of refined products is falling under pressure of the continuous increase of the local demand of transportation fuels and other sources of energy,” said Eng. Farouk Qandil, Consultant for Refining and Petrochemicals in an email interview with Egypt Oil&Gas.
A 2014 report by Ken Research stated that the nation exports 100% of its domestic naphtha production, which ranks Egypt as the fifth largest naphtha producer in the Middle East region, however, experts argue that this may no longer be true. Given the exponentially growing local demand, the Egyptian General Petroleum Corporation (EGPC) “ends up with only certain amount of naphtha streams for export, which also varies based on the yield of light and heavy naphtha in the available crude oil feeds and its utilization to get the required formulations of the grades of local gasoline,” Eng. Qandil explained.
This decline in exporting capacities necessarily creates “a significant burden on the state annual budget of about $4 to $5 million,” as Eng. Qandil added.
With declining crude oil production and rising domestic consumption of refined products, the country’s import-export strategy is calling for modifications if Egypt intends to boost its cash flow from exports and limit costly imports of petroleum derivatives. Yet, for exports strategy to be optimized, the first step is to increase refineries’ production capacity, as the government has identified and has engaged with an overall restructuring plan to expand their outputs.
According to EIA report from June 2015, Egypt has the largest oil refining capacity in Africa, yet the country’s refining output declined by 28% from 2009 to 2013, amidst growing domestic oil consumption. As a result, Egypt imports expensive petroleum products to make up for the shortfall and pay for those in lacking foreign currency.
In 2014, Egypt imported about 145,000 b/d of petroleum products, while exported approximately 60,000b/d, according to Global Trade Information Services. The gap of 75,000b/d that emerged in that year prompted the Oil Ministry to design a new strategy to cope with the challenges. At the end of 2016, Egypt’s imports bill for petroleum derivatives including benzene, diesel and mazut still reached EGP 13 billion a month, a sum that translates negatively into the ministry’s balance sheet, especially that the country possesses refining capacities not only to satisfy domestic market, but also to aim for exports.
Similarly, “EGPC is forced to import significant additional amount of high octane gasoline, diesel and ATK above the production of its refining system to cover the local demands of transportation fuels,” further noted Eng. Qandil.
Even though EIA had estimated that Egypt’s refining capacity is likely to increase in late 2015 or in 2016 when a new 85,000 b/d refinery constructed by the Egyptian Refining Corporation (ERC), was to begin operations, in November 2016, the discrepancy between designed refining capacity and used capacity persisted.
By the end of 2016, the Egyptian Minister of Petroleum, Tarek El Molla, stated that the ministry has estimated the unused capacity of Egyptian refineries at 6.7mt/y of crude oil. While national refineries’ annual operational capacity is in fact 33mt/y of petroleum, they are currently using merely 26.3mt/y, as Egyptian Al Borsa Newspaper informed.
Eng. Qandil further affirmed the statistics saying that “the total operating capacity of the refining system is currently running at about 26 to 27 mmt/y, which is lower than its maximum attainable capacity of 33 mmt/y and much lower than its design capacity of 37 mmt/y.” He attributed this shortfall to both “inadequate availability of crude oil and the occasional failure of some of refineries’ equipments.”
Hence, part of the ministry’s expansion strategy for local refineries is to increase crude oil imports in order to boost refining output and gear up to become an exporter.
EGYPS 2017 both technical and strategic conferences will offer new opportunities to search for effective solutions how to enhance petrochemical sector and optimize output in relation to both local demand and export plans. Some progress has already been noticed from a comparative perspective. According to data from OPEC’s Annual Statistical Bulletin, Egypt’s refined petroleum output averaged 445,000 b/d in 2013, suggesting that refinery utilization was about 63%. In November 2016, the ministry informed that the used capacity amounted to 79%. While this may seem to still be lagging behind the actual aspirations and needs, it is highly likely that the pace for improvements will be stepped up.
Similarly, in the overall statistics from 2009 to 2015, the refined crude oil decline was recorded at a rate of 16%, which is lower than 28% cited for up to 2013, according to ‘Egypt Oil Downstream’ presentation by Chemist Amr Mostafa Kamel, shared on World Refining Association’s website.
Similarly, some segments of the Egyptian refined products show a positive trajectory. For example, production of gasoline in 2015/2014 stood at 4.4 mmt/y, while consumption was 6.3 mmt/y. This noticeable shortage was further reduced in 2015/2016 as production rose to 4.9 mmt/y and consumption saw merely a slight boost to 6.5mmt/y.
In these veins, Egypt has also marked progress in naphtha production since 2007 to 2013. The main reason behind this, according to Ken Research cited by Energy Global, is that “Egypt has moved its attention to low cost feedstocks such as ethane.” It is thus predicted that “naphtha production in the country is going to increase dramatically by 2018 due to the naphtha crackers that are being developed in the country,” and accordingly the export of naphtha may see a boost by the envisioned year.
These statistics clearly suggest that the improvements are on the way, yet there still remains room for new inputs.
In search for solutions, EGYPS 2017 is offering opportunities for new partnerships in the downstream sector and the country has a unique chance to capitalize on the existing and incoming capital potential.
The time is ripe to take a firm stand and adopt alternative measures as “Egypt cannot afford to ignore the need to make some difficult decisions regarding its energy sector,” further stated Prof. Robert Marbo.
One of many options is to diversify the refined products export. As Eng. Qandil further elaborated on this point, “the diversification of the petroleum products could extend to cover the feedstocks and commodity petrochemicals using the suitable technologies in an ultimate vertical integrated refinery.” However, this may present some challenges. “Such wide span of diversification is normally tamed by the relations between the necessary capital cost and the capacity of the applied technology.”
Egypt would thus need to aim for fresh investments in refining technologies that would enhance its capabilities to materialize its visionary plans. Hence, “it became essential for EGPC to take an immediate action to develop the detailed technological/economic study to define the required scope and execution plans of the refinery projects,” said Eng. Farouk Qandil.
The capacity and capabilities are in place in Egypt to implement any such new strategies. It is only a question of putting them to good use. As Consultant Qandil added, “ENPPI has the necessary caliber of process engineers with thorough refining knowledge and high skills to develop the necessary Integrated Operating Programs and Linear Programming facilities” that will enhance refined products output.
EGYPS 2017’s Technical Conference will undoubtedly provide some further solutions and strategies for how to go about complexities of the optimization of the downstream sector.