The Gulf of Suez: What a Difference a Month Can Do

The Gulf of Suez has played an important role in Egypt’s oil and gas sector over the past few decades; however, more recently the area has witnessed a surge of activities reviving once again the glory of the country’s top oil producing area.

No one can deny the historical significance of the Gulf of Suez to Egypt. The area has observed war with the 1956 Suez war; the beginning of oil exploration and production, with the discovery of some of the first fields in Egypt such as the GPC field and the Hurghada field both of which were discovered in 1915; and the flourishing of tourism, with areas such as Ras Sidr, which currently has at least three key resorts.

Nevertheless, the role of the area in terms of military history or present tourism wanes in comparison to its function in the oil and gas industry where close to 70% of Egypt’s oil production is derived. The Gulf of Suez produces Egypt’s Suez Mix Crude with an API° of 30.8 and an acidity of 0.10 mg KOH/gm. The loading terminal at the Gulf is located at Ras Shukheir. The Gulf of Suez has yielded over 4.5 billion barrels of oil over the past 40 years. In 1983 the daily production rate of the area stood at around 616,000 barrels, however, this rate has currently greatly diminished.

More recently though, the Gulf has seen much action and the Shura Council elections, which took place last month played a large part in those activities. The Minister of Petroleum, Sameh Fahmy, ran in the Suez district and his campaigns included the initiation and inauguration of several projects. The following is a brief description of those activities which took place in the Gulf of Suez in the past month, with a recap of other important events which also occurred earlier.

A Recap of the Gulf’s Modern Feats: Discoveries and More
Since the beginning of the new millennium the area has witnessed several discoveries. In 2000, a discovery of eight wells with total proven reserves of 28.65 mm barrels took place; this was then followed with the discovery of an additional two wells in 2001, the combined proven reserves of which equated to 35.5 mm barrels. In 2005, Eni SpA discovered new extensions in its Belayim field, which is located in the Gulf of Suez. The discovery prompted Eni to increase its reserves in the area by 180 million barrels over the next 12 years.
In 2006, GUPCO, which will be discussed in detail below, announced yet another discovery 9 kilometers southeast of the Morgan offshore field (the Gulf’s largest field). In the same year, the Arab Oil Company announced that it had also made a discovery in the Gulf. The new find was made at 1,700 to 1,900 meters below the seabed and is expected to yield 4,900 barrels per day of crude production.
Another operator which delved into the oil wealth of the Gulf was Rally Energy Corporation. Rally Energy has its primary operations in the Gulf and holds more than 700 million barrels of oil-in-place. By the end of 2006, 91.7 million of the 700 million were determined to be recoverable proved and probable reserves.

GUPCO: The Champion of the Gulf
One of the largest operators in the Gulf and by far its main player is the Gulf of Suez Petroleum Company (GUPCO), which is a 50/50 joint venture between British Petroleum (BP) and Egyptian General Petroleum Corporation (EGPC), the regulatory body delegated with the task of carrying out joint exploration and production schemes with multinational entities. GUPCO was created in Egypt in 1965 and started its production with the Morgan oil field in 1967. The company operates in several areas across Egypt, but the Gulf of Suez is by far its main focus of attention.
GUPCO’s 40 year concession agreement ended in 2005, but on May 10, 2005 Egypt’s Minister of Petroleum, Eng. Sameh Fahmy, and BP Egypt’s President and General Manager Hesham Mekawi, signed another agreement to extend the Merged Concession Agreement by 20 years.
Since the extension on their concession the joint venture has invested US $1.4 billion in renovations to its site. Of the total, $600 million were allocated to renovating the infrastructure of the fields, while $800 million went towards the development of new discoveries.

June: The Month of Gulf Activities
The month of June was the month of hustle and bustle for the Gulf of Suez. The activities that took place over the past month have ranged from exploration to petrochemicals and refining to rig construction to acquisitions. The following is a brief description of each event that occurred in the Gulf throughout the month of June. The events will be covered in chronological order from the least recent to the most.

Sino-Egyptian Rig Manufacturing
On May 30, 2007 the Egyptian Minister of Petroleum announced the commencement of the implementation of the first oil rig manufacturing plant in Egypt. The plant will be the first of its kind not only in Egypt, but also in the Middle East.
The plant will be situated in Suez in the development industrial zone, northwest of the Gulf of Suez. The location of the plant will cover an area of about 84 thousand square meters and neighbors the ports of Adabeya and el Ein el Sokhna.
The announcement for the plant came during the visit of the Minister of Petroleum with the Governor of Suez and the Chinese Ambassador to Egypt. The three representatives approved the construction of plant.
The Chairman of the Egyptian Chinese Petroluem Company, Eng. Mohamed Hamed El Gohari, noted that by the end of this year three land drilling rigs should be completed. The project also aims at providing rig overhaul and well maintenance for the MENA region. Thus far, there have been investments of about US $30 million for the project. The Egyptian shareholders of the endeavor include Petrojet, Enppi, and Tharwa Petroleum.
For the residents of Suez, this project signifies the creation of close to 500 job opportunities; for the nation at large, this project marks the beginning of information exchange and the alleviation of rig demand for the oil and gas industry.

The Suez’s First Natural Gas Fuelling Station
On June 4, 2007, the Minister of Petroleum and the Governor of Suez, General Seif El Din Galal, inaugurated the first natural gas fuelling and services station in the Suez area.
During the first phase of operation the fuelling station’s capacity will reach half a million cubic meters monthly, a figure which will be gradually increased to one million cubic meters monthly during the second phase.
In addition to serving its function as a fuelling station for natural gas, the station will also serve as a converting centre for cars. Aligning with the government’s initiative to convert as many cars as possible into natural gas in order to conserve diesel fuel, the converting centre will have a capacity of converting 150 cars a month.
The location upon which the station is situated covers an area of approximately 2000 square meters. In terms of investment, the Governorate of Suez has invested close to LE 4.5 million in the project. The project aspires to promote the use of natural gas while providing job opportunities for the residents of the area.

Used Oil Refining
On June 8, 2007, the Governor of Suez, the Minister of Local Development, General Abdel Salam El Mahgoub, and the Minister of Petroleum visited the site of the first project in Egypt to collect and distribute mineral oils keeping in line with international standards and specifications.
PetroTrade, the company taking lead of the project will gather used oils and process them in order to prepare them for refineries. By 2008 the company aims to have gathered five thousand tons in 2008 and 15 thousand tons by 2010. The mineral oils will be gathered from Suez, Ismailia, the Red Sea, North and South Sinai, and Port Said. The project will follow a used oil collection scheme based on a network divided among five main areas of collection; thus far three storage tanks have been prepared: one in Sharqiya Governorate for northern Egypt, the second in Cairo for the Greater Cairo area, and the third in Alexandria.
The location of the plant will be in the Agroud area in Suez. Investment in the project has reached US $10 million. The project aspires to earn LE 10 million for used oil sales by 2010 and LE 60 million for refined oil sales. For the citizens of Suez this project means the creation of close to 500 jobs.

Kuwait in Suez
Kuwait’s presence in the Gulf of Suez was also highly sensed in the month of June. On June 14, 2007, the Minister of Petroleum signed an exploration and development agreement in the Gulf with the Kuwaiti KUFPEC Company. The investment of the agreements amounts to approximately US $400 million.
On June 10, 2007, the Minister of Petroleum announced yet another ambitious undertaking for Kuwaiti and Bahraini investment. The two countries’ investment will be joined with Egyptian investment to launch two new petrochemical and refining projects. The first project is designed for the production of petroleum and petrochemical products at a capacity of 130 thousand b/d and the second project is designed for oil refining at a capacity of 100 thousand b/d to be increased in the second phase to 150 thousand b/d.
The combined investment of the two projects is approximately US $3 billion, with US $1.8 billion going towards the oil refining plant and US $1.2 billion going towards the petroleum and petrochemicals plant. The two projects will be located in the Suez Governorate.
The Kuwaiti and Bahraini presence in the Gulf of Suez stand as a testament to the profitability and fruitfulness of Arab economic cooperation.

The Minister’s Visits
The month of June also witnessed several visits by the Minister of Petroleum to the Suez Governorate. As was previously mentioned, the Minister was running for the Shura Council in the district of Suez and as part of his campaign traveled quite frequently to the district.
During his visits, Fahmy stopped by the first factory in the Middle East to produce oil and gas pumps. The visit was also attended by the Governor of Suez. The factory is a joint endeavor between various companies within the petroleum sector whose share equates to 33% of investments and the German company Ruherpumpen who will carry the other 67%. Total investment in the factory is close to LE 150 million. The factory will not only produce pumps for the oil and gas industry, but will also provide maintenance service for all pumps in Egypt. The factory is said to have a production capacity that will reach 400 pumps per year and is designed to cater to not only the Egyptian market, but the MENA region at large.
The second visit by the Minister was to the Suez Company for Vocational Safety Equipment. The project consists of two plants that will produce protection equipment for the oil and gas sector; such items will include shoes, clothes and other equipment. The production capacity of the two plants is 400,000 pieces of cloth and 250,000 pairs of shoes per year. The plants aspire to serve not only the petroleum sector, but also other sectors including but not limited to the industry sector and the construction sector.
This is yet another first for the Egyptian market, a company that will produce personal protection equipment for the oil and gas industry. Investments for the safety equipment plants have reached close to LE 3.9 million where 85% of which came from holding companies such as Petrojet, Ennpi, and PMS contributing with shares, while the other 15% is covered by private institutions such as TamOil and CIB. The plants are expected to provide employment for nearly 900 workers.

India’s ONGC and UAE’s Dana Gas
On June 15, 2007, ONGC Videsh, the Indian state run oil and gas exploring company, announced that they had made an oil discovery in the Gulf of Suez with their partners IPR Red Sea Inc. This announcement came at the heels of another declaration by the Indian company. ONGC has recently bought a 33% stake in a Royal Dutch Shell deepwater gas block in Egypt.
Ten days following ONGC’s announcement to buy shares of Shell’s Egyptian deepwater gas block, the UAE’s (and the Middle East’s at large) first private sector natural gas company, Dana Gas, divulged that it had acquiesced a controlling stake in its Bahraini affiliate, Danagaz Bahrain. Dana Gas has taken control of 66% of the Bahraini affiliate, while 34% remains in the hands of Bahraini partners.
The transition has brought along a new joint venture that aims at investing in the Gulf of Suez gas-to-liquids plant in Egypt. The joint venture is between the Egyptian Bahraini Gas Derivative Company (EBGDCO) with 40%, the Egyptian Natural Gas Holding Company (Egas) with 40%, and the Arab Petroleum Investment Corporation (Apicorp) with 20%. The project consists of the creation of a gas liquids extraction plant near Ras Shukheir in the Gulf of Suez.
The capacity of the plant will be approximately 55 billion cubic feet of natural gas to be processed annually and the production capacity will be close to 120,000 metric tones of liquid propane and butane annually. The project is expected to take 18 months for completion.

The Great Gulf Revival
It is obvious that all the activities that took place in the Gulf of Suez over the past month are not normal in proportion. However, these events are better understood when viewed as a mega project for the area, which it was. Most, if not all, of the above mentioned projects, agreements and investments are part of the implementation of eight main projects inclusive to the production of onshore oil rigs, the manufacturing of oil pumps, the production of vocational safety equipment, the bolstering of petrochemicals activities, and the extending of natural gas networks.
The projects brought in close to LE six billion and encompass not just the area of Suez, but also Port Said, the Red Sea, South Sinai, and Ismailia. Along with the mass amounts of investment, these projects also include the creation of thousands of jobs for the citizens of these Governorates.
As a candidate for the Shura Council, the Minister of Petroleum ran with a campaign that included the welfare of the community by providing jobs and the flow of money into the Governorate. It is not surprising that with such a campaign, which included the implementation of many of these projects, the Minister won the seat in the Council with flying colors.
In fact, for his impressive campaign platform, the Minister was honored by the Suez Area for Soccer on June 8, 2007. However, Fahmy was not honored for the above accomplishments only, but more importantly for the sports oriented promises that he made during his campaign, which included the creation of an international training center in el Ein el Sokhna. The training center aspires to be a training hub for European teams who would like to continue outdoor practice during the winter; the center is to provide another option for European teams to conduct their training.
It is only desired that other Governorates follow suit with the Suez Governorate by attracting investment and alleviating the pressures of unemployment. The importance of such projects must be recognized by the entire nation, where one project can create jobs, better the infrastructure of the area, allow for the transfer of knowledge, and expand the limits of what is possible in the smaller Egyptian Governorates. Egypt has proven to be so much more than Cairo and Alexandria and investors are starting to realize that. Governors and other government representatives should act as spotlights for investors leading them to the areas of extreme, unutilized potentials.

By Diana Elassy  


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