TOGY talks to
Confidence in Egypt’s investment climateMay 28, 2019
Tarek El Molla, Egypt’s minister of petroleum and mineral resources, talks to TOGY about how the ministry is working to revitalise Egypt’s oil and gas industry, how recent legislation has paved the way for a more flexible midstream sector and the role of public-private collaboration in strengthening the country’s downstream projects.
What are the key takeaways from the past three years in relation to the ministry’s efforts to revitalise the oil and gas industry and encourage FDI?
The interest IOCs have in pumping new investments into the upstream domain sends a clear message about the confidence foreign companies have in Egypt’s investment climate. This has manifested in several indicators. The most important one is the inking of 96 new oil and gas exploration agreements since 2014, which is the largest number of agreements signed with companies operating in Egypt.
This step has strongly contributed to the restoration of Egypt’s position as one of the major players in the oil and gas industry. In fact, the investments of foreign companies, in addition to joint ventures in the field of exploration, development and operation at the end of fiscal year 2017/18 represented around USD 10 billion. For fiscal year 2018/19 we expect approximately the same amount.
Furthermore, the ministry succeeded in reducing the foreign partners’ arrears to about USD 1.2 billion by June 2018. This is the lowest level these receivables have ever reached. We intend to complete full payment of dues at the end of 2019.
What incentives are being put in place to encourage more finds?
Currently, the Ministry of Petroleum is working on the implementation of new concepts to maximise the investment map of Egypt’s upstream activities. This is contributing towards IOCs pumping investments into the upstream sector, which in turn sends a clear message of the confidence foreign companies have in the investment climate in Egypt.
We have implemented new seismic survey projects in the Red Sea, Gulf of Suez and West Mediterranean to determine areas of promising reserves to be offered to companies in international bid rounds, especially in the Red Sea area. In early March of this year, we succeeded in launching the first international bid round for oil and gas exploration offshore in the Red Sea, which included 10 new blocks.
Furthermore, we are also working on establishing Egypt’s e-portal project for marketing petroleum blocks and exploration areas, which will contribute to attracting investments from international companies by marketing investment opportunities in the aforementioned areas in an advanced modern way.
Other efforts are being exerted to improve the upstream agreements model, particularly in the newly discovered areas. This is also an incentive for IOCs to encourage them to venture into these areas which pose some exploration challenges that will require large investments and advanced technologies.
Considering this, our plan is to offer three international bid rounds this year, the first being the offshore Red Sea, which is a new untapped area, offered by Ganope in early March. Also, over the coming months we intend to offer another bid round in the West Mediterranean area, along with a third for EGPC to explore for oil and gas in the Western and Eastern Deserts and the Gulf of Suez.
What are the opportunities and challenges in the ministry’s roadmap for co-ordination on oil and gas affairs, particularly in securing the country’s future energy supply?
Securing the domestic oil and gas supply is one of the minister’s main priorities. Accordingly, our strategy is based on the speeding up and completion of new projects in discovered fields, co-operation and co-ordination with foreign partners, and the adherence to the stipulated times of the programmes which are set to increase production in the country. These steps contribute to securing the local market’s energy needs.
In 2019/2020, we shall witness the pumping of new gas from several major projects in the Mediterranean Sea, which will contribute to increasing Egypt’s total gas production by more than 7.5 bcf per day. Moreover, we intend to increase Egypt’s crude oil production to about 700,000 b/d of crude and condensates during fiscal year 2019/20, compared to the current 660,000 b/d.
Our goal is to exploit the existing opportunities to increase production, particularly when it comes from new exploration areas in the Gulf of Suez and Western Desert. In the latter, we aim to intensify field development operations via enhancement methods: water injection projects and other modern technologies for crude oil production which will contribute to production increases in the discovered fields.
The ministry’s strategy also considers intensifying international bid rounds and increasing the number of signed agreements with the IOCs for oil and gas exploration. Those agreements are the main engine of petroleum activities in the country, meeting a big part of local market requirements. Additionally, the current projects for upgrading refineries will contribute to meeting most of the domestic demand for petroleum products.
As for the challenges, we are sure they will not be as severe as those we have confronted over recent years. These did not stop us, and have made us stronger. However, the road is still long. We still need to exert more efforts and devote more work to meet the demanding requirements of the domestic market. This is one of the main challenges before us.
There is an urge to speed up the completion of major field development projects. Certainly, the recent discoveries have enhanced our position in terms of production and reserves, but we need to find more of these discoveries in order to achieve stability and sustainability.
Egypt is on track to becoming an LNG exporter and saving up to USD 1.5 billion per year on gas imports. How do you view this shift and what are the development plans in place to turn the country into a regional energy hub?
We succeeded in achieving natural gas self-sufficiency by the end of September 2018. Our domestic production of gas gradually increased due to four major fields starting production in one year: Zohr, Northern Alexandria, Nooros and Atoll. Those discoveries were the fruits of a work programme carried out by the ministry to develop Egypt’s oil and gas resources. Moreover, the programme aimed to increase local production by offering new international bid rounds to attract the investment of IOCs, as well as the conclusion of new upstream agreements. One could say that these are the cornerstones of the rise of production, reserves and discovery achievements.
In addition to this, the government has also worked to encourage international companies operating in Egypt to focus their investments on the development of newly discovered fields. Our determined drive to achieve self-sufficiency of local gas production has led to the cutting of LNG imports for the first time in three years. From here, we aim to continue increasing natural gas production to achieve a gas surplus. This will contribute to the fulfilment of our previous contractual obligations through the LNG export plants in both Idku and Damietta.
The Egyptian state also has a specific vision of transforming Egypt into a regional hub for oil and gas trade, which will have a very important impact on Egypt’s national economy. Egypt will restore its pioneering role in the region, monetise its natural gas infrastructure and attract further investment. Thanks to these achievements, it will provide sufficient energy resources to meet the country’s needs whilst opening an array of job opportunities.
To realise this last major goal, the Egyptian petroleum sector has been allocated a work programme as part of the Oil & Gas Modernisation Project which includes three main axes: the internal level, the political level and the technical and commercial level. These include the implementation of new infrastructure projects, monetisation of the existing infrastructure, and the issuance of legislation supporting investment in the fields of oil and gas.
Furthermore, the state has issued the new gas law regulating the activities of the gas market and establishing an independent entity to monitor and regulate these activities. It therefore provides the private sector with the opportunity to compete in all fields within the gas industry.
What is more, Egypt has all the qualifications for this role, e.g. its excellent strategic location, its export infrastructure, such as power plants, LNG plants, FSRU vessels, shipping terminals, oil and gas pipeline networks, storage tanks and refineries.
Interestingly enough, Egypt has taken active steps to establish extensive regional co-operation with natural gas producers in the East Mediterranean region to set up a partnership with the European Union in the field of energy. In other words, this country possesses the keys to the future of the gas in the East Mediterranean and seeks to monetise all the existing potential in that region.
Egypt is setting the goals of the East Mediterranean countries that need to monetise their natural gas resources now and in the future. We pulled the strings to establish the First Ministerial Meeting of the Eastern Mediterranean Gas Forum (EMGF), which includes the gas producing countries in the region.
This Egyptian joint initiative included Cyprus and Greece, a tripartite co-operation mechanism between the three countries established during the previous summit, held in Crete in October 2018. In that summit, President El Sisi agreed with the leaders of Cyprus and Greece on the idea of establishing the forum and turning this agreement into reality.
Egypt took the initiative and invited the energy ministers of the Eastern Mediterranean countries along with the representatives of the European Union and the World Bank to a meeting in Cairo in mid-January 2019.
Here, seven ministers issued a joint declaration to announce the founding of the forum, to be headquartered in Cairo. The declaration also stated that the forum is open for participation from any other country. The ministers agreed to hold another meeting to review results of discussions by the senior officials of the forum concerning its structure, and introduce their recommendations.
What are the main features of the country’s 2017 gas market law, and what has been its success in liberalising the midstream sector?
As I mentioned earlier, the petroleum sector is currently implementing an integrated strategic plan that aims to transform Egypt into a regional hub for gas and oil trade. Egypt possesses all of the required qualifications for this role. However, with all these efforts, we need to work together when it comes to putting in place legislative reforms, which need to comply with investors’ requirements in a fast and flexible way so that they can smoothly enter the Egyptian gas market.
Among those legislative reforms was the Gas Market Activities Regulation Law, along with its executive regulations. An independent authority (the Gas Regulatory Authority) was established to regulate gas market activities and to pave the way for more flexibility in the market. Its role is to ensure competitiveness and prohibit any practices of monopoly.
This flexibility has been achieved by attracting private-sector investments in trading, storage, marketing, gas provision and direct distribution to the consumers, utilising the petroleum sector’s facilities in return for fees.
Furthermore, the law has an important role in supporting the efforts to transfer the gas from East Mediterranean countries to be liquefied in Egypt’s liquefaction plants and to then export it to the European markets.
In addition, the law has another significant role: It stimulates investments for developing the discovered gasfields. The law will provide more liberty for gas producers to market their own production shares of gas directly to the local market according to the rules provided. It will also allow the usage of the petroleum sector’s facilities and gas grid.
What are the objectives for 2019 for improving the country’s gas storage and distribution?
2019 shall witness the establishment of five new natural gas pipeline projects with a total length of 237 kilometres and an investment of about EGP 4.1 billion. In addition to this, there is about USD 11.4 million destined for supporting the capacity of the national gas grid, to transport and distribute gas among various consuming sectors as well as feeding the new power plants the country has established.
What is the importance of the Zohr and Nooros fields in meeting local energy demand, and what goals have been set out to increase production through the use of advanced techniques?
The first production steps of the Zohr field and corresponding experimental operations started in mid-December of 2017, with an initial production rate of 350 mcf of gas per day. During the year 2018, production was increased to six times that level, and it currently exceeds 2.3 bcf per day.
Concerning the Nooros field, it was discovered in 2015 and the current production is about 1.2 bcf of gas per day. These two projects, along with a number of other development projects such as Atoll and North Alexandria, have opened new horizons for investment.
To accelerate the production of these projects, the latest technologies have been used in both the construction and production phase. For example, an offshore cable of 160 kilometres in length was used at one of the production facilities at the Zohr field; it is considered the longest offshore cable in the world for such activities. Moreover, the field includes the latest world-class laboratory at one of Eni’s sites. as well as the sulphur production unit, which gives added value to production.
These projects are undertaken in deep water so they require modern and advanced technologies during both construction and operation. This allows the Egyptian petroleum industry and its young cadres to acquire new experience to improve their skills, which was quite obvious in the completion of these projects ahead of schedule.
How is public-private collaboration strengthening Egypt’s downstream projects?
The petroleum sector is currently implementing an ambitious programme to develop and upgrade the efficiency of the Egyptian refineries and existing petrochemical projects, along with the establishment of new projects and development of the existing units. Thanks to this programme, the country will achieve its vital objectives of securing petroleum and petrochemical products supplies, keeping pace with the local demand increase.
Parallel to this, we aim to reduce imports, alleviate the pressure on foreign currency and contribute to improving the balance of payments.
The current programme includes six new refining projects and development of the already existing refining units, all representing an investment of about USD 9 billion in Cairo, Suez, Alexandria and Assiut. Also, we will develop four petrochemical projects, with an investment of USD 1.5 billion and we are currently planning to build a mega refining and petrochemicals complex at New Alamein, which represents a USD 8.5-billion investment.
The private sector has a positive participation in the implementation of new refining projects. Here we have the Egyptian Refining Company (ERC) project at Mostorod, with an investment of USD 4.3 billion, that is about to be completed and start operations.
Furthermore, the private sector will establish a mega refining and petrochemicals complex in the Suez Canal Economic Zone in Ain El Sokhna. We are looking forward to further participation of the private sector in investing in new refining and petrochemicals projects over the coming years.