MEES Interview With Egypt’s Minister Of Petroleum

Egypt’s Minister of Petroleum Tarek El Molla speaks exclusively to MEES about the country’s ambitions to become a regional energy hub and how it plans to boost investment in its upstream sector.

Q: It has been a remarkable turnaround from starting LNG imports in 2015 to securing gas independence earlier this year. What have been the driving forces?

A: The petroleum sector faced several challenges in recent years stemming from the political and economic situation in Egypt between the two revolutions of January 2011 and June 2013. Investments in the petroleum industry fell, there was disruption of major projects and oil and gas output declined.

However, since June 2013, we have implemented a road map with a clear strategic vision to meet those challenges, ensure energy security, achieve financial sustainability and improve the investment environment. This, of course, coincided with the government’s reform program to restore economic stability and promote economic growth.

We have since signed 95 new upstream agreements containing incentives and flexible provisions. This was evident in the remarkable interest of IOCs in subsequent international bid rounds for oil and gas exploration, and our success in reducing IOCs’ arrears to $1.2bn, the lowest level since 2010 ( MEES, 13 July ).

Moreover, we fast-tracked development of four major Mediterranean gas fields and put them on the production map; Zohr, Atoll, Nooros and North Alexandria [West Nile Delta]. These have provided impetus for further investment and exploration activities in the region.

We have now started the phase of gas self-sufficiency, depending on our domestic resources to fulfill local demand. Hence, we halted LNG imports completely after receiving the last shipment at the end of September. This coincided with the growth of Egyptian gas production to about 6.6bn cfd, thanks to the continuous progress of Zohr ( MEES, 5 October ).

Q: Egypt aims to be a regional energy hub. How far have talks on importing gas progressed?

A: The Egyptian government has a specific vision and goal of turning Egypt into a regional energy hub. The program includes the implementation of new infrastructure projects, achieving the optimal exploitation of existing ones, and issuing the necessary legislation to support oil and gas investments.

Thus, the law regulating gas market activities was issued and an independent regulatory system established which provides private sector firms the opportunity to enter and compete in all fields of the gas industry. Here I would like to point out that the agreement between private sector companies to receive gas from Cypriot or Israeli fields will be subject to the laws of the new gas regulations.

Memorandums of Understanding have been signed with the European Union, Cyprus and Jordan to support these steps to become a regional hub.

Egypt has the keys to the future of the gas industry in the Eastern Mediterranean due to its position, excellent infrastructure and facilities such as power plants, gas liquefaction plants, gasification units, refineries, storage depots, terminals as well as pipelines.

Q: Egypt has managed to attract billions of dollars in foreign investment in the energy sector recently. How much is Egypt targeting in the coming years?

A: By the end of the previous fiscal year, 2017-18, which ended on 30 June, upstream investments from foreign firms and joint ventures reached about $10bn, and we expect the same over the current fiscal year (2018-19).

The Ministry of Petroleum is currently implementing new projects that will double the investment map of Egypt for oil and gas exploration and production. Seismic surveys are being shot in the Red Sea, Gulf of Suez and the western Mediterranean to identify areas with promising prospects and offer them through international bid rounds.

We are also working on the establishment of the Egyptian e-portal for marketing the petroleum industry to attract IOC investments.

Q: Zohr has been ‘game-changing.’ How much has the discovery influenced other players to re-examine their Egyptian acreage or new players to enter Egypt?

A: Zohr is the largest ever gas discovery in Egypt and the Mediterranean. Development exceeded similar fields in other parts of the world, in speed of completion. No doubt, this success helps attract more investments and open new horizons for exploration in the Mediterranean, particularly in deep waters.

It also stimulated companies to intensify exploration activities in neighboring regions; the most important of which is the deep-water concession of Italian firm Edison with promising prospects (see map p2).

This success also attracts various IOCs that have never previously worked in Egypt and encourages them to study existing investment opportunities in exploration and to participate in international bid rounds. In addition, we will soon present new investment models to encourage new international companies to come and compete for promising exploration regions.

Q: Can you provide an update for the most recent bid rounds?

A: At the end of May 2018, two international bid rounds for EGPC and EGAS were offered for oil and gas exploration and exploitation, in the Gulf of Suez, the Western and Eastern Deserts, the Nile Delta and the Mediterranean Sea.

The EGPC bid round has closed on 1 October, and offers are being evaluated before we announce the awards. As for EGAS, the closing date is 29 November.

I would like to note that the maritime demarcation agreement with Saudi Arabia paved the way for oil activity to start up in the Red Sea, which was not possible before. The Ministry has now launched a program for putting the Red Sea region on the investment map for oil and gas exploration. It is an untapped area that has not experienced any oil activity, except in the Gulf of Suez.

Actually, this first Red Sea bid round will be based on the results of the $750mn geophysical data compilation project for those areas, carried out by WesternGeco (Schlumberger and TGS). The bid round will be offered before the end of the year.

Q: What plans does the Ministry have to increase oil output?

A: The Ministry’s development project aims to modernize the sector to increase the production of oil and gas by boosting exploration activities and increasing investments.

A plan is being implemented to increase production from existing fields and accelerate new projects’ development plans. Technological enhancements will increase efficiency at production facilities and reduce costs. This is particularly evident in the Western Desert, where there were three recent discoveries by the Italian firm, Eni, in the Faghur basin ( MEES, 3 August ). This encourages international companies to direct their investments to the Western Desert, which is full of promising prospects.

Regarding refining projects, Egypt has eight refineries with a production capacity of 25mn t/y [502,000 b/d]. Egypt’s refinery capacity is being increased to reach 41mn t/y [823,000 b/d] after the completion of ongoing development. The Ministry is currently implementing a plan to develop and upgrade the efficiency of existing refineries to keep pace with growing domestic demand and reduce imports.

As for crude oil and petroleum products imports, we have contracts with Saudi Aramco for crude and products supply and with Algeria’s state firm Sonatrach for supplying LPG. There are also contracts with Iraq’s state marketer, SOMO, to supply crude oil for Egyptian refineries and KOC, who have been supplying Kuwaiti crude and petroleum products for years.

Q: What plans are in place for the development of the Suez Canal Economic Zone and the surrounding area?

A: In the Ain Sokhna region, strategic projects are currently under way at the Sumed and Al-Sokhna ports to establish and operate terminals and storage depots to receive, trade and store petroleum products to develop Egypt’s vision of becoming a regional hub.

There is also a plan to establish bunkering activities and build refining and petrochemical projects following the signing of the contract for the largest petrochemical complex in the Middle East at Suez Canal Economic Zone. It will be constructed in Ain Sokhna, 5mn meters² in size, with investments of about $ 11bn.