In the midst of a gradual 5 year energy subsidy reform, Egypt's Ministry of Petroleum & Natural Resources aims to enhance the investment climate in the petroleum sector and resumes implementation of integrated work program to develop the country's oil and gas resources.
How optimistic are you about the country’s future growth and what role does petroleum play in that growth?
Sustainable economic growth is at the top of Egyptians’ expectations for the current government to do its utmost to achieve an increased economic growth rate.
Of course this will increase the responsibility upon the Petroleum Sector to secure the energy supplies needed to achieve targeted economic growth, which in turn requires the growth in energy demand. In order to do so, the Ministry resumed implementation of the integrated work program that began in the fourth quarter of 2013 to develop the country's oil and gas resources and increase domestic production by concluding more petroleum agreements for exploration, along with the cooperation with foreign partners to put the discovered fields on stream.
In addition, we are working to bridge the current gap between production and consumption through importing LNG cargoes and main petroleum products to ensure the implementation of economic development plans properly and without being affected by any impediments.
How is Egypt benefiting from the low prices and how is the country taking advantage of this opportunity?
The drop in oil prices in global markets is directly reflected on the subsidy value of petroleum products, which the State shoulders. However, the drop in world oil prices is expected to lead to a decrease in the subsidy value of petroleum products during the second half of 2014/2015 fiscal year. If oil prices continue at current levels, total petroleum product subsidies in 2014/2015 budget are approximately L.E100 billion, and in the case of constant decline in world prices in the second half of the year, it is estimated that the total petroleum products subsidy to decrease to L.E. 80 billion, approximately. Hence, with the expected savings in subsidies, the State will continue affording a large sum. Also, petroleum products subsidy value recorded about L.E. 44.7 billion during the first half of the current fiscal year (July-December 2014) as savings were limited since world oil prices remained at high levels in that period. Petroleum products subsidy values to be ratified in the new budget of the fiscal year 2015/2016 is planned to reach L.E.86 billion.
What is the expected impact on investment inflows in the Petroleum Sector due to the drop in oil prices?
Investment inflows in the Petroleum Sector are normal, as gross minimum petroleum investments of foreign companies operating in Egypt in the domain of exploration and development, adopted in the fiscal year budget of 2014/2015, are about $ 7.5 billion, are planned to reach $8 billion, and more than $ 8 billion in 2015/2016 fiscal year budget. Since November 2013 and until now, we have 56 new petroleum agreements for oil and gas. These agreements include a commitment to inject a minimum investment for each time period. For example, many firms may decide to reduce its total global investments as a result of falling oil prices, yet some major companies see that it is possible to exploit the period of price decline to inflow new investments, which benefit from the opportunity of the decline in petroleum drilling and services costs.
Let us discuss the bold removal of the fuel subsidy by His Excellency President Al-Sisi and the implementation of additional reforms. Will they be enough to see an inflow of investment needed to resolve the shortfalls?
The Egyptian government has a comprehensive and gradual 5-year plan for energy subsidies reform, besides taking the necessary measures to protect worthy of care standards. The policy of energy subsidies reform’s main purpose is to enable the State to direct more investments and spend the amounts required on vital services needed by citizens, such as health, education and transport projects which aim to raise the standard of living.
What are the actions or reforms the Ministry is making to ensure to potential investors these situations will not reoccur? How has the cooperation between the Ministry of Electricity and the Ministry of Petroleum been improved to protect power supply?
The petroleum sector works on several axis in order to fill the current gap between production and consumption, on top of intensifying oil & gas exploration activities, through the announcement of new Bid Rounds for EGPC, EGAS and Ganope to ink new petroleum agreements, particularly since it did not conclude any agreements over the previous 3 years . However, the Ministry has succeeded in signing 56 new petroleum agreements for oil and gas since November 2013. So far it has invested more than $ 12 billion.
The second axis is to increase the production of natural gas. The petroleum sector exerted intensive efforts to increase Egypt’s production of natural gas, which resulted in linking a number of natural gas development projects already in production and contributing to offset the natural decline in the fields due to aging in order to achieve an increase in the total domestic gas production, e.g. the West Delta Deep Marine project, phase (9-A) in the Mediterranean Sea is an investment estimated at about $ 1.6 billion and a production rate of 450 million cubic feet of gas/day. Project "Decca" in the deep water of the Mediterranean Sea is an estimated investment of $ 578 million and a production rate of 265 million cubic feet gas/day. "Desouk” gas field project onshore Delta, phases 1 & 2, is an estimated investment of $ 270 million with a production rate of 200 million cubic feet per day. "Karm & Aseel " project in the Western Desert, is an estimated investment of about $ 307 million, boasts a production rate of 115 million cubic feet gas per day and 1,800 barrels of condensates per day. El Qasr gas development project in the Western Desert maintains production levels within 450 million cubic feet per day with investments of approximately $ 311 million.
Nonetheless, the future of gas increment production carries positive signs, as there is the largest project of its kind in the field of oil and gas industry in Egypt. North Alexandria and West Mediterranean Deepwater development results from the partnership of British Petroleum (BP) and the German R. W. E. Dea that will contribute mainly to increasing Egypt’s gas production and secure natural gas requirements, particularly as the project production capacity will reach about 1 - 2.1 billion cubic feet per day, equivalent to about 25% of Egypt's current natural gas production. Hence it will contribute to bridging the current gap between domestic consumption and production of natural gas.
The third axis is to import liquefied natural gas. The Petroleum Sector has taken a number of serious steps to import LNG to meet the additional requirements for power plants during the summer. Recently, an FSRU contract was signed with the Norwegian LNG company, Höegh, to be effective March 2015 at Ain Sokhna Port. Thus we will be able to receive LNG shipments that have been contracted. A contract was signed to supply 6 shipments of LNG from Algeria to Egypt, amounted at 750 thousand cubic meters from April until September 2015, in addition to completing the final stages of negotiations with the Russian side to supply shipments of LNG for a period of 5 years through Russia's Gazprom. This is along with the agreements signed with several other companies awarded in the International LNG Supply Tender during 2015 and 2016. In January 2015, a contract with the world’s leading company, Trafigura, was signed to supply 33 LNG shipments. Another contract was signed with the Swiss-based company, Vitol, for 9 LNG shipments, and another contract with Noble Clean Fuels for 7 shipments. Moreover, negotiations are progressing with BP with respect to another import deal of 21 LNG shipments.
The fourth axis is concerned with the electricity sector, as it was agreed upon to use all the necessary fuels to meet the power plants’ requirements. Hence we are working on the implementation of network infrastructure expansion to transport petroleum products in order to provide all the stations with the needed fuel for operation.
The fifth axis is the initiative to spread national awareness of energy conservation, with the purpose of modifying consumption habits and patterns among citizens for a better system that allows the rational and efficient use of energy. Furthermore, Egypt works on securing a new energy mix by diversifying its resources and using new and renewable energy. This in itself is a major axis and a step to provide sustainable energy. There is movement in the direction of usage of alternative fuels in various industries to provide the needs of power plants. There are also a large number of cement plants equipped for coal usage.
What is the ministry doing to attract more investment like these?
The petroleum sector is taking various steps aimed at enhancing the investment climate in the Egyptian petroleum industry. These measures include payment of the foreign partners’ arrears that are working in the oil and gas development and production; amending gas pricing terms in the petroleum agreements for the new discovered gas to achieve balanced economies with foreign partners to fit in with the development costs of some newly discovered gas fields; and continuing to offer new bid rounds for exploration areas in order to open new prospects for more investments before the international companies operating in Egypt. It’s worth mentioning that there are two new bid rounds announced recently for Ganoub El Wadi Holding Petroleum Company and the Egyptian Holding Company for Natural Gas.
In what areas of the industry would you like to receive more investment?
Currently the Upstream sector is the most significant field that requires injecting new investment as it is considered the cornerstone of the efforts exerted in increasing production and reserves rates of petroleum wealth. Therefore, it is the steering wheel of all industry fields, i.e. refining, manufacturing or petrochemicals. Egypt enjoys promising oil and gas potential in different areas, whether in the Mediterranean, Western Desert, onshore Delta or in the Gulf of Suez. Moreover, the Upper Egypt area started witnessing petroleum discoveries, which changes prevailing concepts regarding that region. Those potentials and attractive opportunities require more effort and new investment for best exploitation.