Note: This interview was conducted prior to the last promotion movement within the oil ministry.
Cairo – Decypha: In terms of foreign investment, one of the most prominent fields in Egypt is the hydrocarbon industry. While it is filled with a wealth of opportunities the volatility of the country’s economy over the past several years has enhanced the risk factor, especially in terms of dues payment.
To better understand Egypt’s plans in terms of enhancing the investment environment in the oil and gas industry, Decypha sat with the then Head of the Egyptian Natural Gas Holding Company (EGAS), Mohamed Al Masry.
Foreign Investment and Dues Payment
The interview began by tackling the most prominent issue, the state’s plans to attract investment post pound floatation. “Currently our main goal in the upcoming period is to satisfy our foreign partners and to swiftly pay off our foreign partner's debt which amounts to $3.6 billion,” explained Al Masry.
It is worth noting that foreign dues are considered variable –not fixed– and is based on the partner's monthly share from oil and gas bill. There's an agreement between the Central Bank of Egypt (CBE), the Ministry of Finance, and the Ministry of Petroleum to schedule dues after receiving the first tranche of the $12 billion World Bank Loan.
When asked about incentives the government is planning to offer foreign investors in the oil sector to counter effect any negative economic impacts, Al Masry answered that the focus currently is on economic reform.
“Reforms will include reviewing production pricing to encourage foreign partners to accelerate plans for field development, thus increasing Egypt's production rate and decreasing our import bill,” stated Al Masry.
Production and Investment Tenders
In terms of natural gas production, currently the country produces 6.44 billion cubic feet per day (bcf/d), which amounts to an increase of 45% from March 2016’s production rate of 4.4 bcf/d.
“The Egyptian government is currently planning to add between 5.5 to 6 bcf/d of natural gas and 28.5 thousand barrels of condensate per day to the local production rate. This will be achieved through 13 field development projects currently under development with investments worth $ 33 billion,” Al Masry stated, adding that the development plans will increase production to 9.5 or 10 bcf/d of gas by 2020, according to estimates provided by the Ministry of Petroleum and Companies working in the petroleum sector in Egypt.
When asked about upcoming exploration tenders, Al Masry answered that the state was planning to offer a tender in May 2017; however, it was temporarily halted until the border issue between Egypt and Saudi Arabia is settled.
Egypt’s last exploration tender resulted in six awards, with total investments of $200 million and a signing bonus of $68.2 million. This is in addition to Ganope’s latest tender in the Red Sea to collect geophysical data onshore and offshore, which was awarded to five international companies.
Natural Gas Exports
Decypha asked about the previous announcements of plans to export natural gas by the 2019, according to Al Masry, “It is possible that Egypt will export natural gas in the second half of 2019 if it completes the development of the current mega investments, which amount to $32 billion.”
“There are no specific fields to exports gas from but certainly, there are premium fields that are continually producing. We may focus our exports from Zohr field, which is expected to produce 30 trillion cubic feet of gas. The important thing is to for Egypt to be a net exporter of gas rather than a net importer,” he confirmed.
In 2016, the Egyptian government has expressed several times its intention to turn the country into a regional natural gas hub. While mostly no specifics were expressed the gas affairs law currently being approved by the House of Representatives can be seen as a first step towards this goal.
It is worth noting that currently one of the Petroleum Ministry’s goals is to be self-sufficient in terms of natural gas by 2019.
Gas Needs and Factory Debts
One of the core internal issues was the fluctuations of gas supply factories suffered from for the past two years, mainly due to the immense increase in electricity demands, which was especially high during the summer months. When asked about EGAS’ plans to meet electricity generation needs in the coming summer months, he replied “we will provide 90% of Egypt's production of gas for power plants in the summer and this follows presidential orders to avoid power cuts.”
The average monthly electricity consumption per household amounts to 80.4 bcf across the year, excluding the summer month. The average power consumption during summer however, goes up to 90.1 bcf.
Three new power plants are currently being build, one in the Administrative Capital, second in Berlis, and third in Beni Suef. “We estimate that the needs for power plants to be 600 mcf/d per station for a total of 1.8 billion in addition to 1.2 billion to power other factories and power plants who consume less,” commented Al Masry.
Moving on to the debt incurred by factories to EGAS, Al Masry explained “It was agreed to re-schedule the debt repayment of ailing factories, a total EGP 18 billion, to be paid between three to five years, in addition to providing them sufficient fuel to restart.” He added that payments are going to be through monthly instalments, not more than EGP 0.5 million, and based on each individual case.
Decypha asked about the expected imports of natural gas in the next fiscal year of 2017/2018, for which Al Masry answered that Egypt will import between 1.4 to 1.7 bcf/d. The Egyptian government currently imports about 1.3 billion cubic feet per day of liquefied natural gas at a cost of about $ 250 million a month.
It is worth noting that Egypt is expected to continue importing will continue Liquified Natural Gas (LNG) until the end of 2019, the year of achieving self-sufficiency, especially after the increase in Egypt natural consumption in the past couple of month to reach 4,760 mcf/d.
When asked about his opinion on providing factory owners the freedom to provide their energy needs Al Masry said “It is a good thing. There are currently five companies who have applied for a license for importing natural gas from overseas, but it all depends on the statutory law of the trading and import of gas, which has not yet been implemented. This will begin immediately after the approval of the regulation of the market gas where the Committee for Energy and Environment in the parliament is finalising the provisions of the law to present it to the members of Parliament.”
“We have agreed in principle to 40 cents a fee paid by private companies to transport each million BTUs of natural gas, while the final fees will be determined by an independent global company in the near future,” he elaborated.
Coal and Electricity Generation
When asked about the implementation of coal use as a substitute for natural gas, Al Masry answered “I do not know the reason for the delay, despite equipping a large number of plants.” He went on to explain that “using coal is a key factor in the diversification of energy sources in Egypt. It reduces the burden on natural gas use needed by power plants especially in the summer month and it also provides the hard currency, dollars, to the CBE.”
Natural gas in Egypt has been quite an intense topic for the past decade, the importance of which is continually on the rise, especially as neighboring countries such as Israel begin their plan to export natural gas, eyeing Egypt as a lucrative client. With the dollar value increasing the burden on imports and payment of dues on the Egyptian government, the state remains in immense need for reforms.
By Decypha News Editorial Team
