PETROLEUM SECTOR DEVELOPMENTS

IN EGYPT

March 2009

©2009 Business Studies & Analysis Center.

All rights reserved. Unauthorized reproduction, copying, re-mailing, storage or website posting is prohibited. All
information in this report is verified to the best of the author’s and the publisher’s ability.
 ACKNOWLEDGEMENTS
The researcher would like to extend deep appreciation and gratitude to the following
experts and key figures for their support and valuable comments throughout the
preparation of this study (names are listed alphabetically):

H.E. Sameh Fahmy (Eng.), Minister of Petroleum

Abd El Rahman Salah El Din (Eng.), Executive Chairman, New & Renewable Energy
Authority
Khaled Abu Bakr (Eng.), Managing Director, TAQA (Arab Company for Energy)
Nader Zaki, Head Of Finance, Gas, BP Egypt
Rodney J. Eichler, Executive Vice President and General Manager, Apache Egypt
Salah Hafez, Chairman, PETZED Investment & Project Management, Ltd.
Shamel Hamdy (Eng.), First Undersecretary, Ministry of Petroleum
Tawfik Diab (Eng.), Managing Director, PICO International Petroleum
Thomas Thomason, CEO, Egyptian Refining Company
Tom Walter, Chairman and Managing Director, Exxon Mobil Egypt

i AmCham BSAC 2009

EXECUTIVE SUMMARY
After a recent period of steady growth, global oil production and reserves have declined
for the first time since 2002. Global demand for oil continued to increase up to the first
quarter of 2008; however, for the first time since 1983, it has gone into decline due to the
global financial crisis. Demand for natural gas – an attractive, cheaper alternative to oil –
had also been increasing but is now in decline for the same reason.

The petroleum sector is a key factor in the growth of Egypt’s economy; accounting for
15% of GDP in 2007/2008. Oil and gas cover 94% of Egypt’s primary energy requirements
with crude oil production in 2007 standing at 710,000 barrels per day (bpd), and natural
gas production at 46.5 billion cubic meters, nearly double 2002 production levels. Egypt
is the second largest producer of natural gas in Africa.

The Ministry of Petroleum has granted several concessions for exploration and drilling
activities to increase crude oil and natural gas production. Particular emphasis has been
placed on the oil sector – where production has been in decline since 1993 – in an attempt
to meet increasing domestic demand.

In an attempt to accommodate the global hike in energy prices, Egypt has taken several
measures to adjust the domestic and export prices of both oil and gas to reduce the budget
deficit on the domestic front.

Egypt’s petrochemical industry represents 12% of its total industrial production and the
country is set to become one of the region’s leading players, especially with the
implementation of the National Plan for Petrochemicals (2002-2022).

The challenges of finding sustainable means of meeting future energy needs and reducing
greenhouse gas emissions have led many countries, including Egypt, to opt for renewable
energy resources, such as biofuels, wind power, thermal energy and nuclear energy. Egypt
possesses abundant renewable energy resources and has begun to integrate these
alternatives within its energy mix and to promote renewable energy technologies on a
commercial scale.

AmCham BSAC 2009 ii

 TABLE OF CONTENTS
LIST OF FIGURES v

LIST OF TABLES vi

LIST OF ACRONYMS vii

PART I. GLOBAL PETROLEUM TRENDS 1

1. Oil: International Market 1
1.1 Reserves 2
1.2 Production 3
1.3 Consumption 4
1.4 Global Crude Oil Prices 5
2. Natural Gas: International Market 6
2.1 Reserves 6
2.2 Production 7
2.3 Consumption 7
2.4 Global Natural Gas Prices 8
3. Renewable Energy 9
4. Petrochemicals: International Market 10

PART II. INTRODUCTION TO THE PETROLEUM SECTOR IN EGYPT 13

1. Economic Significance 13
2. Industry Structure 17
3. The Legal Environment 18
3.1 Concession Agreements 18
3.2 Repatriation of Profits 19
3.3 Legal Revisions 19
4 Energy Pricing in Egypt 19
4.1 Petroleum Subsidies 21

PART III. THE OIL INDUSTRY IN EGYPT 23

1. Reserves 23
2. Agreements, Exploration Activities and Discoveries 23
3. Production 25
4. Market Players 26
5. Transportation 27
6. Downstream Activities: Refining, Processing and Distribution 29
6.1 Distribution and Marketing 31
7. Pricing 32
7.1 Export Prices 32
7.2 Domestic Prices 33

PART IV. THE NATURAL GAS INDUSTRY IN EGYPT 35

1. Reserves 35
2. Agreements, Exploration Activities and Discoveries 36
3. Production and Consumption 38
4. Market Players 40

iii AmCham BSAC 2009

 5. Exports 41
5.1 Pipeline Exports 41
5.2 LNG Exports 43
6. Pricing 44
6.1 Local Prices 44
6.2 Export Prices 44

PART V. THE PETROCHEMICALS INDUSTRY IN EGYPT 45

1. Introduction to the Egyptian Petrochemicals Industry 45
2. Petrochemical Market Profile 45
3. Market Players 48
4. National Plan for the Petrochemical Industry 49
5. Public Private Partnerships 51

PART VI . FACTORS AFFECTING THE DEVELOPMENT OF THE

PETROLEUM SECTOR 52
1. Supporting Sectors 52
1.1 Petroleum Services and Equipment 52
2. Corporate Social Responsibility (CSR) 53
3. Environmental Developments 54

PART VII . ALTERNATIVE ENERGY TRENDS 55

1. Wind Energy 55
2. Solar Energy 56
3. Biofuels 57
4. Nuclear Energy 58

PART VIII . CONCLUSION 59

1. International Energy Outlook 59
2. Egypt Outlook 60
2.1 SWOT Analysis of Egypt's Petroleum Sector 61
2.2 Recommendations 61

SELECTED REFERENCES 63

Appendix I. EGPC 2006 Bid Round 65

Appendix II. GANOPE 2008 Bid Round 66
Appendix III. EGAS International Bid Round 2008 67
Appendix IV. The Arab Gas Pipeline 67
Appendix V. Petrochemical Production Flow 68
Appendix VI. Egypt Hydrocarbons Industry Overview 69
Appendix VII. Global Crude Oil (2007) 70
Appendix VIII. Global Natural Gas (2007) 70

AmCham BSAC 2009 iv

 LIST OF FIGURES
Figure I.1 World Oil Reserves by Region 2
Figure I.2 OPEC & Non-OPEC Reserve Shares (2007) 3
Figure I.3 Top 10 Crude Oil Producing Countries 4
Figure I.4 World Refined Products Demand 5
Figure I.5 Crude Oil Prices (Monthly Averages) 5
Figure I.6 World Natural Gas Proven Reserves by Region 6
Figure I.7 Monthly Natural Gas Prices (Henry Hub) 8
Figure I.8 Key Market Drivers for Renewable Energy Usage 9
Figure I.9 Renewable Energy Share of Global Energy Consumption 9
Figure I.10 World Petrochemical Production (Thousand Tons) 11
Figure II.1 Petroleum Sector Growth in GDP 13
Figure II.2 Petroleum Trade Balance 14
Figure II.3 Egypt Petroleum Trade 15
Figure II.4 Petroleum Share of Total FDI 15
Figure II.5 Local Petroleum Investments 16
Figure II.6 Planned Natural Gas Price Increases 20
Figure II.7 Planned Electricity Price Increases 21
Figure II.8 Petroleum Subsidies 21
Figure II.9 Share of Petroleum Subsidies in GDP and Total Government
Expenditure 22
Figure II.10 Distribution of Petroleum Products Subsidies 22
Figure III.1 Egypt Proven Oil Reserves 23
Figure III.2 Rig Utilization in Egypt by Location 25
Figure III.3 Geographic Distribution of Crude Oil Production 25
Figure III.4 Egypt Oil Production and Consumption 26
Figure III.5 Means of Oil Transportation 28
Figure III.6 Egypt’s Petroleum Ports 29
Figure III.7 Production and Consumption of Refined Products by Type 30
Figure III.8 Per Capita Consumption of Petroleum Products in Egypt 30
Figure III.9 Egypt Suez Blend Price vs. Different Global Crude Oil Prices 32
Figure III.10 Gasoline Price Differentials 33
Figure III.11 Local Price Developments of Petroleum Products 34
Figure IV.1 Egypt’s Proven Natural Gas Reserves 35
Figure IV.2 Egypt’s Proven Natural Gas Reserves by Region 36
Figure IV.3 Natural Gas Production and Consumption 38
Figure IV.4 Local Natural Gas Consumption by Usage 39
Figure IV.5 Household Connections Extended with Natural Gas Networks 39
Figure IV.6 Top LNG Export Destinations 41
Figure IV.7 Total Savings from Natural Gas Export Price Adjustments 44
Figure V.1 Egypt’s Petrochemical Market Size 45
Figure V.2 Egypt Petrochemical Exports 46
Figure V.3 Egypt Petrochemical Imports 46
Figure V.4 Imports of Polymers 47
Figure V.5 Exports of Polymers 48
Figure V.6 National Plan for Petrochemicals 49
Figure VII.1 Egyptian Wind Energy Expansion Plan 55
Figure VIII.1 World Primary Energy Demand (1980 to 2030) 59
Figure VIII.2 Expected World Oil Production (OPEC/Non-OPEC) 60

v AmCham BSAC 2009

LIST OF TABLES
Table I.1 Top 10 Crude Oil Producers (mb/d) 3
Table I.2 Top 10 Crude Oil Consumers (mb/d) 4
Table I.3 Top 10 in Natural Gas Producers (bcm) 7
Table I.4 Top 10 in Natural Gas Consumers (bcm) 8
Table I.5 MENA Region Petrochemical Capacity (Thousand Tons) 11
Table I.6 World Ethylene Capacity Growth by Region (Thousand Tons) 12
Table II.1 Foreign Upstream Companies in Egypt 17
Table II.2 Egyptian Upstream Companies 17
Table III.1 2006 EGPC Bid Round 1 24
Table III.2 Main Crude Oil Discoveries in Egypt 24
Table III.3 EGPC Joint Ventures with International Companies 27
Table III.4 Downstream Companies 27
Table III.5 Oil Refining Capacity 29
Table III.6 Planned Refineries in Egypt 31
Table IV.1 Recent Natural Gas Discoveries in Egypt 37
Table IV.2 EGAS 2008 Bid Round 37
Table IV.3 Upper Egypt Gas Pipeline Connection Plan 40
Table IV.4 Gas Production of Major Companies 40
Table IV.5 The Arab Natural Gas Pipeline 42
Table IV.6 Egyptian LNG Export Schemes 43
Table V.1 Polyethylene Consumption in Egypt (2006) 47
Table V.2 Total Allocated Land for Petrochemical Projects 50
Table V.3 National Petrochemical Plan: Phase I Projects under
Development (May 2008) 50
Table V.4 Petrochemical Investment Opportunities 51
Table VII.1 Planned Wind Farm Projects in Egypt 56
Table VII.2 Planned Biofuel Projects in Egypt (Ministry of Petroleum) 57
Table VII.3 Renewable Energy in Egypt: SWOT 58

AmCham BSAC 2009 vi