NOC Survey 2008: Egypt

04 July 2008
Further fresh bidding rounds are expected as Cairo prioritises oil and gas exploration.

Egypt is a good example of a country where the Petroleum Ministry directly controls the state-run energy firms. Egypt General Petroleum Corporation (EGPC), Egyptian Natural Gas Holding Company (Egas) and Ganoub el-Wadi Holding Petroleum Company (Ganope) all report to Petroleum Minister Sameh Fahmy.

CompanyEgypt General Petroleum Corporation (EGPC)
Egyptian Natural Gas Holding Company (Egas)
Ganoub el-Wadi Holding Petroleum Company (Ganope)
Oil Reserves4.1 billion barrels
Oil Production2007710,000 barrels a day*
Gas Reserves72.85 trillion cubic feet
Gas Production 200746.5 billion cubic metres
*includes NGLs. Source: BP Statistical Review 2008

EGPC was the country’s first NOC, starting in 1956 as the General Corporation of Petroleum Affairs, before becoming EGPC in 1976. From originally managing all exploration and production, the organisation’s remit has changed substantially following a restructure earlier in the decade.

EGPC now focuses solely on the oil sector. Egas, set up in 2001, is responsible for gas exploration and production, while Ganope manages resources in Upper Egypt.

This segregation of responsibility means that each of the NOCs has an equally critical task to help drive the energy sector forward. EGPC has the tough task of addressing declining rates of oil production. For its part, Egas must re-evaluate the prices at which it buys gas from concessionaires, review the prices it receives for its exports and increase overall gas production, while Ganope is charged with encouraging fresh investment in the unexplored frontiers of the south.

Ganope is the only company to release exploration bid rounds in 2008 but the other two are expected to do so later this year. “They are in the process of finalising the bid rounds,” says Ross Millan, Middle East and North Africa analyst at UK energy consultant Wood Mackenzie.

The need to find and exploit more oil and gas is paramount, and is leading to an increase in international energy firms entering the country, particularly from the Middle East. Millan says there are also several domestic firms entering the fray. “There is a growth in the number of indigenous players and there is lots of opportunity,” he says. “Many of them are staffed with former IOC operatives who are familiar with the region and its fields.”

For Ganope, the 12 blocks open for bidding provide a perfect opportunity for entrants to the market, and the first oil find in the area by Dana Gas in September 2007 will boost the confidence of prospectors. The upstream arm of Dana Gas, Centurion Petroleum Corporation, made the discovery at its El-Baraka-1 exploration well in the Komombo concession.

Overseas expansion

International firms will be further encouraged to bid for gas concessions from Egas after the willingness shown by Egypt to pay more competitive rates for the gas it buys back for domestic use. The proportion of reserves that a company is expected to sell back to Egypt, rather than export, varies, but it is usually a significant proportion of production.

Previous contracts limited prices to $2.65 for a million BTUs, but this is increasing. “Rising costs in general are the key reasons behind price rises,” says Millan. “Egypt has a growing domestic gas demand and the government knows it needs to offer a better price to IOCs to encourage them to bring reserves on stream.”

At the same time, Egas must also push to obtain better prices for the gas it exports. “Long-term gas contracts signed during the past decade and in the first half of this decade have become out of date,” Fahmy told delegates at the Jeddah energy meeting in mid-June. “They do not reflect the drastic increase in oil prices or in the costs of gas production due to the unprecedented increase in the prices of rigs, materials and equipment over the past year.”

Egas is now renegotiating all of its export deals, including supplies to Jordan and Syria through the Arab gas pipeline, Israel via the El-Arish to Ashkelon pipeline and the LNG export facility at Damietta. The Spanish Egyptian Gas Company (Segas), which owns and operates the facility, buys gas from Egypt to export.

Fahmy also stated that Egypt would sign no new export agreements until 2010, giving the country time to focus on meeting domestic demand. This move effectively postpones the construction of a planned second LNG terminal at Damietta until 2014 at the earliest. Segas’s consortium for the second LNG train, which comprises Egas, Spain’s Union Fenosa, Eni and the UK’s BP, must now wait until 2010 to have the scheme approved. The go-ahead was originally expected this year.

For the NOCs, this hold is not a reprieve. The pressure is on them to increase production and exploit fresh reserves to ensure production is maximised to serve the growing domestic industrial sector. Subsidies on energy for industrial firms have also been removed, again ensuring that income is maximised.

Finally, despite a lack of exploration expertise and a history of focusing solely on the domestic market, Egypt is now seeking to develop overseas concessions. The establishment of Egypt’s first exploration company, Tharwa Energy, in March 2004 by Egas and EGPC has paved the way for international expansion and the firm is understood to be considering investments in Africa and Thailand.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications