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Al-Ahram Weekly 25 - 31 March 1999 Issue No. 422 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 March 1999 Issue No. 422
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Profile Features Travel Living Sports People Time Out Chronicles Cartoons Letters Oil strategy banks on gas
by Aziza SamiDuring a week which saw trepidation over the continuing depression of global oil prices and in advance of the OPEC meeting scheduled for 23 March, the Egyptian Ministry of Petroleum concluded seven agreements worth $1,093 million with six multinational companies and one UAE company.
The agreements indicate that multinational companies are sustaining their investments in Egypt despite the collapse of crude oil prices, which plunged to $10 a barrel last November and rose this week to approximately $12 a barrel in anticipation of the OPEC meeting in Vienna, in which further production cuts were expected to be negotiated.
As a result of the low crude prices, Qatar -- a major oil producer -- this week cancelled a $4 billion agreement with Enron Corporation of the US for the export of natural gas. In Venezuela, BP-Amoco, the Anglo-American oil company, sought to renegotiate its contracts with the state.
Although Egypt -- which is not a major oil-producer -- has not been as hard-hit by the crisis as the major oil producing countries, it relies on the petroleum sector as a major source of foreign currency, as well as an important domestic resource. The sector has also been politically significant in attesting to the country's stability for the past four decades, and the government is keen on maintaining multinational oil companies' traditionally long-standing presence in Egypt. Stakes are also posited by Egypt's substantial natural gas reserves, which are expected to ultimately place it on the map of regional exporters.
Of the seven agreements, three, worth $730 million in total, have been signed with Shell, the Anglo-Dutch group, the Italian Egyptian Oil Company (IEOC), a subsidiary of Eni, the Italian oil and gas group, and BP-Amoco, the Anglo-American company. The three companies will be drilling in the Mediterranean deep water blocs, as well as in the Gulf of Suez and the Western Desert.
Four other agreements approved by parliament and soon to be signed include one worth a total minimum investment of $350 million with Amoco and Elf-Aquitaine of France for exploration and drilling in the Mediterranean deep water bloc. A $20 million agreement was also concluded with IPR, the American oil company, and Sipetrol of Chile for exploration and drilling in the Western Desert and the Gulf of Suez's East Asran maritime region.
A $20 million agreement has also been reached with the Arab Company for Petroleum Services, an Egyptian subsidiary of the UAE company, Emirates Western, for exploration and drilling in Gulf of Suez's North- West October maritime region
The strategy behind these investments is to maintain the current oil production levels in the Gulf of Suez, while scouting for more natural gas opportunities in the offshore regions of the Mediterranean. Simultaneously, domestic use of natural gas has expanded over the past five years so as to free up more oil for exports. This policy, which was initiated prior to the oil-price collapse of 1997-98, was in anticipation of the ultimate depreciation in Egypt's oil reserves. But with the decline in oil exports, the government is also encouraging the utilisation of petroleum products domestically, so as to offset the decline in export earnings.
Last week, Minister of Petroleum Hamdi El-Banbi announced that his sector is making optimal use of petroleum products locally, specifically in the manufacture of value added products.
One example is the LE400 million Alexandria Carbon Black Project, an exporting enterprise which produces an annual 75,000 tons of carbon black -- a petrochemical derivative utilised in manufacturing tyres, rubber, inks, cables and insulating material.
But the bulwark of the government's petroleum policy is becoming the increasingly lucrative natural gas sector, upon which it is banking to seek substantial investments over the next 5-10 years
Egypt has substantial natural gas reserves in the east Mediterranean region. Its current annual domestic consumption of natural gas is estimated at approximately 1,500 billion cubic feet of gas daily and the figure is forecast to grow between five and seven per cent annually.
Natural gas is used in electricity generation, cement, steel, and fertilizer industries, as well as for other industrial and household purposes.
Although Egypt's natural gas reserves -- estimated at 31 trillion cubic feet -- have positioned it to become a natural gas exporter, it is the Egyptian domestic market with its growing demand for natural gas that is offering a profit incentive to oil investors.
BP-Amoco, the second major holder of natural gas concessions in Egypt after IEOC, is investing $1 billion in the gas sector over the next 10 years, in addition to $450 million in the Gulf of Suez oil fields.
"As a result of recent agreements, both our oil and gas businesses will be strong and successful enterprises, even at the currently low oil prices," President of BP-Amoco Egypt Bob Sheppard told Al-Ahram Weekly.
"We have a lot of gas under contract at the moment to the domestic market. Our exploration activity indicates that there is a lot more gas to be developed, which could be utilised for exports. But right now, we are primarily driven by the need to cover domestic market demand and by developing fields already discovered, in addition to exploration work. So there is a healthy investment programme here for natural gas," Sheppard said.
EGPC and BP-Amoco are currently negotiating an agreement with the Jordanian government and Intergas Jordan to export 350 million cubic feet of gas per day of Egyptian natural gas. Once finalised, the project will not start production before the year 2001.
"The export project is the next step down the road, but BP-Amoco is not dependent on it to make the gas business work, because our gas operations are already very viable, based on domestic sales " said Sheppard.
BP-Amoco expects to secure almost 20 per cent of market share, once all of its fields start production. The company, which maintains a strong presence in the Gulf emirates of Abu Dhabi and Sharjah, considers Egypt "a key player in the entire group," said Sheppard. "Egypt is a big enterprise for us and its growing gas business will be very important in the country's development," he said.
According to Sheppard, petroleum companies have been able to maintain their levels of investment in Egypt despite current global oil market conditions because of the highly competitive offers provided them by the Egyptian Ministry of Petroleum.
"It is a tribute to the very progressive and realistic policy adopted by (Minister of Petroleum) Dr Banbi," said Sheppard. "He knows what the price realities are and as the price per barrel drops, he is continuing to position Egypt as a competitive alternative for investors. It is an approach which has allowed us to continue to invest here and to help maintain a strong petroleum sector, even with low oil prices."
Egypt's natural gas sector has received an added boost by the opening up of its distribution operations to the private sector -- both foreign and Egyptian -- as part of the ongoing privatisation process.
British Gas of the UK is currently joining with Egyptian partners -- Orascom, Middle East Gas and the Energy Association -- in establishing a nationwide network of natural gas distribution centres for gas-powered vehicles.
EGPC also signed a LE500 million agreement last week with an Egyptian-Italian joint venture, National Gas Company, for the supply of natural gas to 164,000 customers in the governorate of Sharqiya for home, commercial and industrial usage.
Once this project takes effect at optimum capacity, it is expected to free up LE130 million worth of petroleum products annually.
