Egypt, new dimensions, new frontiers

Mr. Mohamed Tawila, Chairman of EGPC
Egypt -

The Egyptian General Petroleum Corporation

Interview with:

Mr. Mohamed Tawila
Chairman of EGPC

June 4th, 2000
Could you give us an overview of the major developments that have taken place within EGPC recently?

EGPC is involved in both oil and gas activities. We are involved in upstream operations, through joint venture projects with international companies, and through concessionary agreements based on a production sharing concept. The Egyptian concessionary model is the production sharing model, and whenever an international company discovers oil or gas, the financing of the development including the drilling of wells, production facilities, etc., is borne by that company, and the costs are recovered from production.

We have a large number of joint venture companies in the upstream sector. EGPC also owns public sector companies in the refining section, in distribution, pipe lines and investment companies as well. These companies relate to such issues as engineering, construction and gas transmission and distribution.

EGPC is also responsible for meeting the fuel demands of all activities in the country, including power generation, industrial activities and domestic consumption.

How was the process developed by EGPC to shift from oil production to gas production?

In the early 1990s there was a move towards gas exploration. It was known to geologists that the Nile Valley and the offshore Mediterranean were gas rich areas, and there were exploration concessions available. Proven gas reserves now stand at 43 TCF, compared with 12 TCF in the early 1990s. This allowed us to focus on maximising gas usage in the local market, to the extent that natural gas is currently supplying ninety percent of the fuel needs for thermal power generators in the country, which is a great achievement. This is the optimal usage of this resource, and is environmentally friendly as well.

After the increase of the proven gas reserves, and having ascertained that the local market demand could be met, in the long run we considered exportation. This can be done either through pipelines, of up to 3,000 km, or by LNG. We are assessing both options, and LNG seems to be getting more attention at the moment. Southern Europe, and the Mediterranean countries look like good markets, and international companies have expressed an interest in working with us on this. We have had four proposals, one of which you mentioned, but it is not the only one. We will choose which ever is best, and work with that.

What are the costs and revenues that you envisage in this development?

The international gas companies are interested in investing in Egypt, and we are presently deciding upon how the shares should be divided. EGPC will have a ten percent share at least.

The Minister mentioned that he would like to see a start date of 2004 for the new LNG plant to be build in Alexandria. Do you believe that this is attainable?

This is a very challenging time scale, but at the moment everything is going according to plan.

There have been numerous estimates of the potential reserves, and some gas companies say that reserves could exceed 100 TCF. What do you think the figure is, and when do you think that we will know for sure?

Numerous international companies are working on this, and all of them have their own figures. Last month there was a seminar and Shell, BP Amoco, BG and IEOC/AGIP were all involved, and the consensus was for around 100TCF. The additional gas reserves are thought to be about 80 TCF, and when you add that to our known reserves, you end up with between 100 and 120 TCF. Drilling is the way to find out for sure, so a lot of these companies are accelerating their drilling programmes.

There is a licensing round for offshore deepwater acreage, off Egypt 's north-west Mediterranean Coast, which should hold considerable gas reserves. When do you expect them to be granted?

We expect to have the results of this before the end of the year.

Now that substantial reserves are proven, you need markets. Where do you see the markets of the future?

Spain, Italy and Turkey are really major potential markets, but there are also opportunities in Portugal and Greece as well.

Are you looking to export LNG to Africa?

This could form part of a second phase, after we have exploited the markets I have already mentioned. First and foremost, we are looking to sell to Europe, despite the fact that there is fierce competition.

I understand that you are giving tax holidays to companies involved in transporting natural gas. What other initiatives do you have to encourage foreign investment in natural gas?

Of course, we are encouraging investors to do business in Egypt, and we are presently reviewing the concession agreements, in order to keep them up to date, in the new millennium.
Natural gas usage in Egypt is increasing, and I believe that you predicted that Egyptian demand for natural gas is set to rise to 4.84 billion cubic feet daily by the year 2015. What are the reasons for this growth - is it demographic or economic?

There is a demographic issue; the population is increasing steadily, and gas utilisation per person is increasing, as is normal when the standard of living increases. A lot of power generation plants are being developed, and they all depend on natural gas, which is another reason for the rise in consumption of gas.

What is the environmental policy of EGPC, especially in light of recent international agreements like the Kyoto agreement?

We are utilising natural gas because it is clean, and because it means that we can cut back our fuel imports. We are using it for economic reasons, as well as environmental reasons. Achieving both objectives is important to the future of Egypt.

Looking at environmental standards, I believe that you acquired RPA technology recently for environmental clean ups. Is this something that you have developed recently?

We are planning to make this investment, and we are keen to look into this sphere of things, but there are economic issues which dictate the time frame for this.

What are some opportunities for investment or joint venture in the Egyptian oil & gas sector?

There are big opportunities based on natural gas, petrochemicals, fertiliser projects, and gas to liquid technology. This is very environmentally friendly as the end product contains no impurities like sulphuric heavy metals, and is very pure. For the time being we are discussing licensing with several companies. Egypt stands to gain a great deal of experience from these joint ventures whether they are related to LNG or GTL or fertilisers.

Is compressed natural gas also a part of the development plan?

Yes, there are two companies working on this front, and a third is being created.

The Minister for Petroleum mentioned that there were going to be further privatisations in the industry. What companies, or parts of EGPC do you think will be privatised in the near future?

We have a number of joint venture companies which are private companies, and all the companies established under investment law are private companies, but we would like to have other shareholders to support these companies financially, and to provide funds to be put back into developments in the industry. Successful companies such as Gasco, Midor, Midtab and Egypt Gas are good candidates for additional share holders. In addition to this there need to be modifications to Misr Petroleum Co-op, but this is still under consideration.

I believe that there is a Gasco public share offering (IPO) planned in the near future. How is this proceeding?

Yes, this is true, Midor as well, and Egypt Oil is already listed. Bringing new shareholders on board is an excellent process, as there activities are expanding and they need the additional finance.

I understand that you played a major plan in formulating the Egyptian Governments integrated gas strategy, its master plan that for gas usage up until the year 2017. Could you tell us about this plan, and your role in forging it?

At the time I was EGPC Vice-chairman for natural gas, and EGPC was witnessing an increase in proven gas reserves, so it was clear that we needed a long-term plan. When we established Gasco, this was the first part of the plan - to expand the infrastructure of gas transmission and distribution, which is the core of the industry. You need to link the production to the market, obviously. We also took exports into consideration, accordingly the available infrastructure can accommodate gas to be exported.

You have recently been appointed Chairman of EGPC, and there is certainly a lot of work ahead of you. What do you think is going to be your greatest challenge in the coming years?

You are right, there is going to be a lot of hard work, and a lot of challenges too. Gas exports are the number one challenge, and we also face the challenge of maximising the utilisation of gas components. There are some components that can be utilised by the petrochemical industry, and LPG is also extracted for household usage. It is important to develop this in order to reduce imports, which are very costly. We also face the challenge of increasing oil production through technology, and through new discoveries.

Do you have a message for international businessmen who are thinking of investing in Egypt?

We welcome all investors to Egypt, and we feel that there is a lot to be gained by both parties. The environment is right at the moment for joint ventures and foreign investments.

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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
August 7th 2000 Issue.
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