EOG Newspaper December 2017 Issue

Proudly the Official Publication

SUPPORTED BY

12 – 14 February 2018 New Cairo Exhibition Centre SUPPORTED BY

Egypt’s Leading Oil And Gas Monthly Publication

The Prospects of

ROBOTICS in Egypt’s oil Industry

LOC’s Forward Move: An Interview with Peter Baggaley A Brief Look into Service Companies in Times of Reform: An Interview with John Evans Igniting Egypt’s Red Sea Hydrocarbon Potential The Prospects of Nanotechnology Applications in Egypt’s Oil and Gas Industry Market Advantages of Cloud Computing: The Industry’s New IT Player

December 2017 - 48 Pages - Issue 132

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Under the High Patronage of HE. Eng. Tarek El Molla Minister of Petroleum & Mineral Resources - Arab Republic of Egypt

ORGANIZED BY

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TECHNICALLY PREPARED BY

Under the Egyptian Oil and Gas Sector Modernization Program

UPSTREAM TECHNICAL CONVENTION PANEL DISCUSSION– WORKSHOP – SHOWCASE 21-22 January 2018

PRODUCTION OPTIMIZATION

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ASK THE PANELISTS

Do you have a great question for the Minister of Petroleum and Mineral Resources? Do you need to understand how the leaders of the sector think? How about a deeper explanation of the dynamics of the new modernization program?

GET YOUR VOICE HEARD Email us all your questions at

CONVENTION@EGYPTOIL-GAS.COM Sunday, 21st of January 09:15 – 11:15

1.Modernization Program Update

HE.Eng. Tarek El-Molla

Eng. Mohamed Mounes

Eng. Gasser Hanter

Eng. Ramy Qasem

Minister of Petroleum and Mineral Resources

Undersecretary for Gas Affairs, Upstream Program Sponsor - Ministry of Petroleum

VP Egypt, Country Chairman and Managing Director - Shell Egypt

BHGE, President & CEO for MENA, Turkey & India.

Topics for Discussion 1.

Introduction on the Modernization Program main objectives, an update on what has been done and the quick wins achieved.

Challenges in modernizing the sector and the role of different industry players in resolving them.

2.

3.

Re-shaping partnership mechanism between public-private players to ensure enhance levels of modernization.

Modernizing the government system to aid the sector in reaching global competitive levels.

4.

Monday, 22nd of January 09:00 - 10:30

2.Positioning Egypt for Growth

Eng. Abed EZZ El Regal

Eng. Osama El-Bakly

Eng. Fabio Cavanna

CEO of EGPC

Chairman of EGAS

General Manager - IEOC

Eng. Hussein Fouad El Ghazzawy VP & General Manager– Schlumberger

Mr. Martijn Murphy Research Manager Upstream, Wood Mackenzie

Topics for Discussion 1.

2.

Current view of Egypt’s Upstream oil and gas sector and what is needed for future growth Reshaping government policies to enhance investment opportunities and create a more sustainable investment climate

3.

4.

What Egypt’s Upstream oil and gas sector needs to attract investment Domestic gas situation and LNG export outlook

Monday, 22nd of January 13:45 – 15:15

3.Young Professionals

HE.Eng. Tarek El-Molla

Eng.Osama Mobarez

Minister of Petroleum and Mineral Resources

Undersecretary for Vice-President & General Egypt & Libya Area Technical Office - Ministry Manager - Apache Manager – Halliburton of Petroleum

Mr. David Chi

Eng. Osama A. Halim Geol. Samir Ab. Moaty Eng. Layla El Hares Rockhopper Country Manager and Founder of Al-Amal Program

GM Development Egypt and East Med - Shell

Topics for Discussion 1.

2.

3.

Tailored training sessions to narrow skill gap.

Equal opportunity policies in petroleum sector.

Programs in building human capital.

4.

5.

How to be and stay motivated.

How to keep the Oil & Gas sector attractive

December 2017 - ISSUE 132

5

EDITOR’S NOTE In almost all media, projections are well on the positive side for the country’s trajectory, yet the question remains how has Egypt’s oil industry responded to the change in tides?

With a focus on upstream activity, this issue looks into different aspects of the sector, from promising technology, to facts and figures.

The issue features two core interviews, one with the Peter Baggaley, Energy Director for Europe and Africa for LOC, and the second with John Evans, Country Manager of Fugro.

Both interviews focus on the perception of upstream service companies regarding the current economic climate and industry performance.

Not only is the local scene changing but the international one as well is developing at a speedy race, forcing companies to shift to different approaches to maintain or grow their market share. A core tool in this regard has been technological in nature. In this issue we focus on different applications

and their potential suitability for the nature of the Egyptian market. Beginning with Robotics, nanotechnology, cloud computing to the latest technological advancements in offshore infrastructure and their potential benefits to market players.

matters of oil demand, while DirectFn looks into how ready the Gulf seems to be for the VAT. In terms of statics, D Code consultancy highlights the benefits of the new investment law.

An issue focused on the upstream industry would not be complete without a deeper understanding of the prospects of the red sea. As Egypt prepares to issue its first bid round for the area, experts weigh in on the potential value of exploring the untouched waters.

We hope you enjoy this issue as much as enjoyed preparing it. As always thank you for your readership and support.

Perhaps Egypt’s most active exploration area, this month’s report-in-print zooms in on the value of the Western Desert, from its investment landscape, to a detailed overview of its history.

EDITOR IN CHIEF

Finally, we can’t close this issue without mentioning our guest contributors. Wood Mackenzi shares their insight on

nadine@egyptoil-gas.com

Inside this Issue p.18

LOC’s Forward Move: An Interview with Peter Baggaley

p.20

A Brief Look into Service Companies in Times of Reform An Interview with John Evans, Country Manager of Fugro

p.26

p.21

Peak Oil Demand: Just Around the Corner?

p.28

The Prospects of Robotics in Egypt’s Hydrocarbon Industry

p.30

The Prospects of Nanotechnolo- Market Advantages of Cloud gy Applications in Egypt’s Oil and Computing: The Industry’s New IT Gas Industry Player

Igniting Egypt’s Red Sea Hydrocarbon Potential

p.22

p.35

The Western Desert: An Examination of Egypt’s Black Gold Mine

Editor in Chief

Nadine Abou El Atta

Managing Editor

Mariana Somensi

Senior Editor

Noah Finley

Senior Writer

Sarah Samir

Staff Writers EGYPT’S LEADING OIL AND GAS MONTHLY PUBLICATION

Proudly the Official Publication

Publisher MOHAMED FOUAD This publication was founded by Mohamed Fouad and Omar Donia.

All rights to editorial matters in the newspaper are reserved by Egypt Oil and Gas and no article may be reproduced or transmitted in whole or in part by any means without prior written permission from the publisher.

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EGYPT

TOP 100 UPDATES OF THE MONTH Egypt’s Natural Gas Consumption Stands at 6 bcf/d Egypt currently consumes approximately 6 billion cubic feet per day (bcf/d) of natural gas, according to an official at the Egyptian Natural Gas Holding Company (EGAS). This

figure, however, should fall over the winter due to a decline in consumption by gas-powered electricity plants, the official added.

Egypt to Pay $750M toward Arrears Egypt will pay $750 million toward its arrears to international oil companies (IOCs) by the end of 2017, the Minister of Petroleum and Mineral Resources, Tarek El Molla, said. He had earlier

noted that if Egypt maintains its current payment rate, it will pay down its arrears to international oil companies (IOCs) within two years. The government currently owes IOCs $2.3 billion.

EGPC Has Signed 439 Agreements Since ‘73 Between 1973 and October 2017, the Egyptian General Petroleum Corporation (EGPC) signed 439 oil and gas agreements, according to a senior official at EGPC. The state-operated

company has drilled 2,912 exploratory wells during the past 44 years, the official noted, adding that $23.029 billion had been invested in the oil and gas industry during that time.

Gasoline, Diesel Consumption Fall Consumption of gasoline and diesel fell during the first quarter of fiscal year (FY) 2017/2018, according to the Minister of Petroleum and Natural Resources, Tarek El Molla. Gasoline consumption declined by 4.2% while consumption of diesel fell by 7.1%.

“It [gasoline consumption] reached 1.872 million tons in three months as of September 30 compared with 1.955 million tons the previous year,” El Molla said. Consumption of diesel declined from 3.680 million tons to 3.419 million tons over the same time period.

Egypt Consumes 4.5M Tons of Natural Gas Per Month Egypt’s consumption of natural gas has risen to approximately 4.5 million tons per month, according to an official at the Egyptian Natural Gas Holding Company (EGAS). In August, Egypt consumed 4.577 million tons of natural gas, a 29.6% increase from the 3.531 million tons the country consumed in August 2016. Production has been

unable to keep up with demand. Egypt produces approximately 3.3 million tons of natural gas per month, or 73% of domestic demand, the official noted, leaving a deficit of around 1.2 million tons per month. To reduce this deficit, EGAS plans to increase production by 1.4 billion cubic feet per day (bcf/d) by June 2018.

Egypt to Award LNG Tender to 4 European Firms The Egyptian Natural Gas Holding Company (EGAS) will purchase 12 cargoes of liquefied natural gas (LNG) from European firms. The Europeans companies are Gas Natural Fenosa, Trafigura, Vitol, and Glencore. Gas Natural Fenosa is a Spanish natural

gas company. The other three firms are Swiss trading houses. The final breakdown of cargoes is unclear.

Sources indicated, however, that EGAS will purchase five cargos from Fenosa, three cargoes from Trafigura, three cargoes from Vitol, and one cargo

Households Connected to the Natural Gas Grid 8 million

35.3%

Monthly Natural Gas Production & Consumption

Total number of households connected to the grid in 2017.

% of Urban Households connected to the grid in 2017.

5.4 bcf/d

6 bcf/d

Production

Consumption

from Glencore. The LNG will arrive in Egypt during the first quarter of 2018. Nine cargoes will be processed through Egypt’s two floating storage

regasification units (FSRUs) and the remaining three will be imported via Jordan’s FSRU in Aqaba.

LNG Imports to Cease Next Year Egypt will cease importing liquefied natural gas (LNG) before the end of 2018, according to the Minister of Petroleum and Mineral Resources, Tarek El Molla.

The country will, however, continue to

import LNG through the first half of 2018 according to its current contracts with international companies, El Molla added.

Giza, Fayoum fields to Begin Production in 2018 The government plans to bring the Giza and Fayoum natural gas fields online by the end of 2018. The combined output of the two fields is expected to be between 500 million cubic feet per day (mcf/d) and 700 mcf/d. The Minister of Petroleum and Mineral Resources, Tarek El Molla, recently visited the

fields. He also visited the future site of an onshore gas treatment facility at the Raven natural gas field. The facility, a project of Rashid Petroleum Company (Rashpetco), is projected to start treating natural gas from the Raven field next year.

Atoll Field Still on Track for Production in 2017 The BP-operated Atoll natural gas field remains on track to begin production in 2017. The project is now 93% complete. BP has drilled three wells to a depth of 950 meters. Upon

completion, the field will have the capacity to produce 300 million cubic feet per day (mcf/d). Investments in the project have reached $3.8 billion.

EGPC, Trident Petroleum Ink $2.4M E&P Deal The Egyptian General Petroleum Corporation (EGPC) signed a $2.4 million exploration and production (E&P) agreement with Trident Petroleum Company for the drilling of four new wells in Magawish Block in the Gulf of Suez. The agreement requires a minimum investment of

$2.4 million and came with $500,000 signing bonus. The Head of EGPC, Abed Ezz El Regal; the Chairman of Trident Petroleum, Ehab Awad; and the Minister of Petroleum and Mineral Resources, Tarek El Molla, signed the deal.

Cost of Fuel Subsidy Program Rises 68% The cost of Egypt’s fuel subsidies rose 67.86% year on year (Y.o.Y.) for the first quarter of the fiscal year, according to the Minister of Petroleum and Mineral Resources, Tarek El Molla, During the first quarter of fiscal year (FY) 2017/2018, Egypt spent EGP 23.5 billion on its fuel subsidies, compared to EGP 14 billion during the same quarter in FY 2016/2017. Even

though expenditures rose, they fell below budgetary expectations. The government had expected to spend EGP 27.5 billion on fuel subsidies during the first quarter, El Molla said.

Actual outlays were EGP 4 billion less than that figure. Lower consumption will directly contribute to governmental savings, El Molla noted.

Regulations for Gas Law to be Submitted to Cabinet 12.2%

Total % of households connected to the grid in 2017.

2.3%

% of Rural households connected to the grid in 2017.

3.4%

8

Total % of households connected to the grid in 2006.

EGYPT OIL & GAS NEWSPAPER

The regulations for the new gas law and the regulatory authority it establishes will be submitted to the Cabinet soon, according to the Minister of Petroleum and Mineral Resources, Tarek El Molla.

After meeting with the Prime Minister,

Sherif Ismail, El Molla announced that the Ministry of Petroleum and Mineral Resources had reviewed the proposed regulations and would soon submit them to the Cabinet for review and approval.

CHC Seeking Opportunities to Export Natural Gas to Egypt The Cyprus Hydrocarbon Company (CHC) is exploring opportunities to export natural gas to Egypt, according to the company’s CEO, Panos Kelamis.

Since February 2016, companies operating in Egypt and Cyprus have

met 18 to 20 times, Kelamis noted. He added that CHC is cooperating with Shell, Delek, and Noble to facilitate the process. Low prices, however, have made the negotiations more difficult, he added.

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El Molla Reiterates: No Fuel Price Increases this Year The government has no plans to raise fuel prices during the current fiscal year, the Minister of Petroleum and Mineral Resources, Tarek El Molla, stated. In doing so, he confirmed the previous statement of the Finance

Minister, Amr El Garhy. El Molla added, however, that the government aims to shift its resources from fuel subsidies to programs that will provide greater assistance to Egypt’s poor, such as education, transportation, and health.

Sources of Energy for Public Facilities

Electricity 96.1%

Egypt in Talks with Iraq to Import 24M Barrels of Oil Egypt is negotiating with Iraq to import 24 million barrels of oil per year starting in 2018, the Minister of Petroleum and Mineral Resources, Tarek El Molla, said.

Under the terms being negotiated,

Butane 1.5%

Egypt will receive 2 million barrels of oil per month, El Molla noted. The deal, if reached, would double Egypt’s crude imports from Iraq.

Diesel 0.5% Natural Gas 0.4%

Parliament Considers Changes to Industrial Natural Gas Prices The Parliamentary Committee on Industry is considering proposals for re-pricing the natural gas sold to industrial purchasers and eliminating the property taxes on factories. The committee has opened the inquiry after receiving a number of complaints and requests from industry figures. Ahmed Samir, the Head of the Committee on Industry, announced the committee’s

deliberations on the repeal of property taxes for factories as part of an effort to decrease manufacturing costs and encourage domestic production. He noted that, in addition to property taxes, manufacturers’ profits are also taxed. Decreasing industrial prices for natural gas is another objective of the industrial sector.

Egypt Opens New Butane Warehouses In preparation of higher butane consumption during the winter months, Egypt has taken steps to bolster its distribution capabilities. Four new butane warehouses—two with storage capacities of 4,000 tons and two with storage capacities of 2,400 tons—were recently opened to ensure an adequate supply of butane in the South Valley. In addition the government established two warehouses—each with a storage capacity of 2,400 tons—at Wadi El

Qamar, Alexandria. It also plans to open five additional warehouses with individual storage capacities of 6,000 tons during the current fiscal year. The new storage facilities raised Egypt’s overall storage capacity at its butane filling factories to 82,000 tons with an additional storage capacity of 55,000 tons at refineries and fields.

Butane cylinders are being distributed throughout 2,980 distribution warehouses.

Egypt’s Regional Hub Bid Boosted by Modernization Egypt is modernizing its oil and gas sector and plans to maximize its potential by 2021, the Minister of Petroleum and Mineral Resources, Tarek El Molla, stated at the Abu Dabhi International Petroleum Exhibition and Conference (ADIPEC). The modernization program will increase Egypt’s capacity to serve as a regional trade hub for oil and natural gas, the minister said. As part of this

program, the government is seeking to attract exploration and production (E&P) investments to increase oil and gas output and to boost reserves, especially from the Gulf of Suez, El Molla stated. In particular, he noted that the government plans to have seismic surveys conducted in the Mediterranean and Red Seas and to launch new tenders.

Power Plants Cut Natural Gas Consumption by 900 mscf/d Egypt’s power plants have decreased their consumption of natural gas by 900 million cubic feet per day (mcf/d) with the approach of cooler winter temperatures.

Consumption has decreased by around 22% and is now

ranging between 3.1 billion cubic feet per day (bcf/d) and 3.2 bcf/d, according to officials at the Egyptian Natural Gas Holding Company (EGAS). During the peak summer months, power plants were consuming between 4 bcf/d to

Others 1.5%

4.1 bcf/d. Power plants are the largest consumers of natural gas in Egypt, using the lion’s share of the estimated

5.4 bcf/d of natural gas that the country produces according to the officials.

El Molla: EGPC to Launch New E&P Tenders The Egyptian General Petroleum Corporation (EGPC) plans to launch a new exploration and production (E&P) tender for onshore oil blocks, the Minister of Petroleum and Mineral Resources, Tarek El Molla, said at the Abu Dhabi International Petroleum

Exhibition and Conference (ADIPEC).

“EGPC’s onshore bid round will be before [the end of the year]. Nine to ten blocks will be offered from the Western desert and Eastern blocks,” El Molla stated. The timeline for the tender was not specified.

El Molla: Current Reforms Lead to Surge in Investments Egypt’s economic reforms have led to a surge in oil and gas exploration agreements that were previously delayed by political unrest, the Minister of Petroleum and Mineral Resources, Tarek El Molla, said at Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC). El Molla noted that between 2011 and 2013, Egypt did not sign any upstream agreements.

Arrears to international oil companies (IOCs) soon accumulated and investments stagnated, resulting in fuel shortages and electricity blackouts.

That has changed, however, he said.

The government has adopted a new oil and gas strategy and Egypt has signed 83 agreements with international companies over the past four years.

El Molla Meets with CEOs at ADIPEC The Minister of Petroleum and Mineral Resources, Tarek El Molla, held a series of meetings with CEOs of international oil companies (IOCs) on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC).

He met with the CEOs of Lukoil, Total, BP, Technip, and Petronas to discuss

the development of new gas project in the Mediterranean Sea. Recent discoveries in the Mediterranean Sea and Nile Delta are attracting foreign investments, El Molla noted.

Electricity Consumption of Natural Gas

3.2 NOVEMBER 2017 Source: Egypt Oil & Gas

JULY 2017

MAY 2017

3.9

3.4

JANUARY 2017 3

4

3.2

JUNE 2017

MARCH 2017

3 FEBRUARY 2017 Unit: bcf/d

December 2017 - ISSUE 132

9

TOP 100 UPDATES OF THE MONTH Saudi Aramco in Talks with Egypt to Refine Saudi Crude Saudi Aramco is considering exporting crude oil to Egypt for refining.

Negotiations between Egypt and the Saudi energy giant for the refining of Saudi crude in Egypt have already begun, according to the Minister of Petroleum and Mineral Resources, Tarek El Molla. The crude imports

could replace some of 700,000 tons of refined products Egypt currently imports from Saudi Aramco. While Egypt’s refineries are only capable of meeting 65% of domestic demand, the government is taking steps to increase output of refined products.

Egypt to Launch LNG Tender Early Next Year Egypt plans to offer a liquefied natural gas (LNG) import tender during the first quarter of 2018, according to the Minister of Petroleum and Mineral Resources, Tarek El Molla. The tender will be for LNG imports during the second quarter. Production from Zohr,

along with other natural gas fields, should permit Egypt to end its imports of natural gas sometime next year.

Before it reaches the point of natural gas sufficiency, however, Egypt will need to continue importing natural gas during the first half of the year.

New Acting Head of Egypt Gas Appointed Hossam Ibrihim Abdel Salam El Samra was appointed as the new Acting Head of Egypt Gas Company, according to official sources at the Ministry of Petroleum and Mineral Resources.

He has been serving on the board of the company as a representative of the Egyptian Natural Gas Holding Company (EGAS).

EBRD Predicts 4.5% GDP Growth The European Bank for Reconstruction and Development (EBRD) predicts that Egypt’s GDP will grow 4.5% in fiscal year (FY) 2017/2018. Higher tourism numbers and healthier oil exports are contributing to economic growth, according to the bank, despite high

inflation. “Oil exports rebounded in the second half of FY 2016/2017, following three years of contraction,” the ERBD notes. In addition to oil exports and tourism, economic reforms and foreign investment are factors in economic expansion, according to the bank.

Russian-Egyptian Contracts for Dabaa Plant this Year Contracts between Egypt and Russia for the Dabaa nuclear plant should be finalized by the end of 2017, according to the Minister of Electricity, Mohamed Shaker. He had previously stated that the legal prerequisites for the plant had

been completed and that funding and operational plans had been finalized.

The plant has a planned generating capacity of 4,800 megawatts (MW) of electricity.

GE Completes Substation to Connect Egyptian, Saudi Arabian Grids GE has connected a new 500/220 kilovolt (kV) gas-insulated substation to Egypt’s national grid as part of the Egypt-Saudi Arabia Interconnection Project. The new substation is located in Badr City, northeast of Cairo, and

has the capacity to route 1.5 gigawatts (GW) of electricity—enough electricity to power 1 million homes. The projected was completed on behalf of the Egyptian Electricity Transmission Company (EETC).

NREA Looking to Set Up Company to Manage Wind Farms The New and Renewable Energy Authority (NREA) is looking to establish a company to manage wind farms across the country. The new firm will be responsible for the maintenance and operation of Egypt’s wind farms.

The NREA plans to open a tender for a 70% stake in the new company.

Several international companies, such as Siemens, Vestas, and Gamesa, are expected to submit bids, the CEO of the NREA, Mohamed El Khayat, said. He expects over $100 million in investments for the new firm. The company will be launched in late 2018.

Electricity Consumption Stable under 25K MW Electricity consumption is holding below 25,000 megawatts (MW), the Ministry of Electricity and Renewable Energy announced. Lower temperatures and

regular fuel supplies have resulted in stable production and consumption, the ministry said. Summer demand peaked at over 30,000 MW.

Consideration of Bids for Egypt-Saudi Interconnection Project Postponed Saudi Arabia and Egypt agreed to postpone the consideration of bids on electricity lines and transmitters for the Egypt-Saudi Arabia Interconnection Project until January. Four companies submitted bids for the project, according to sources in the Ministry of Electricity and Renewable Energy,

10

but Saudi Arabia requested a delay.

The ministry has retained the services of the European consulting firm, Cesi, for consultation on technical aspects of the project.

EGYPT OIL & GAS NEWSPAPER

EGYPT Electricity Consumption of Natural Gas

350 mscf - 2017 800 mscf - 2018 1,500 mscf - 2019 2,500 mscf - 2020 Source: WoodMackenzi data and Official PRs.

UK Providing $97M for the Benban Project Britain will invest more than $97 million in the Benban Solar Park, the British Embassy announced. The funds are part of the $653 million loan package put together by the International Financial Cooperation (IFC) for the Nubian Suns Solar Project. “The UK is investing in a project that will provide clean power to over 350,000 residential customers and generate up to 6,000 jobs,” stated the UK Ambassador to Egypt, John Casson.

Ministry to Launch Operation Tender for Power Plants The Egyptian Electricity Holding Company (EEHC) plans to launch a limited tender in December for the maintenance and operation of the new power plants being constructed by Siemens. The power plants are located in the New Administrative Capital, Beni Suef, and El Brulus. Four companies submitted offers earlier this year. In order to determine the best offer, EEHC decided to offer a limited tender for the four companies, sources at the Ministry of Electricity and Renewable Energy stated. The companies are: the Orascom-ADERA Energy consortium, Siemens, the Elsewedy-EDF consortium, and Steiaj. EEHC has formed a committee that aims to study the offers submitted by the four firms within 20-30 days. The ministry plans to sign the contract with the winning firm in early 2018.

Butane Production Rises 2.5% Y.o.Y in August Butane production rose to 163,700 tons in August, up 2.5% year-on-year (Y.o.Y) from August 2016. More significantly, production jumped 9.5% from the 149,100 tons produced in July, according to statistics released by the Central Agency for Public Mobilization and Statistics (CAPMAS). Consumption of butane rose to 316,900, a 3.2% Y.o.Y increase from the 307,100 tons consumed in August 2016.

In July, Egypt consumed 308,100 tons. To fill the gap between production and consumption, Egypt imported 159,700 tons of butane in August, a 4.5% decrease from the 167,200 tons imported in July.

Consumption of Diesel Edges up to 1.235M Tons Egypt’s diesel consumption in August rose slightly from the previous year, notching a 0.65% year-on-year increase from August 2016, according to data from the Central Agency for Public Mobilization and Statistics (CAPMAS). Consumption increased from 1.227 million tons in August 2016 to 1.235 million tons in August 2017. Diesel consumption had fallen this summer. In July, Egypt consumed 1.165 million tons.

Ministry Predicts Natural Gas Output of 5.342 bcf/d Production of natural gas should rise to 5.342 billion cubic feet per day (bcf/d) during fiscal year (FY) 2017/2018, according to the Ministry of Petroleum and Mineral Resources. The ministry predicts that natural gas production will reach 6.940 bcf/d in FY 2018/2019, allowing Egypt to achieve a surplus of natural gas.

Consumption will also rise, according to the ministry, but at a slower pace. In FY 2018/2019, the ministry predicts that consumption will reach 6.384 bcf/d, leaving a surplus of approximately 556 million cubic feet per day (mcf/d).

EGPC Produces 290,000 tons of Diesel per Week The Egyptian General Petroleum Corporation (EGPC) produces approximately 290,000 tons of diesel per week, according to a source at EGPC. The diesel is used to meet the Egypt’s domestic requirements, providing diesel to both individual consumers and large-scale electricity plants, the source noted. As demand outstrips domestic refining operations, the country also imports diesel to meet its diesel requirements.

BP Projects 500% Production Increase from Nile Delta BP expects to increase its net output from the Nile Delta region by 500% over the next three years, the company’s Vice President for African Exploration, Jasper Peijs, said. By 2020, the company anticipates that it will be producing over 300 million barrels of oil equivalent per day (boe/d) from its fields in the Nile Delta, compared to the 50 million boe/d it extracted in 2016.

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Amidst Dreams of Self-Sufficiency What will Happen to Egypt’s FSRUs?

T

By Mohamed S. Khedr he usage of Floating Storage Regasification Units (FSRUs) has been an asset for Egypt’s natural gas imports since 2015, when the country downgraded its position as a natural gas exporter to a net importer. Recent discoveries, however, forecast an output boom that will enable Egypt to entirely cover its domestic demand with local supply by late 2018.

The expected rupture with natural gas imports and the prospects of regaining its position as an exporter led the natural gas industry to rethink FSRUs’ usage, looking at it as an essential tool to help Egypt become a regional energy hub.

The Consumption Equation Egypt’s production by January 2018 is expected to rise from 5.1 billion cubic feet per day (bcf/d) to 5.4 bcf/d, according to a statement by the Chairman of the Egyptian General Petroleum Company (EGPC), Abed Ezz El-Regal. Furthermore, Gamal Kaliouby, a leading international energy expert and a professor of petroleum engineering, expects production to 6.4 bcf/d by June 2018, a level that would almost cover the country’s consumption levels.

On the other hand, natural gas demand is forecast to rise as well to reach 6.37 bcf/d according to CI Capital, a close estimate to the planned production

level of 6.2-6.4 bcf/d of 2018.

While the nation has plans to reach self-sufficiency by 2018, and begin exports by 2019, reality is Egypt may still need to import Liquefied Natural Gas (LNG) for the coming couple of years.

However, with promising production hikes, Egypt may soon eliminate LNG imports altogether, leaving its two Floating Storage Regasification Units (FSRUs) mostly unneeded.

The Role of FSRUs The Egyptian Natural Gas Holding Company(EGAS), had chartered two FSRUs, the first of which is Höegh Gallant, arrived in April 2015 with a regasification capacity of 0.5 bcf/d; and the second is BW Singapore, delivered in September 2015 with a peak regasification capacity of 0.75 bcf/d. Both units have a total rental value of $320,000 per day.

Currently, Egypt only utilizes 50% of the FSRUs combined capacity, which is expected to further decrease, Mohamed Khafagy, General Manager of Natural Gas and Economic Affairs in EGAS told Egypt Oil & Gas. As Tarek El Molla, Minister of Petroleum and Mineral Resources, announced the state’s plans to halt all LNG imports by 2018, the outlook for the need for

FSRUs in imports is quickly dimming up; however, some experts believe that they can be a vital arm in the country’s dreams to become a regional natural gas hub. “The new law and authority will certainly improve the flexibility of Egypt’s gas market, allowing Egypt to surpass Turkey, a possible competitor, that aspires to become a regional gas hub, FSRUs are essential for this to happen, as it will take long time and large finances to establish onshore LNG terminals,” said Osama Kamal, former Petroleum Minister.

Furthermore, a core use for the FSRUs lies in private LNG imports. As the government aims at liberalizing its natural gas market, allowing private companies to begin importing natural gas. So far three companies have received initial permits to import and distribute natural gas, including TAQA Arabia, Fleet Energy, and BB Energy; in addition, to four other companies in the process of obtaining the initial approval, including Toyota, Eng. Amira El Mazni, then Vice Chairman for the Gas Regulatory Authority told Egypt Oil & Gas. While its need as a government import tool is quickly diminishing, Egypt’s two FSRUs have a crucial role in aiding the country in its pursuit to liberalize its market, as well as expanding the country’s import/ export facilities, further connecting it to Europe.

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CORPORATE

TOP 100 UPDATES OF THE MONTH Rosneft Looks to Invest $2B at Zohr

PetroTrade Seeks EGP 2.5B Loan

Rosneft plans to invest more than $2 billion in the Zohr natural gas field, the company announced. The funds will be invested between 2018 and 2021.

Rosneft is also considering increasing

PetroTrade is in talks for an EGP 2.5 billion loan. The funds will be used to pay the company’s dues to the General Petroleum Corporation. The company has sent inquiries to a number of banks – National Bank, Banque Misr,

its stake in the concession to 35%.

The company believes the field has the capacity to produce 29 billion cubic meters per year.

Total Acquires 5% Stake in Idku LNG Project Total announced that it purchased a 5% stake in the first train of the LNG project in Idku. The company acquired the stake from Engie. The first train has an annual operational capacity of 3.6 million tons. The purchasing agreement is part of a larger deal between the two firms. Total purchased Engie’s upstream LNG assets for $1.49 billion. Besides the stake in the Idku

facilities, Total acquired sales and purchase agreements, an LNG tanker fleet, stakes in other liquefaction plants, and regasification capacity in Europe. The agreement is still pending governmental and contractual reviews.

Total expects the agreement to be finalized in mid-2018 with an effective date of January 1st, 2018.

Banque Du Caire, Qatar National Bank, Arab African International Bank, and Commercial International Bank – about a possible loan package with a fiveyear maturity.

East Mediterranean Gas Company Loses Appeal The East Mediterranean Gas Company lost its appeal of a 2016 court ruling that held the company fully responsible for the repayment of its $174 million debt to the National Bank. The ruling by the Court of Cassation is not subject to appeal. While rejecting the appeal of the East Mediterranean Gas Company, the court will hear the appeal of

Egypt Insurance Company. The East Mediterranean Gas Company and Egypt Insurance Company were parties to a natural gas export arrangement with Israel from 2005. Egypt Insurance Company acted as the guarantor for the East Mediterranean Gas Company for issues arising from terrorism or political violence.

Bonatti Group Wins Onshore-Service Contract for Zohr

ERC’s $3.7B Refinery to Come Online Next September

The Bonatti Group won a contract for electrical and developmental work at the Zohr natural gas field.

The firm will conduct onshore

Operations at the Egyptian Refining Company’s (ERC) new refinery will begin next September, the Chairman of ERC, Ahmed Heikal, said. Construction at the site should be finished by June.

The plant should be operating at 98% of its capacity by the end of 2018. The refining facility was originally set to begin operations in the second quarter of 2018, but has experienced several delays. The plant has a projected

electrical, telecommunication, and instrumentation work for the project.

The value of the contract is unknown.

Fugro Deploys New Survey Vessel to Egypt Fugro has deployed a new survey vessel to Egypt to conduct sampling at the Zohr natural gas field. The survey vessal, Kobi Ruegg, is conducting sampling on behalf of Saipem. It will then conduct geographical surveys for Shell and Pico. The Kobi Ruegg is

capable of conducting geophysical surveys and geotechnical sampling.

The vessel is replacing the Fugro Navigator and will be based out of Abu Qir in Alexandria in order to service Fugro’s clients in the Red Sea and eastern Mediterranean.

Sidpec Reports EGP 703M Profit for First 3 Quarters Sidi Kerir Petrochemical Company’s (Sidpec) profits reached EGP 703 million in the first nine months of 2017, according to the company’s market filing. Measured in EGP, Sidpec’s profits rose 29% year-on-year (Y.o.Y)

from the EGP 543 million it earned during the same period last year. Net revenues reached EGP 3.32 billion during the first nine months of the year, up 48% Y.o.Y. from revenues of EGP 2.24 billion in 2016.

TransGlobe to Plug Boraq 5

production capacity of up to 4.2 million tons of liquid oil products, sufficient to meet approximately 14% of Egypt’s domestic demand. In addition to butane and naphtha, the plant will have the capacity to process 522,000 tons of gasoline, 600,000 tons of jet fuel, and 2.3 million tons of diesel. ERC has contracted to sell the refinery’s output to the Egyptian General Petroleum Corporation (EGPC).

Aggreko Enters the Egyptian Market The power-management company, Aggreko, formally announced its entrance into the Egyptian market.

The company specializes in the rental of electricity generators to power operations at oil and gas fields. The ability of the company to provide centralized power, combined with the relatively small size of its generators,

promotes efficiency and reduces costs, said Max Schiff, Business Development Manager at Aggreko.

Aggreko has some crucial long-term investment projects in Egypt and is currently developing a permanent presence in the country, Andy Boyd, Aggreko’s Area General Manager, said.

ADES, Vantage Form Joint Venture

TransGlobe Energy Corporation announced that it has not found hydrocarbons in two testing zones in Boraq 5. Due to the disappointing

results, the company announced that the Boraq 5 well will be plugged and abandoned.

Alexandria Petroleum, APRC Produce 170,000 tons of Butane Annually Alexandria Petroleum Company and Amreya Petroleum Refining Company (APRC) provide the market with 170,000 tons of butane annually, according to the Head of the Egyptian General Petroleum Corporation (EGPC), Abed

Ezz El Regal. The refineries aim to increase their refinement rate for crude oil to meet domestic demand for butane in the face of increasing consumption, especially in the winter.

Vantage Drilling International and ADES International Holding agreed to form a deepwater-drilling joint venture in Egypt. The new company will specialize in providing drilling services in the deep waters off Egypt’s coast. Vantage and

ADES will split the profits of the joint venture. According to Vantage’s press release, the new company will have “exclusive deepwater marketing rights within Egypt.”

GPC Awards New Contract to ADES General Petroleum Company (GPC) awarded a new contract to ADES International Holding for its ADMARINE III offshore jack-up rig. The contract is for two years and includes a two-

year-extension clause. The contract, according to ADES, will not require significant capital expenditure.

GPC first contracted for the use of ADMARINE III in 2012.

Sonker Bunkering to Receive $500M in Financing

China’s SinoHydro to Build Oil Refinery in Egypt

Sonker Bunkering Company and DP World finalized $500 million in financing for a liquid bulk terminal at Ain Sokhna.

The storage facility will be used to hold imported liquid petroleum gas, gasoil, and liquified natural gas (LNG). The terminal will be located in the third basin of the port. The government plans

China’s SinoHydro signed a $1.99 billion contract with Sokhna Refinery and Petrochemicals Company for the construction of an oil refinery with a capacity of 155,000 b/d. Under the terms of the contract, SinoHydro will complete the refinery in less than four years. The company will be responsible

BRENT PRICES 56.25

57.9

60.62

60.62

to build a 40-kilometer gas pipeline to connect it to Egypt’s national grid. The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), and the Commercial International Bank (CIB) had previously agreed to provide $341 million in financing for the project.

63.93

61.36

OPEC BASKET PRICES 54.44

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9-Nov

EGYPT OIL & GAS NEWSPAPER

16-Nov

12-Oct

55.52

19-Oct

56.45

58.45

26-Oct

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61.7

9-Nov

for the design, procurement, and construction of the refinery’s facilities. SinoHydro is a state-owned company and is a subsidiary of Power Construction Corporation of China (PowerChina).

NATURAL GAS PRICES 59.98

16-Nov

2.95

12-Oct

2.83

19-Oct

2.91

26-Oct

3.18

3.13

9-Nov

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2.68

2-Nov

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December 2017 - ISSUE 132

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TOP 100 UPDATES OF THE MONTH

MENA

SAUDI ARABIA Oil investments are rising again due to the reduction in global oil stocks and an improving global economy, according to the Saudi Energy Minister, Khalid El Falih. The production-cut agreement between OPEC and a number of non-OPEC oil-producing countries has drawn down more than half of excess global supply, he said.

Saudi Arabia is prepared to extend the productioncut arrangement, Crown Prince Mohamed bin Salman stated.

Saudi Aramco and Saudi Basic Industries Corporation (SABIC) are conducting a feasibility study for a facility to convert crude oil directly into petrochemicals. The direct conversion would eliminate the need to refine the crude and potentially reduce costs. The companies could sign a memorandum of understanding for the development of the facility by the end of 2017. The project, if carried out, will use super-light crude for the production of the petrochemicals.

Furthermore, Saudi Aramco plans to increase its capital expenditures by close to 10% next year, according to the company’s Senior Vice President of Technical Affairs, Ahmad El Sa’adi. This year’s budget calls for $93.31 billion in capital spending, El Sa’adi noted, but the company will increase this amount by approximately 10% in the upcoming fiscal year.

The state-run Saudi Aramco signed $4.5 billion in deals with international companies. The agreements are with companies from China, Europe, the UAE, and the US and are primarily focused on increasing gas production. The company is looking

to increase its natural gas production to 23 billion cubic feet per day (bcf/d).

Saudi Aramco is looking to spend approximately $300 billion over the next ten years to expand its upstream operations, the company’s CEO, Amin Nasser, said at ADIPEC. “This is mainly upstream, onshore, offshore and joint ventures in the kingdom and out of the kingdom,” he stated.

A survey of Asian refiners predicted that Saudi Arabia would raise December crude oil prices for Asian buyers. The refiners expected the leading oil exporter to increase the price of its Light Arab crude to $0.90 per barrel over the Oman-Dubai benchmark in the Asian markets, which would represent the highest premium on the Oman-Dubai benchmark for Arab Light since September 2014.

Prices for heavier grades were also expected to rise.

The survey indicated that refiners expected the Asian price of Saudi Arabia’s Arab Heavy to rise to $1.30 below the Oman-Dubai benchmark, indicated a tightening of the oil market in Asia.

Saudi Arabia’s official selling prices (OSPs) for December came in higher than predicted, rising across the board. Saudi Aramco raised December OSPs for Arab Extra Light, Arab Light, Arab Medium, and Arab Heavy by $0.65 per barrel. The OSP for Arab Super Light rose by $0.45. Saudi Arabia is asking a premium of $1.25 over the Oman-Dubai benchmark for its Arab Light. It cut its discount on Arab Heavy to $1.15 per barrel, its lowest discount rate since December 2013. For its Arab Medium, Saudi Arabia eliminated its discount on the grade for the first time since August 2014.

Saudi Arabian officials met with their Kazakhstan counterparts to discuss the ongoing importance of production cuts on the sidelines of a conference in Uzbekistan. Kazakhstan is one of the non-OPEC participants in the production-cut pact led by OPEC and Russia. The central-Asian country, while indicating its support for the agreement, has actually increased production since the implementation of the agreement in January.

Saudi Arabia’s Arkad is forming a joint venture with Swiss ABB Ltd. in order to extend its operations throughout the Gulf and into North Africa. Arkad, an oilfield services company, will hold a majority stake in the joint venture, called Arkad-ABB SpA. The companies plan to finalize the details of the joint venture in December. The joint venture will permit Arkad to expand its operations to Algeria, Kuwait, and the UAE. Events in Saudi Arabia have contributed to climbing oil prices. An apparent missile attack against Riyadh by the Houthi rebels in Syria and the arrest of a number of businessmen, princes, and high-ranking officials have contributed to market uncertainty.

Yemen’s Houthi rebels once again threatened oil tankers passing along Yemen’s strategic western coast. “The battleships and oil tankers of the aggression and their movements will not be safe from the fire of Yemeni naval forces if they are directed by the senior leadership (to attack),” a Houthi military leader said. The rebels’ leadership, however, took pains to note it would only target vessels of “aggressor” nations. The Houthis had previously threatened Saudi tankers.

ADIPEC ADNOC hosted the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) from November 13th through 16th. This year’s theme was ‘Forging Ties, Driving Growth.’ The four-day conference heard from a number of industry leaders, such as Ahmed El Jaber, ADNOC Group CEO and UAE Minister of State; Suhail Mohamed El Mazrouei, UAE Minister of Energy; Tarek El Molla, Egypt’s Minister of Petroleum, and Mohammed Barkindo, Secretary General of OPEC. Others speakers and panelists

included CEOs of leading international oil companies (IOCS), such as Total, Petronas, Eni, PEMEX, and OMV. Key leadership from other companies, such as Lukoil, BP, and Gazprom also participated.

One of the main topics addressed during the event was production cuts. The UAE Energy Minister, Mohammed El Mazroui, said that he saw little reason to delay a decision on whether to extend the production-cut agreement beyond November.

The Omani Oil Minister, Mohammed bin Hamad El Rumhi, said that he expects the productioncut agreement to be extended at the November meeting of its signatories. Joining a growing list of counties expressing support for an extension of production cuts, the Bahraini Oil Minister, Sheikh Mohammed bin Khalifa El Khalifa, indicated that Bahrain had no reason to oppose an extension of the production-cut agreement.

UAE The UAE announced it would continue its production cuts in December. The Abu Dhabi National Oil Company (ADNOC) indicated that it would maintain its 15% cut of Murban crude, 10% cut of Das crude, and 5% cut of Upper Zakum. “This reflects the UAE’s continued focus on reducing its oil production by 139,000 [b/d] as per its OPEC commitment,” tweeted UAE Energy Minister Suhail El Mazroui.

The UAE raised its official selling prices (OSPs) for December. ADNOC is offering the Murban and Das Blend crudes at premiums of $2.55 and $2.20 per barrel, a jump of $0.52. Its OSP for the Upper Zakum crude also rose, but at a slower pace. The state-run oil company raised the Upper Zakum OSP by $0.42 per barrel, offering the crude at a $0.65 premium over the Oman-Dubai benchmark.

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EGYPT OIL & GAS NEWSPAPER

Abu Dhabi Crude Oil Pipeline (ADCOP) issued a $3 billion bond. The bond offering was oversubscribed, receiving over $11 billion in offers. The pipeline company is completely owned by ADNOC. It is not clear how the funds will be used, but the bond offer is part of a larger effort by ADNOC to revise its capital structure in order to create greater cash flow.

The Abu Dhabi oil giant officially announced the partial initial public offering (IPO) of its retail division. The company plans to offer at least 10% of ADNOC Distribution on the Abu Dhabi Securities Exchange next month. The listing is pending regulatory approval. The announcement was widely anticipated.

ADNOC plans to increase its production capacity to 3.5 million b/d, the CEO of ADNOC, Sultan El Jaber, announced. The company is also looking to boost the capacity of its refining sector by 60%, he said.

Abu Dhabi plans to increase the production capacity of its Upper Zakum oilfield to 1 million b/d by 2024.

ADNOC, Exxon Mobil, and Impex Corporation signed an agreement to increase the field’s production on the sidelines of ADIPEC. ADNOC will increase production from its Bab oilfield by 30,000 b/d to 450,000 b/d by 2020, it announced.

The state-managed oil company signed a contract with China Petroleum Engineering & Construction Corporation to perform work on the project.

www.egyptoil-gas.com

OPEC Even as OPEC appears to be on course to re-extend its production-cut agreement with other oil producers, the group has begun preparing for the eventual winddown of the agreement. Concerned that output could once again swamp the oil markets upon the expiration of the production cuts, the oil cartel is looking at ways to gradually unwind the agreement to prevent the accumulation of excess supply.

OPEC experienced an overall decline in production during the month of October with output dropping by 80,000 b/d. Production disruptions in Iraq were a primary contributor to the dip in production. Prices responded positively, breaking the $60 per barrel mark at the end of the month.

Mohammed Barkindo, the Secretary General of OPEC, said that the production-cut agreement is benefitting the global economy, not just oil producers. He noted that it is helping the oil market to regain its equilibrium.

oilfield is operated by the Wintershall, a Germany oil and gas company. The NOC expressed concern that Wintershall had cut production without consulting with the state-run oil company.

Libya’s Sharara oilfield suffered a new “security breach,” the NOC said. Engineers making their way to Concession NC 186 came under attack by gunmen. No one was injured, but some equipment was stolen. In response to the event, the Chairman of the NOC, Mustafa Sanalla, met with the Head of Akakus Oil, Nuri El Saeed to discuss the oilfield’s security. The leader of the 91st Battalion, an armed group tasked to secure Sharara, reportedly said he lacked the necessary soldiers and equipment to protect the field.

LIBYA Protests cut production by 40,000 b/d from oilfields operated by Wintershall in Libya. Protestors from Ajkhara said that they had shut down production because of the National Oil Corporation’s (NOC) unresponsiveness to local needs and demands. The protestors indicated they might expand their protest to the Nafoura field if the NOC failed to meet their demands.

Production from the Libyan oilfield, Sara, has fallen by 50,000 b/d, according to the NOC. The drop in production has been caused by protests. The

Italy seized a smuggling vessel sailing from Libya bearing 100 tons of diesel, indicating that fuel smuggling from Libya continues despite previous efforts by the Italian government to arrest smugglers.

The seizure occurred on November 4th. The ship was manned by an Indonesian crew but bore a Togolese flag.

IRAQ Iraq increased the export capacity of its Basra port by 900,000 b/d by adding a fifth terminal. The port now has the capacity to export 4.6 million b/d.

Iraqi oil exports to the US moved ahead of Saudi Arabia’s by approximately 2.9 million barrels in September. The trend continued in October.

Iraq asked for “clarifications” from the Russian oil giant, Rosneft, on the oil and gas contracts it has signed with the Kurdistan Regional Government (KRG). The company recently announced that it

was investing $1.8 billion and acquiring a 60% stake in the KRG’s primary pipeline. In 2017 alone, Rosneft has promised the KRG more than $3 billion in investments and advance payments, irking the central government in Baghdad.

Negotiations between the central government and Turkey for the export of oil from Iraqi Kurdistan and Kirkuk through the KRG’s oil pipeline are being hindered by the KRG’s $4 billion in debt to Turkey, the Iraqi Oil Minister, Jabbar El Luaibi, said. Under the proposed terms of an agreement, exports would be

controlled by Iraq’s oil marketing company, SOMO. El Luaibi said that the federal government would not assume responsibility for the semi-autonomous region’s debt.

Royal Dutch Shell will hand over its operations at Iraq’s Majnoon oilfield prior to 2019. It will transfer operational responsibilities for the field to the Basra Oil Company, a state-run oil company. Under the terms of the proposed agreement, Iraqi workers at the field will retain their positions despite the shift in operational management.

IRAN A fire on an oil platform at Iran’s Rag-e-Sefid oilfield killed four people and destroyed the Fatah 95 drilling rig. The fire was blamed on a leakage of combustible materials.

Iran signed a contract for the conversion of natural gas into liquefied natural gas (LNG) for export. Under the terms of the contract, Iran will supply natural gas to a floating liquefied natural gas (FLNG) unit belonging to the Belgium firm, Exmar. The unit has the capacity to produce 500,000 tons of LNG per year.

A fire at an Iranian refinery in Tehran killed six workers and injured two more. The incident was apparently caused by a technical issue.

Iranian exports to China, South Korea, India, and

Japan climbed 20% overall in September from the previous month to reach 1.9 million b/d. The figure represents a 5.1% Y.o.Y. increase from September 2016. Exports to Japan and India fell, but were more than offset by rising demand from China and South Korea. Crude exports to China, while lower than in August, rose almost 60% Y.o.Y. to hit 784,000 b/d.

Following China, South Korea imported 504,000 b/d, India 415,400 b/d, and Japan approximately 216,000 b/d from Iran. Iran’s total exports in September were 2.28 million b/d.

Iran signed preliminary energy agreements worth $30 billion with Russia. Russian energy companies signed six energy agreements with Iran, according to the Iranian Deputy Oil Minister for International Affairs, Amir Hossein Zamanini. The two countries

agreed on the need for “strategic co-operation in the energy sector,” Zamanini said. The agreements are non-binding. The deals constitute an initial step toward “binding” contracts, according to Igor Sechin, CEO of Rosneft. These binding agreements could be signed within a year.

The National Iranian Oil Company (NIOC) and Indonesia’s Pertamina are set to begin negotiations to renew a liquefied petroleum gas (LPG) contract.

The companies will discuss both price and quantity.

In May 2016, the NIOC agreed to export 600,000 tons of LPG to Indonesia. The first delivery—of 44,000 tons of propane and butane—arrived in Indonesia in October 2016. Since then, the NIOC has been shipping 44,000 tons per month to Indonesia.

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MENA

TOP 100 UPDATES OF THE MONTH

ALGERIA Sonatrach, Algeria’s state-owned energy company, plans to bring online a $1 billion natural gas project at the Reggane natural gas field before the end of the year. Upon completion, the field should produce up to 8 million cubic meters per year. The project was previously slated to come online in June but has experienced delays.

Algeria expects oil and gas production to increase by 6.5% in 2018. It also projects the value of its energy

exports to increase from $32.3 billion this year to $33.6 billion next year, a 4% increase. Production for 2017 is predicted to fall by 2.7% from 2016, but— with oil prices rising—revenues will increase by 16.6% from $27.7 billion in 2016.

Sonatrach announced that it plans to invest $2 billion in the Hassi Rmel natural gas field. The purpose of the investment is to maintain stable production from Algeria’s largest natural gas field. The field produces

between 190 million cubic meters per day (mcm/d) and 210 mcm/d, approximately 60% of Algeria’s natural gas output.

The company will be able to increase its exports of natural gas by 20 mcm/d to meet higher winter demand, the company’s CEO, Abdelmoumene Ould Kaddour, announced. The 20 mcm/d will come from recaptured flared gas.

OMAN Oman is expected to announce the results of its tender for Blocks 43B, 47, 51, and 65 next year. The tender was opened in September and will be closed on December 31st. Block 51 is an offshore block while 43B, 47, and 65 are onshore blocks. Three of the four blocks are for oil extraction and one is for gas extraction.

Oman will award an exploration concession for Block 49 to Tethys Oil Company. The block is in western Oman, bordering Saudi Arabia. The

block includes over 15,000 square kilometers. The agreement is for the length of three years and includes the possibility for a three-year extension, according to the company. The agreement will be converted into a 15-year production license if the company finds marketable hydrocarbons.

Duqm Refinery and Petrochemicals Industries Company is pursuing a $6 billion loan for its refinery project. The company is seeking financing from multiple banks, including the export agencies of

South Korea, Italy, and Spain.

Oman awarded an exploration and production (E&P) contract to Eni. The Exploration and Production Sharing Agreement (EPSA) is for Block 52. Oman awarded Eni an 85% interest in the block, retaining 15%. Eni immediately announced that it, in turn, was awarding a 30% stake in the block to Qatar Petroleum.

BAHRAIN The Bahraini government has blamed a pipeline explosion on Iranian-instigated terrorism. “The incident was an act of sabotage and a dangerous act of terrorism aimed at harming the higher interest of the nation and the safety of the people,” the

government said. Iran denied any connection with the explosion. The explosion occurred close to Buri, about 15 kilometers outside Manama. No injuries have been reported. Bahrain Petroleum Company (BAPCO) cut off oil to the pipeline after the

explosion and the fire was brought under control.

Expressing concern, Saudi Arabia initially suspended oil flows to Bahrain and took steps to secure its own oil infrastructure. Oil shipments to Bahrain from Saudi Arabia have since resumed.

and Water, Abi Khalil, issued a statement indicating that the government was prepared to “negotiate the technical proposals” of companies that had submitted exploration bids. El Harari, in an unexpected move, resigned as prime minister,

creating political uncertainty in the Beirut. The Lebanese President, Michael Aoun, however, has refused to recognize his resignation, permitting the government to continue to operate.

LEBANON Lebanon is continuing to move forward with its exploration licensing for energy deposits in its territorial waters despite the political uncertainty caused by the resignation of its former Prime Minister, Saad El Hariri. The Minister of Energy

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EGYPT OIL & GAS NEWSPAPER

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December 2017 - ISSUE 132

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INTERVIEW

LOC’s Forward Move: An Interview with Peter Baggaley

By Nadine Abou el Atta

A

key pillar to the petroleum industry; the role of service companies can be viewed throughout the spectrum of the exploration and production operations. With the previous volatile climate, the industry’s service companies faced many challenges. However, as economic indicators are showing signs of recovery, and as the government is currently focused on boosting the investment climate of the oil industry, Egypt Oil & Gas sat with Peter Baggaley, London Offshore Consultants (LOC)’s Group Energy Director for Europe and Africa, to get a better understanding of the perception of service companies of the current local market.

Focused on all aspects of transportation and construction in the marine environment, LOC is an independent marine and engineering consultancy and survey organization, providing high quality services to the shipping and offshore energy industries. The company was established in London in 1979 and has grown into an international, multi-disciplinary organization, with offices across the world and a team of more than 400 professionally qualified personnel.

Baggaley began the interview by highlighting the presence of the long history of LOC in the Middle East and Africa regions, focusing on

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EGYPT OIL & GAS NEWSPAPER

Egypt, where the company has been working on projects in Egypt for more than 15 years, mainly focused on offshore operations in the natural gas fields of the West Delta Deep Concession. The increasing optimistic economic outlook will drive a greater demand for our services, which is why we think the time is right to establish a firm base and open our new office here in Cairo.

When asked about what they hope to add to the Egyptian market, Baggaley explained that “LOC is different because it is an independent, privately-owned company. Owned by our staff, we are not subject to external shareholder pressure, and we can make the best decisions for our clients based on our experience and expertise.”

“Despite being part of an international group, [we] will not be reliant on expensive expat resources.”

LOC offers a unique combination of marine investigation and risk management services in both the energy and shipping sector.

Independent of insurers, certification and

classification societies, “we adopt a pragmatic approach and work to manage risk with the best resources available. We are a very responsive company, providing comprehensive casualty response 24/7 around the world, every single member of staff adopts this mindset, enabling us to respond to project needs any time of day or night,” he went on to explain, “with more than 30 offices around the world, LOC empowers its local offices and staff, supporting them to use their local knowledge to make independent decisions.

This is backed up with the full support of the wider team, allowing any specialist expertise or knowledge to be easily and quickly drawn down to any project.”

Competitive Advantage and the Nature of the Egyptian Market “Our biggest competitive advantage is our independence; we are a privately-owned company totally independent from class and certification organizations. We have 33 offices around the world and they operate as locally empowered entities in each of these countries,” said Baggaley in discussion of the company’s main edge in the Egyptian market.

Baggaley stressed that the company’s new Cairo office will be staffed by local engineers and surveyors, “despite being part of an international

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group, it will not be reliant on expensive expat resources. All of our services will meet LOC’s global quality service standards. Every project will be locally delivered and every client will have group-wide support offering any additional expertise, experience and skills 24/7 if needed.”

“The market is buoyant in Egypt, internationally we see the country as one of the few economic bright spots at the moment, enjoying significant investment internally and from abroad.”

Further elaborating on their competitive edge, Baggaley highlighted that “LOC’s specialist experience advising on the transport of large scale modular infrastructure is likely to be in demand, where an installation is fabricated in modules in the Far East because of a lack of local resources or labor and then transported using heavy lift vessels to the place of construction and operation. This approach can offer massive cost savings and can accelerate project delivery time dramatically.”

As a service company with an international orientation, the interview would not be complete without a deeper understanding of how the nature of the Egyptian market compares to others regions.

“The market is buoyant in Egypt, internationally we see the country as one of the few economic bright spots at the moment, enjoying significant investment internally and from abroad,” Baggaley explained.

He further highlighted that due to the positive economic prospects, the company has “some significant oil and gas projects underway and in the pipeline.”

LOC’s operations in the coming phase will remain focused on the West Delta Deep Concession, Atoll, and Zohr gas fields in the Mediterranean.

“Our new dedicated office will help us to support our team better and will enable us to increase the range of independent specialist services that we can provide to our customers both offshore and onshore,” he added.

establish local operations in the Egyptian market.

Market Impact

In terms of their planned expansion in Egypt, Baggaley stressed that they “do not anticipate any ‘roadblocks’ but every market is different and obviously there will be a certain process of registrations and processes to complete in order to establish our business in this locality.”

By nature, the private sector tends to have a significant impact on the economic welfare of any economy. Asking about Baggaley’s view on LOC’s potential impact on Egypt, he answered: “At a very simple level, we can provide local employment. Through the establishment of our office and the growth of our business, we can offer a wider and wider range of international services, generating economic benefits for the region and employing more local people.”

However, generally speaking, “the main challenge is finding the right resources and employing the right people, our team works with integrity, professionalism and dedication. LOC is known across the industry for delivering a specialist technical service, using the right complement of individuals. Maintaining and consistently delivering on this reputation will be a priority on every project and with every customer. Secondly, we need to tell the market that LOC has opened a new office, is ready to take on new projects and is actively seeking new business. We have a strong international reputation as an expert industry leader and we will be working hard to establish our local reputation.”

LOC Technology and the Environment As a company focused on offshore operations, ensuring the welfare of the surrounding environment is often a crucial and skillful task, a topic which the regional director addressed by confirming that throughout their record the company had never had any issues in this regard. In fact, “the very nature of our business is to manage risk profiles comprehensively and effectively, this is the heart of what we do on every project,” he stated.

“We believe that Egypt offers a sizable potential market, not least because one third of the world’s shipping passes through the Suez Canal, and we will be looking to develop our Cairo office to make the most of those opportunities.

Initially, our office will be six people comprising a mix of technical management and administrative support roles, supported by our global network, but new business growth will see new hires,” he elaborated.

Moving Forward The interview was concluded with discussions on the future view of the company’s size of operation in Egypt.

“Our vision is to develop this office over time into a larger multi-function office supporting all of LOC’s business streams, [such as] marine warranty surveying, marine surveying, marine casualty response, and engineering consultancy.

I would like to see this office offering a full range of engineering services, including in time a detailed design capability that our sistercompany Longitude offers, covering mooring, transportation, and motion response. In the longer term, the Cairo office will act as a bridge into the North Africa markets giving access to countries to the west and ultimately to be our regional hub for North Africa,” Baggely stated.

As the country’s latest announced indicators signal a steady positive trajectory, many companies operating in the petroleum industry are hopeful of a momentous market growth, opening up new opportunities for the crucial sector.

“We believe that Egypt offers a sizable potential market, not least because one third of the world’s shipping passes through the Suez Canal.”

Possible Challenges Entering or expanding in any market often presents a set of challenges, Egypt Oil & Gas asked about the main challenges LOC tends to face when entering a new market, and what the service company expects to face in its efforts to

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INTERVIEW

A Brief Look into Service Companies in Times of Reform An Interview with John Evans, Country Manager of Fugro

By Nadine Abou el Atta

A

s Egypt enters the era of economic reform, industry players have reported different views regarding the trajectory the market is taking, while most expect a positive outlook, the sector is yet to recover from the challenges it faced during the previous years.

With a focus on service companies, Egypt Oil & Gas sat down with John Evans, Country Manager of Fugro, to understand how international players see the market in Egypt, its current challenges, and its potential in comparison to other markets.

Fugro is a global player in energy and infrastructure markets, specialized in geo-intelligence and asset integrity solutions for large constructions, infrastructure and natural resources.

What are Fugro’s future plans of expansion in Egypt?

We have just introduced a new offshore survey vessel to the market, the Kobi Ruegg. It is purposebuilt, equipped with the latest technology to carry out a wide range of survey activities, in water depths from ten metres to thousands of metres.

The vessel will undertake its first survey project, for PICO International Petroleum, this November. The Kobi Ruegg will be based in Egypt to support the country’s oil and gas sector, and will additionally undertake projects abroad in the Mediterranean and Red Sea. Another investment Fugro has made in 2017 is the establishment of an onshore geotechnical division to undertake site investigations for major civil construction and infrastructure projects. The division includes an accredited soils laboratory for testing of soil samples. We are investing in new premises in Zahraa Maadi to support our expansion.

The new premises will allow us to move to a single site that includes modern offices and laboratories, workshops, warehouse and yard space.

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EGYPT OIL & GAS NEWSPAPER

How does the company’s technology and strengths affect its market share and presence in the industry?

I believe we have strong capabilities, based the skills and experience of our staff, the technology, and the resources that we maintain in Egypt, which we enhance through training and investment.

Furthermore, we are also able to bring in other specialist technologies from the Fugro Group, as –and when—required. This allows us to maintain a strong market presence through fulfilling the requirements of our clients.

How does Egypt compare to other countries Fugro operates in, in terms of growth potential, company market share, and general outlook?

The Egypt market is better than many other markets, especially those in Europe and Asia, where investment in the oil and gas sector has fallen a lot.

However, it still lags behind markets in the Arabian Gulf, where there is a lot of investment both in onshore and offshore oil and gas projects.

Fugro operates globally in an array of services; why does the company only operate in the petroleum sector in Egypt? And are you considering entering other industries in Egypt, namely renewables?

Our marine division operates mainly in the oil and gas industry; yet, our new land division also provides services to renewables, such as wind farms, and civil projects, new ports, desalination plants, power stations and refineries.

What are the main challenges faced in the Egyptian market?

Receiving payment from our clients can be slow.

While this situation did improve for a while, it has now deteriorated again. Some clients are very slow payers, taking more than a year to settle our invoices.

In your opinion, how has the floatation of the EGP, the current reform program, and new laws impact the industry in general, and Fugro in particular?

The flotation of the Egyptian Pound presented a very difficult time for the company as we faced a loss in currency value worth several million dollars.

However, it is important to note that the flotation was necessary for the long term benefit of the Egyptian economy and hopefully this will allow us to convert Egyptian Pounds into foreign currency in the future.

How can Fugro impact the industry in Egypt?

And in your opinion how can the private sector affect the industry in Egypt?

Fugro can support any large energy or civil construction project, whether on shore or offshore, so can provide crucial services and expertise to support Egypt’s development.

The private sector is important to provide new ideas and investment in order to create new companies and jobs and grow the economy in general but needs the government to create the right environment and regulation for it to thrive.

Given the current focus to improve the investment climate in Egypt, in your opinion, what steps should the government take, and which roadblocks for the private sector should be addressed?

Generally speaking, I think the government in on the right track, by focusing on making it easier to do business in Egypt. With regards to our activities, these are sometimes affected by delays due to customs and permits as well as slow payment, which all slow down our projects and therefore affect our clients and the economy. In the future, full convertibility of the Egyptian Pound will also be important to encourage continued inward investment.

OVERVEIW

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Peak Oil Demand: Just Around the Corner?

T

he market used to worry about peak oil supply. The focus has shifted to peak oil demand as the industry witnesses a structural decline in demand from the developed world, and questions the appetite of the emerging world to grow at the insatiable rates experienced over the past 15 years.

Oil demand has already peaked across much of the developed world, starting with Japan in 2000.

This contrasts with the emerging world where oil demand continues to grow rapidly. OECD demand is forecast to revert to structural decline from 2020, wiping out demand of more than 3 million barrels per day by 2035. While low oil prices have supported a resurgence in OECD demand since 2014, this price effect is already fading and we expect it to reverse as oil prices rise into the 2020s. Notably, the OECD is weighed down by a combination of government policy and auto technology which will continue to push vehicle fuel efficiency improvements and drive fuel substitution. Together with slow or no growth in the working age population, and a mature transport sector, we see OECD transport oil demand fall significantly through the 2020s.

In contrast, non-OECD demand will continue to grow to 2035, driven by rising income levels and a growing middle class that boost the desire for mobility and the use of transport fuels. Demand for consumer goods and the need to move freight in an increasingly consumer-driven world will drive oil demand higher. However, government policy, auto technology, and demographics in some countries also play a role in non-OECD demand. These factors may not lead to a drop in non-OECD demand, but they do curb the pace of growth which is expected to decelerate through time. As in the OECD, this deceleration is mainly felt in the transport sector.

Non-OECD demand is expected to grow by nearly 16 million barrels a day by 2035.

By Ed Rawle, Chief Economist, Wood Mackenzie

vehicle penetration displaces significant volumes of gasoline demand. The impact of peak gasoline on overall oil demand into transport is tempered by increasing demand for road freight and air travel.

The petrochemical sector is one of the few bright spots for oil demand. Petrochemical feedstocks make up just over 10% of total oil demand but we see significant growth over the next 20 years.

Feedstocks are forecast to add 6 million b/d to total demand by 2035 – growing 50% from today’s 12 million b/d.

Demand from all other sectors account for the remaining 30% of total oil demand. Although oil demand grows to 2035 on aggregate, it is minimal compared with what we have seen over the past 20 years. The prospect of peak oil demand is very real.

From an investment perspective, the possibility of peak oil demand could reduce upstream interest and investment in exploration. We have already seen a move away from high-cost, high-risk frontier plays where upfront costs are high. A focus on better understood basins and near-field opportunities could persist as we continue to transition to a smaller, more efficient exploration industry. Investment in high-cost enhanced oil recovery projects could also be at risk.

There are also supply-side implications from the rise of petrochemical demand versus the stall in transport demand. Liquids from natural gas production will become a key and growing feedstock for petrochemicals. Unlike oil, growth in gas supply remains relatively robust through 2035 and is a growing focus for upstream investment.

Turning to OPEC, neither revenues nor market share are likely to be significantly affected by slowing

demand growth to 2035. This is because nonOPEC production plateaus late next decade and then declines to 2035. As a result, OPEC needs to increase its productive capacity to meet demand.

Those OPEC producers with rising production can expect higher oil revenues next decade as their market share rises while the supply and demand balance tightens and prices increase.

However, OPEC producers cannot ignore the prospect of peak oil demand. They need to prepare for a future with less dependence on oil demand.

As an organisation, OPEC does not currently have an explicit strategy to reduce its reliance on oil. But some OPEC nations have made this part of their domestic strategy such as Saudi Arabia through its ‘Vision 2030’ which seeks to develop non-oil focused sectors of the economy such as health care, tourism, and defence.

Our demand outlook poses a number of challenges to the refining sector. As demand for jet/kerosene and diesel/gasoil grows against a backdrop of declining gasoline demand, the refining sector reverts to being distillate-led. This transition is further supported by the forthcoming marine fuel regulation which mandates that the international shipping community use fuels with 0.5% sulphur or equivalent as of 2020 – down from today’s mandate of 3.5%.

The forecast decline in gasoline demand provides an opportunity for the naphtha currently converted into gasoline components, to be used as petrochemical feedstock. However, the petrochemical sector typically targets the lowest cost feedstocks, which can be ethane, or NGLs. So we do not expect the petrochemical sector to be the saviour of the oil market and drive prices higher.

Global Demand Outlook

Almost 60 million barrels of the 96 million barrels of oil consumed every day are used in the transport sector. As technology advances - both in terms of the fuel efficiency of internal combustion engines, and the move to hybrid and electric technology – the transport sector will have the most impact on oil demand.

Global growth in demand for oil in transport stalls by 2030, with gasoline demand hit the hardest. On a global basis, gasoline demand peaks by 2030. It’s a double whammy for gasoline: in the next decade, demand is hit by gains in vehicle fuel efficiency. Post2025, it’s an EV story, as the ramp-up in electric

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RESEARCH & ANALYSIS

The Prospects of Robotics in Egypt’s Hydrocarbon Industry

By Mahinaz El Baz

A

dvances in technology and automation have changed many industries. Now, due to shrinking resources and increasing demand for hydrocarbon products, robotics is making its way into the oil and gas industry. Key industry players are rethinking the pace of their automation timelines as new oil and gas fields are mostly located in extreme conditions that pose serious development challenges in terms of human and environmental safety.

The use of automation, particularly robotics, offers the hydrocarbon industry extensive opportunities to further human and environmental safety, cost efficiency, and production. Experts believe that the future oil and gas technology will be increasingly automated, digital, and smarter, according to DNV GL’s Technology Outlook in 2016.

Past, Present, and Future Applications In recent years, international oil companies (IOCs) have been exploring the potential of robotics.

The main drivers of this exploration are heath, safety, and environment (HSE) considerations and improvements to cost and production efficiency. Oil companies are experiencing complex challenges

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that need unconventional techniques in order to be solved. For instance, in order to meet growing energy demand, the industry is moving to tap hydrocarbon reserves located in harsh or remote locations, making development more difficult and more expensive, according to a report by Royal Dutch Shell on robotics, sensor systems, and automation.

Not only are many of these hydrocarbons more difficult to extract, many of them require additional processing, according to the report by Shell. At the same time, the report states, retirements from the industry are creating a shortage of expert staff, causing companies to centralize their decisionmaking processes. Experts argue that automation, in general, and robotics, in particular, will enable companies to meet these challenges, Shell’s report argues.

Robotic systems have been used by the oil and gas industry “for a variety of tasks since the 1960s, but the range of applications was generally limited to areas where direct human intervention was impossible,” the report by Shell notes.

Robotics is now used in both upstream and

downstream processes. Uses include: pipe handling, daily drilling operations, pipe inspections, tank inspections, weather monitoring, pressure and flow measurements, and remote controlled underwater vehicles (ROVs), according to a review of robotics in the onshore oil and gas industry by Shukla and Karki.

Application: Drilling Operations Drilling operations are one of the biggest expenses for oil and gas companies. Not only is drilling costly, it involves considerable safety hazards for workers and is highly technical. Experts believe that automating manual portions of the process, such as pipe handling and pressure drilling, could significantly reduce safety risks and speed up the overall drilling process, noted Peter Maier, General Manager of Energy & Natural Resources, Industry Cloud, SAP, according to Rigzone.

Application: Diagnostics and Inspections “Underwater drones and unmanned submersibles can help monitor when equipment needs repairs, and can also aid in the inspection process. These vehicles can be controlled remotely, eliminating the need for skilled pilots, and can even broadcast live

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video feeds and data back to a central location,” stated Maier.

Application: Weather Monitoring Systems “Sensors are objects that detect events or changes in their environment, and respond to that change by providing a corresponding output. There are many different types of sensors and various outputs, but in most cases, these outputs will be electrical or optical signals,” according to Shell.

IOCs are already using weather sensors to monitor seismic activity and “ocean and atmospheric levels,” Maier writes. Companies believe that these sensors will help predict major weather events, such as earthquakes and hurricanes; thereby allowing oil and gas companies to take the necessary safety precautions.

Application: Pressure and Flow Robotics can easily improve the measurement of pressure and oil flow.

Installing smart sensors—connected to centralized monitoring software—allows the reporting of oil level, pressure, flow from the field without an onsite crew. Upon receiving this information, rig crews can easily and safely monitor and adjust settings as needed.

Industry players expect developments in robotics to be applied to subseaproduction systems and drilling and well operations. In addition, they expect autonomous pipeline inspections to increase both on and off shore. By 2025, the DNV GL report predicts that this technology will be used to improve several aspects of operations including: fully automated drilling operations, simpler and smarter completions, smarter subsea tie-ins, autonomous inspection of pipelines, Biodegradable polymers for enhanced oil recovery, rigless plugging and abandonment, and LNG as fuel for trucks and railways.

Benefits vs. Challenges By using automated technology and robotics, oil and gas companies can make more wells economically feasible due to the higher efficiency and enhanced safety of the technologically advanced operations. “Advanced automation technology can fundamentally change how a well is drilled, but needs a complete redesign of drilling-related processes to reap the full benefits,” the DNV GL report stated. Robotics offers many potential benefits in the upstream value chain of exploration, drilling, and development. Some of the biggest future opportunities appear in production operations, such as reducing unplanned downtime, maximizing asset and well integrity, increasing field recovery, and improving oil throughput. Given the hydrocarbon industry’s substantial increases in upstream capital investment, optimizing production efficiency is essential, according to the analysis of Martinotti et al.

“The Iron Roughneck, made by National Oilwell Varco Inc., automates the repetitive and dangerous task of connecting hundreds of segments of drill pipe as they are pushed through ocean water and oil-bearing rock into the well hole,” according to Bloomberg. “This robot increases crew and rig safety, reduces pipe-handling time, and saves rig

floor space. In essence the robot is a versatile, safe, and cost-effective alternative to human roustabouts,” according to a writer for Eniday.

On the other hand, Anisi and Skourup argue in their study on oil and gas robotics that applying robotics in the petroleum industry has caused an improvement in HSE standards. “Although this is contradictory to the general goal of automation, work is now focusing on maintaining focus on HSE and at the same time improving [the] efficiency and profitability of the facilities,” noted the study.

Applying robotics is not without its own challenges.

Automated oil fields are “flush with digitally enabled wired systems, equipment, and components. A typical offshore production platform can have more than 40,000 data tags”—though not all of these data tags are necessarily connected or used, according to Martinotti et al. They argue that “[c]onverting this huge amount of data into better business and operating decisions requires new, carefully designed capabilities for data manipulation, analysis, and presentation, as well as tools to support decision making.”

“The impact of addressing these automation challenges can be material. Judging by our benchmarking research, improving production efficiency by 10% can yield up to $220 million to $260 million bottom-line impact on a single brownfield asset,” according to Martinotti et al.

Furthermore, a number of sub-challenges must be addressed to produce a reliable and intelligent robotic system which enables the remote operation of normally unmanned oil and gas facilities. Operator interface, control room visualization, high-level robot allocation and task scheduling, camera-viewpoint planning, 3D mapping, telerobotics, safe humanrobot interaction, collision handling, SCADA control networks, and motion planning could all provide challenges, according to Anisi and Skourup’s study. Nevertheless, even if all these sub-challenges are successfully addressed, system integration would still remain a serious challenge. Work in this direction includes robotic prototypes for industrial maintenance and repair applications.

The Changing Labor Market The rapidly growing world population is burdening the hydrocarbon industry by increasing demand.

By 2050, the global population is expected to reach almost 10 billion people who will require safe, reliable, and affordable energy. In order to meet this demand, oil and gas companies have begun to focus on new areas where they can embrace innovation to increase efficiency. At the same time, the petroleum industry is suffering from a skilled labor shortage.

“This shallow talent pool has made it difficult for oil and gas companies to hire new team members with the technical skills required to work on new energy sources. Without skilled workers in these positions, it has now become essential for energy companies to rethink their operations and include the use of automation, predictive and self-learning systems, and digitally connected infrastructure,” noted Maier.

He further explained that these technologies can dramatically raise both productivity and efficiency.

On the contrary, some experts believe that automating the industry and replacing humans with robotics could have negative effects on the labor market. For oil rig workers, using robotics would probably mean that some of the jobs lost during the oil price downturn would never return.

Moreover, some of the new job openings would require a different type of skill set. For instance, between 2014 and 2016 in response to a fall in oil prices, the industry cut around 440,000 jobs worldwide. As prices recover, former employees are once again seeking employment. Many are likely to

be disappointed, however, as oil companies have adopted advanced technology to cut costs and create savings.

This adaptation of robotics has reduced the need for lower-skilled labor in favor of fewer, yet highly skilled, employees who possess information technology and computer skills, noted Nicholas Newman in his analysis on robotics on oil rigs. “It used to be you had a toolbox full of wrenches and tubing benders. Now your main tool is a laptop,” stated Donald McLain, Chairman of the IndustrialPrograms Department at Victoria College in south Texas, according to Eniday.

In addition, using robotics for drilling rigs may reduce the number of humans on a drilling crew by almost 40% in the future, from 25 to 15 workers, Houston Chronicle’s Jordan Blum writes, quoting industry analysts, according to Oil Price. Nabors Industries, a drilling company, expects that it could reduce the size of the crew at each well site to around five people—from the current 20—with additional use of robotics and automation, according to Bloomberg.

The Future of Robotics Technology in Egypt Although IOCs are using automated technologies in many countries, they have yet to be implemented in Egypt. Amr Manhawy, General Manager at Seaharvest Oil & Gas Services, believes that the reason behind this delay is mainly due to the high cost of these technologies and falling oil prices. He further explained that it will be hard to implement such technology in Egypt in the near future due to its high cost, except in the deep drilling concessions in the Mediterranean Sea. Yet, using robotics and automation in Egypt’s oil and gas industry could prove beneficial by providing better performance, decreasing drilling time, and offering a safer work environment for the drilling crew.

On the other hand, economists argue that using robotics to replace humans in Egypt’s hydrocarbon industry will have a direct effect on the economy.

“From [an] economic perspective, further automation enhances [the] capital productivity of Egypt’s oil and gas sector. That is critical to longterm economic growth, because two-thirds of incoming FDI [Foreign Direct Investment] to Egypt go[es] to the energy sector, which is capitalintensive by nature,” noted Youssef Beshay, Senior Banker, BNP Paribas. In addition, some economic experts believe that investing in transferring and developing new technologies, such as applying automation and hiring robotics, is economically rewarding, while others believe that it has a negative effect on Egypt’s labor market as the country is suffering from a growing population and high unemployment rates. “It is rather case-dependent.

While it makes sense to invest in new upstream technology such as unconventional drilling, it is less so in the downstream sector where Egypt’s very competitive labor cost (post EGP floatation) reduces the incentive for automation,” stated Beshay.

With the world population growing, the demand for new hydrocarbon resources will increase as well, driving up costs for petroleum companies. By using robotics to conduct daily operations—both on the job site and in the office—companies will be able to decrease risk, enhance and accelerate decision making, reduce facility turnaround requirements, and achieve and maintain performance excellence during process operations. While the impact of robotics on the labor market is not entirely clear in a developing economy, increased utilization of modern technology can increase productivity and efficiency while boosting asset integrity.

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UNITING ENERGY TAQA Arabia is the largest private sector energy distribution company in Egypt with over 18 years of experience with diversified sources of energy, investing and operating energy infrastructure including gas transmission and distribution, power generation & distribution and marketing of petroleum products.

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EGYPT OIL & GAS NEWSPAPER

www.egyptoil-gas.com

TAQA Oil Marketing sells Petroleum products, including fuels and lubricants, through a retail network of service stations under TAQA brand name.

TAQA Gas is the company’s largest business unit, comprising of several distribution companies delivering natural gas to domestic and industrial clients.

TAQA Power has positioned itself in the market of power generation and distribution as a pioneering licensed developer and operator.

TAQA EPC incorporates our engineering, procurement and construction services.

December 2017 - ISSUE 132

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RESEARCH & ANALYSIS

Igniting Egypt’s Red Sea Hydrocarbon Potential

G

eologists consider the Red Sea as one of the world’s most promising areas for hydrocarbon exploration.

There are nine countries that border the Red Sea: Saudi Arabia, Egypt, Yemen, Israel, Jordan, Djibouti, Eritrea, Somalia, and Sudan. Some of these countries, mainly Saudi Arabia and Sudan, started exploration activates in the area years ago. Following the recent bilateral maritimedemarcation agreement signed with Saudi Arabia, Egypt is finally able to begin exploring its Red Sea waters, beyond the Gulf of Suez.

The Red Sea offers exciting opportunities for potential stakeholders. The United States Geological Survey (USGS), using a geologybased assessment methodology, estimated in 2010 that the Red Sea Basin Province contains a mean volume of 5 billion barrels of undiscovered technically recoverable oil and 112 trillion cubic feet (tcf) of recoverable natural gas.

Egypt on Track After many years of limiting eastern offshore exploration and production (E&P) activates in the Gulf of Suez, in April 2016 both countries inked the bilateral agreement, allowing Egypt to announce exploration plans for the Red Sea, which took place in July 2017, one month after the ratification of the maritime-borderdemarcation agreement.

“The agreement allowed Egypt to start its exploring activities in this area of the Red Sea, since it determined Egypt’s limits in exploring oil,”

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“The Red Sea, on the other hand, is quite different from the GOS in many aspects.

This, however, does not mean that the Red Sea has less potential than the GOS.” the Minister of Petroleum and Mineral Resources, Tarek El Molla, said in an official statement; further noting that there are two similar maritimedemarcation agreements currently under negotiation with Greece and Cyprus.

With the new demarcation agreement in place, state-owned South Valley Egyptian Petroleum Holding Company (Ganope), signed contracts worth $750 million with Schumberger and TGS. Under the terms of the contracts, the companies began collecting geo-science data from Egyptian territorial waters in the Red Sea in preparation for E&P activities. After finalization of the project, the ministry will be prepared to receive bids for oil and gas exploration in Egypt’s territorial waters in the Red Sea and southern Egypt, according to Ahram Online. “The survey will be limited between 22° and 28° in [the] Red Sea, to cover 55 km²,” El Molla specified, according to Egypt Today.

Noting the importance of the seismic survey agreement, Tamer El Daker, an Exploration

By Mahinaz El Baz

Manager at Dragon Oil, stated that “the new seismic technology used will help a lot in collecting new data to attract oil companies to start exploring in the Red Sea. Egypt did [not] have the chance to do that before due to some financial problems, while Saudi Arabia did a lot of successful exploration [on its] side of the Red Sea.” When asked about the cause of the delay, Mohamed Ghanim, a senior geologist, noted that the agreement for delineating the marine border between Saudi Arabia and Egypt was only finalized in 2017—much later than Saudi Arabia’s agreement with Sudan. Aziz Abd El Salam, Senior Exploration Geologist at Badr Petroleum Company (Bapetco), countered, however, that the attention to oil and gas discoveries in the Western Desert and GOS areas are the main reason for the Egypt’s delay in exploring the Red Sea. While views vary on why exploration has been delayed, not everyone even agrees that a delay has occurred. “I don’t think there is any delay from Egypt to explore oil and gas in the Red Sea,” Dr. Maher H. Ayyad, Professor of Petroleum Geosciences at Cairo University, said. He noted that areas both in and near the Red Sea have been explored “with modest success” for a long time. Affirming Ayyad’s opinion, Ahmed Shohdy, Development and Operation Geologist at Saudi Aramco, noted that exploration of the Red Sea has not been delayed, however, due to geological factors, exploration and development was easier

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within Saudi Arabian territory due to the presence of source and reservoir rocks in shallow water.

Sudan, he noted, is currently exploring shallow water locations and has already discovered a delta-shaped structure, encouraging additional exploration despite current low production rates.

“We can rely on Sudan’s potential since it could be considered in the same structural regime in the southern part of Egypt. While for the Saudi side, it could be considered as a different block with a rift action, such as the case of the Western Desert in Egypt and Sinai.”

Promising Potential Egypt’s Ministry of Petroleum and Mineral Resources has not stated whether Egypt’s exploration of the Red Sea will extend beyond the 55 square kilometers contained between the 22° and 28° boundaries mentioned by the minster.

Ghanim believes the exploration could extend beyond this area. If the initial surveys indicate a high potential for discoveries, exploration activities “should cover all the Red Sea because the geological setting is very similar,” he said.

Giving an in-depth comparison, Ayyad explained that “in [the] early 1950s, the GOS was considered as [an] exploration heaven in Egypt where giant oil and gas fields started to be uncovered. The Red Sea, on the other hand, is quite different from the GOS in many aspects […] This, however, does not mean that the Red Sea [has] less potential than the GOS. It is still way under explored and requires huge efforts— financially, technically, and logistically—to prove itself a viable replacement to or extension of the GOS operations.”

“It is a deepwater and remote area with little geological information.”

Since 1974, a total of 28,350 km of 2D seismic data and 4,360 km of 3D seismic data has been collected and 12 test wells have been drilled in various concessions in the GOS area. The heavily explored area and the natural oil seeps surrounding the Red Sea prove a working multipetroleum system at the northern and southern ends of the Red Sea Province with a syn-rift to post-rift petroleum system in between, according to Sherif Sousa, former CEO of Ganoub El-Wadi Petroleum Holding Company, according to Abdelghani Henni in an article about oil and gas in the Red Sea. Furthermore, Ayyad noted that “the Red Sea area is divided into shallow-water ‘Pan-handle’ area to the north of Hurghada and the larger deepwater regional area to the south with a narrow strip of a shallow shelf along the coast. The area is generally characterized by a relatively higher Geothermal Gradient, which might have an effect

on the Hydrocarbon System. In addition, the shallow areas in the north have been operated [in] by several oil companies including Mobil, Conoco, [and] GPC, with small oil and gas finds, such as undeveloped Hareed, Felfel.”

“Saudi Aramco was the first to use a deepwater rig in the Red Sea region after a 15-month seismic study in 2009 indicated the presence of natural gas. As a result, the company discovered three oil and two gas fields in 2013 and started developing the gas fields. However, work was halted in 2015 due to several factors, including environmental issues, costs, and the need for further studies to minimize risks,” according to Henni.

In 2016, Saudi Aramco awarded the Norwegian firm Magseis and BGP, a subsidiary of China National Petroleum Corporation (CNPC), to perform a 3D transitional-zone seismic exploration in the Red Sea. “We continue our program to explore the shallow waters of the Red Sea, completing our largest single survey of the seabed encompassing Saudi Arabian territorial waters,” Saudi Aramco stated in an annual report quoted by Henni. In May, Magseis announced the completion of the initial survey and began work on a contract extension. Saudi Aramco has yet to release any official estimates on the hydrocarbon potential in the Red Sea, curbing speculation that reserves under the seabed could amount to as much as 50 bb, according to The National. Many experts doubt that proven reserves will realize the 50 bb estimate.

In a similar action to Saudi Arabia’s, Sudan started drilling its first offshore exploration well in the Red Sea with the help of CNPC in 2010.

The well is located in Area 15, which is operated by the Red Sea Petroleum Operating Company.

The company is a consortium comprised of CNPC, Petronas, Sudapet, Express Petroleum, and High Tech Group. Petronas and CNPC each have a 35% interest in the block, according to Sudan Tribune.

Many geologists argue about whether Egypt can rely on Saudi and Sudanese reserve estimates in the Red Sea as a guide for predicting Egyptian reserves. “It should be considered because [the] geological setting is very close,” stated Ghanim.

Moreover, Ayyad explained that “In reference to Saudi Arabian and Sudanese potential reserves in the Red Sea and whether we rely on them, all I can say is that these finds represent [a] good sign that we have a vast basin with a hydrocarbon working system that needs much more investment.”

On the other hand, both Abd El Salam and Shody think that Egypt can use the potential Sudanese reserves, but not the Saudi Arabian ones, in the Red Sea to predict its own potential reserves.

The Saudi Arabian reserves “may differ” but the Sudanese reserves “may be the same structure and stratigraphy” as Egyptian geological formations, stated Abd El Salam. Explaining why Egypt can’t rely on estimated potential reserves in Saudi Arabian waters, Shohdy said that “we can rely on Sudan’s potential since it could be considered in the same structural regime in the southern part of Egypt, but the potential is not as promising. While for [the] Saudi side, it could be considered as a different block with a rift action, such as the case of the Western Desert in Egypt and Sinai.”

Exploration Challenges Although the Red Sea area is very promising, there are some challenges facing E&P activates in the area due to its rough seafloor topography; complicated geology under thick, salt deposits; and its pristine ecosystem. “It is [a] deepwater and remote area with little geological information” that will require the use of the “best experts” and technology to manage risk, Ghanim said.

Abd El Salam expressed a similar opinion, “the main challenges may be the reserves in the area.” Shohdy explained that the main deepwater challenges are the lack of source and reservoirs rocks, such as cretaceous deposits, and the salt problem, as it thick and movable. He further mentioned that expensive drilling costs in deepwater could prove the main challenge to E&P activities in the area.

“The main challenges may be the reserves in the area.”

With the average cost of a deepwater rig at approximately $600 million, drilling costs could be a serious deterrent. Saudi Arabia, which already has vast petroleum resources, has been slow to tap its Red Sea potential although the basin may be one of the last great exploration frontiers for the kingdom. Still, the Red Sea is on the government’s radar, according to Henni.

The main challenges confronting exploration activities in the seared Sea, Ayyad concludes, are “high Geothermal & Geo-pressure gradient, thick salt deposits that may cause drilling hazards; seismic data quality, particularly, beneath the salt, that require special processing techniques to enhance data quality; unexpected hazardous shallow gas pockets which require close attention while drilling; excessive deepwater render drilling very much costly; and distance from onshore facilities.”

After many years of overlooking it, Egypt— following Saudi Arabia and Sudan—has decided to unleash the oil and gas potential of the Red Sea. The ongoing seismic data collection is the first step in the exploration for oil and gas in the Red Sea. This road, however, despite its promise, holds significant technical, financial, and logistical challenges for E&P.

“In reference to Saudi Arabian and Sudanese potential reserves in the Red Sea and whether we rely on them, all I can say is that these finds represent a good sign that we have a vast basin with a hydrocarbon working system that needs much more investment.”

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RESEARCH & ANALYSIS

The Prospects of Nanotechnology Applications in Egypt’s Oil and Gas Industry

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By Mahinaz El Baz

nnovative technologies are highly valued in the oil and gas industry to meet the growing demand for energy. Scientists have been developing and implementing new techniques to boost the productivity of the industry worldwide.

Nanotechnology is considered to be one of the most promising technologies in the industry, as there are already many innovative products that use it. Although nanotechnology has been used in the oil and gas sector for decades, international oil companies (IOCs) have increased their investments in the last 15 years in order to develop the technology’s potential in light of increasing energy demand.

Nanotechnology has many applications in both the upstream and downstream sectors – ranging from exploration to refining. The variety of applications is enormous, and they have the potential to enhance well integrity, productivity, and recovery. However, this technology is rarely applied in developing countries, such as Egypt, due to technical and financial challenges.

International Trends World energy demand is expected to increase by up to 50% by the end of 2030, according to a paper published in the Journal of Applied Polymer Science by Miller et al. The potential contribution of new renewable energy sources could prove insignificant in meeting increased energy demand. Therefore, many scientists believe that hydrocarbons will remain the major source of energy over the next few decades.

Owing to increased energy demand, it is

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extremely important to explore for new fields and to maximize production from existing ones. At present, only one-third of the total oil present in a reservoir can be recovered using conventional oil recovery techniques, according a published article in the Hindawi Journal of Nanomaterials

by Kamal et al.

There is an urgent need to develop and implement unconventional techniques, such as nanotechnology, which could provide solutions to the biggest recovery challenges facing the oil and gas industry. Many major IOCs are currently in a race against time to utilize nanotechnology concepts in order to satisfy global hydrocarbon demand.

“While dropping energy prices – for both oil and natural gas – have investors and analysts checking to see what the breakeven price is for oil production in each play, further development is necessary for practical and economic implementation of these emerging applications in the field. The ‘nano’ world clearly brings to the [Exploration & Production] E&P industry exciting new opportunities and challenges,” noted Abdelrahman El Diasty, Research Assistant for the Petroleum and Energy Engineering Department at the American University in Cairo (AUC).

Nanotechnology Applications Numerous technologies are regularly developed and adapted by the oil and gas industry; thus, it is not surprising that nanotechnology has spread throughout the different sectors of the

industry. Nanotechnology deals with the design, characterization, production, and application of materials and devices based on the nanometer (nm) scale. Emerging applications of nanotechnology in the hydrocarbon industry is mainly for enhanced oil recovery (EOR) purposes, due to its cost-effective and environmentalfriendly contributions to the field. There are many existing nanotechnology applications in the global oil and gas industry, such as nanoparticles, nano-fluids, nanosensors, and nano-coatings, according to a published paper in the International Journal for Technological Research in Engineering by Pandey et al.

Nanoparticles Nanoparticles have properties potentially useful for oil-recovery processes, formation evaluation, and scale-formation control. Nanoparticles are substances with dimensions in the order of 1–100 nm and may possess special physical properties.

They are of high interest as they effectively bridge bulk materials and atomic or molecular structures, according to Fakoya and Shah’s published paper, Emergence of nanotechnology in the oil and gas industry: Emphasis on the application of silica nanoparticles.

Nano-fluids The use of nano-fluids is considered one of the most promising applications of nanotechnology in the oil and gas industry, especially for drilling; enhanced oil recovery; and completion, stimulation, exploration and exploitation of oil and gas. Nano-fluids are a class of fluids engineered

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by dispersing nanoparticles in base fluids such as nano-fibers, nanotubes, nano-drops, and nanowires.

“In addition to nanoparticles, the base fluid properties such as viscosity, density, specific heat, and thermal conductivity can be modified to optimum levels. The nanoparticles used in the design of such fluids are preferably inorganic with properties of no dissolution or aggregation in the liquid environment. The most commonly used nanoparticles for enhanced oil recovery are the spherical silica nanoparticles with a diameter in the range of several to tens of nanometers,” noted Pandey et al.

Nanosensors Empirical studies have demonstrated that nanomaterials are excellent tools for developing sensors and imaging-contrast agents due to their ability to form percolated structures at lowvolume fractions and the substantial alterations in their optical, magnetic, and electrical properties, Krishnamoorti wrote in his published paper in the Journal of Petroleum Technology.

Nano-coatings Nano scientists are expecting nanomaterials to be used as an integral part of complete smart structures composed of various elements including sensors, actuators, and control devices. “The coating using carbon nanotubes adds to an innovative application to conduct current for evenly heating surface, which could be used on pipelines to reduce gas hydrate formation or to de-ice the blades on wind turbines. The corrosion-resistant material solution could be represented by nano-metric thin films and composites with nanostructured fillers,” stated Pandey et al.

Nano-coated, wear-resistant probes that are made from tungsten carbide enhance the lifespan and efficiency of drilling systems, resulting in remarkable cost savings. The same applies to the nano-layered corrosion inhibitors in pipes or tanks, which form a permanent molecular layer on the surface of metals.

Scientists argue that such nanomaterials, combined with smart fluids, may be used as a very sensitive down-hole sensor for temperature, pressure, and stress even under extreme environmental conditions. These new sensitive sensors are beneficial as they are smaller in size, work safely in the presence of electromagnetic fields, are able to sustain high-temperature and pressure environments, and can be replaced at a reasonable cost without hindering the oil exploration. For instance, nanosensors have been developed rapidly to enhance the resolution of the subsurface imaging, leading to advanced field characterization techniques, noted El Diasty and Salem in their 2013 paper about the uses of nanotechnology in the energy sector.

Furthermore, using the anisotropic nature of many nanoparticles, percolation is a strong function of orientation, and thus, for appropriately processed materials, highly anisotropic electrical and mechanical properties are observed in different directions, explained Kapusta et al in their published paper about nanotechnology applications in oil and gas exploration and production in 2012.

Future Contribution in Egypt Egypt’s domestic demand for hydrocarbons is increasing rapidly, according to official statistics.

Egyptian consumption of natural gas has been increasing by approximately 7% annually over the past decade, according to Daily News Egypt.

The country’s total natural gas consumption is about 6 billion cubic feet per day (bcf/d). Out of this 6 bcf/d, roughly 65% is burned in electricitygeneration plants, a government official told Ahram Online. In addition, Egypt’s natural gas demand is forecast to rise to 6.37 bcf/d, according to CI Capital, which is close to the estimated production level of 6.2-6.4 bcf/d in 2018.

Oil consumption has grown by more than 30% in the past 15 years, Dr. Adel Salem, Assistant Professor of Petroleum Engineering at the American University in Cairo (AUC) told Wamda.

Hydrocarbon reserves in Egypt witnessed an annual increase for almost ten years before the discovery of the Zohr field, but the average recovery factor is still stuck at the 35%, noted Salem. Nanotechnology offers potential solutions to most of Egypt’s production challenges. By eliminating problems that occur during fielddevelopment operations, it increases the oil recovery rate and decreases production costs, according to El Diasty and Salem.

Explaining the benefits of implementing this new technology in Egypt, Salem stated that using nanoparticle technology could add 10¬20% more oil to Egypt’s current production rate, which has been in decline since 1996. That would produce between 70,000 and 140,000 extra barrels of oil per day (b/d). Furthermore, as current technology only allows for the extraction of about one-third of a reservoir’s oil, this technology could rejuvenate Egypt’s multiple brownfields .These technologies provide opportunities. “There is an interesting area of preparing silica nanoparticles by mechanical methods using Egyptian resources of silica sand.

[Furthermore, study] results obtained showed the promising future of petroleum-oriented nanotechnology in Egypt and how we can meet our oil demand using this advanced technology,” noted Salem.

Egypt’s Potential Challenges Egypt’s oil and gas industry is facing future challenges in terms of environmentally friendly operations, higher demand for hydrocarbon products, and outdated techniques. E&P activities in particular face increasing technical challenges due to changes in operational conditions, the nature of subsurface geological hazards at greater depths, and the complexity of wellbore profiles that maximize reservoir contact.

However, although nanotechnology is expected to offer solutions to many of the challenges that Egypt’s oil and gas industry faces, there are few empirical studies on implementing this new technology in Egypt. This scarcity creates an urgent need to encourage research on its potential.

“The challenges in this field are the size, the material type, and concentration of these nanoparticles. It’s a big challenge, the nanomaterial itself, [whether it is] silica, aluminum, or zinc oxides. The other is the concentration.

We have to determine the optimum material, the

50%

Expected increase in energy demand by 2030.

7%

Average yearly increase in NG consumption.

20%

Potential increase in production levels from nanotechnology.

optimum size, [and] the optimum concentration, because all of these can provoke or can hinder or can damage the reservoir. For each reservoir, people have to experiment to determine all of these factors,” Salem told Wamda.

In addition, he believes the biggest challenge facing the adoption of nanotechnology in Egypt’s hydrocarbon industry is to convince oil companies that innovative nanotechnology provides operational solutions to their challenges. He stated that most companies rely on natural reservoir pressure and water flooding without considering the more effective methods proposed by nanotechnology. “Here in Egypt we need to focus on any way to improve our recovery. We have to try a type of chemical flooding and then jump again to new technology because in experimental work all over the world, nanotechnology has proved its efficiency,” Salem said.

Scientists all over the world consider the cost of nanomaterials a major concern. Thus industrial production of low-cost nanomaterials is critical for to the application of nanotechnology in Egypt’s oil and gas industry. “The varieties of nanomaterial resources and the development of optimal production processes could be the solutions for cost reduction. On the other hand, HSE aspects should be considered carefully before field applications. The dispersion of nanomaterials, their interactions with other components, as well as their tolerance of salinity, temperature, and pH are important scientific issues. Therefore, in order to achieve successful applications of nanotechnology in the oil and gas industry, the scope for further work should include the emphasis of detailed mechanistic studies of nanomaterials in the particular field of the oil and gas industry,” according to a paper published by the Canadian Journal of Chemical Engineering in 2017 by Peng et al. on the uses of nanotechnology in the oil and gas industry.

Egypt’s upstream industry is facing many material and technical difficulties caused by rising energy demand and increased operational complexity.

These challenges could be addressed through the use of new technologies. Nanotechnology has the potential to transform the technological landscape of the global, regional, and local oil and gas industry. Current research has explored many applications of nanotechnology – from upstream exploration to downstream refining–and has highlighted the opportunities and challenges this new technology presents.

Yet, in order for these new technologies to be fully implemented in Egypt, more empirical research must be done in order to predict future challenges and find proactive solutions.

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OVERVEIW

Market Advantages of Cloud Computing:

The Industry’s New IT Player

C

By Mariana Somensi

loud computing has been widely spread among companies due to its beneficial commercial use. The technology’s simple software system builds vast computer networks that secure data and enable new business opportunities. Yet, the energy sector, always extremely averse to cyber threats, has a slower adoption rate than other sectors when it comes to the cloud, so the technology is still a new feature among oil and gas companies.

The oil price collapse in 2014, however, brought up a wakeup call and pushed the petroleum industry to reinvent itself. For this matter, cloud computing comes as an important ally, serving as a great tool to reduce the sector’s IT costs and improve its business management.

How Does It Work?

Cloud computing generally consists in any hosted technology providing software and information technology (IT) infrastructure, together or separately, as a service. Instead of having to build up computing infrastructures in house, the technology enables companies to easily and quickly consult their data through a virtual machine, storage or application. The cloud covers a wide range and can be implemented in three different deployment models: public, private, and hybrid.

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Public clouds are often delivered by third-party service providers through the internet. “This type of software is typically referred to as ‘software as a service’ (SaaS) and includes services like Google Drive, Windows Azure, Microsoft Office 365, or Salesforce,” the UK-based Oil and Gas Council explains on its official website. The service is sold by demand and customers pay for the CPU cycles, storages, or bandwidth consumed.

systems, petroleum companies must evaluate which of the three deployment models would better meet the firms’ business requirements.

Considering the oil and gas sector’s concerns regarding cyber hackers and the large amount of geophysical and financial data files, public clouds may not provide the industry with the security its delicate information demand. Accordingly, choosing between private and hybrid clouds would be more logical.

Private clouds are closer to IT infrastructures.

They are hosted in datacenters for internal use and are secured by firewalls. “This model offers the versatility and convenience of the cloud, while preserving the management, control, and security common to local data centers. Internal users may or may not be billed for services through IT chargeback,” according to the TechTarget Network.

Although there are ongoing solutions being developed to better serve large data files, such as those of the petroleum market, the recent improvements still do not fit the oil and gas requisites entirely, which means that adopting the technology would require a personalized implementation within the oil and gas sector.

“Data processing and graphical modeling requires workstations with very powerful processing capabilities and powerful graphics cards. This is not standard IT equipment and falls outside of the usual scope of a cloud based system,” the Oil & Gas Council points out.

Therefore, maintaining the existing workstations overseen by specialists while simultaneously integrating the software of the workstations with the cloud system would be a practical option to

Meanwhile, hybrid clouds provide a combination of public and private services. The hybrid system holds the practicality of the unified public infrastructure, while still securing confidential data.

The Best Cloud Implementation for Oil & Gas In order to adopt cloud computing in their IT

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benefit from the new technology without bringing the company’s guard down, as the Council further suggests. “This results in a true hybrid, not two systems running independently of each other with a convoluted link, but two systems that appear to operate as one. This hybrid model addresses the very real concerns of oil and gas companies and gives them the very best of both worlds,” it adds up.

Practicality and Impacts The implementation of upcoming technologies can be a delicate step due to the costs of application and the necessity of adapting to something new. However, the proved benefits of cloud computing have been dissipating fears.

The cost-of-entry of the clouds, for instance, is considerably lower if compared to other IT services, and its pay-as-you-go characteristic is highly attractive for oil and gas companies.

Furthermore, the cloud’s centralized support facilitates data access and management, as technical support can be provided quickly at one spot, avoiding time-consuming operational developments and enabling fast responses to information demand. As the name suggests, the cloud is not linked to ground operations and do not require on-the-ground IT consultants for maintenance and amendments.

“By nature of the industry, oil and gas companies often have the requirement to link multinational offices. A centralized system gives staff immediate access to the information they need, when they need it,” the Oil & Gas Council defends.

As petroleum companies tend to manage some level of file versioning, the manual processes result in a large margin of error due to the difficulty of assessing data though multiple locations and the increase of human error, duplication or data loss. “Having a centralized file server with a place for everything and everything in its place eliminates file management frustrations,” the Council additionally notes.

In line with the reduction in costs, errors, and delays, productivity is potentially boosted with the usage of the cloud. Working as a platform for immediate knowledge transfer and collaboration across the company, the technology drops time-consuming bureaucratic procedures and communication barriers.

Moreover, cloud computing secures sector companies while sharing confidential files with their stakeholders. “Having a shared space on your network with controlled permission based access gives oil and gas companies the ability to share sensitive files without risk or hassle of transferring them via email or through the internet,” according to the Oil & Gas Council. The organization further discloses that, as remote working is currently the norm form multiple petroleum operations, the possibility of having the entire company network available anywhere gives stakeholders a high level of connectivity that brings enormous market and business advantages to the companies where the system is implemented.

Security: Pros & Cons Storing data in clouds is extremely handy when there is the need to access this data from different locations. When an employee is traveling or moving to any different location, this advantage

brings additional security. If a businessperson needs to access data while out of the office, the confidential files saved in laptops suffer from considerable risk if something happens to the device, whether it breaks down or gets stolen.

Accordingly, the cloud not only enables the employee to access it from any place, but also assures the data will still be available in case of mechanical failures or other problems involving personal and/or corporate devices.

Additionally, “the storage of sensitive files and data is only perceived to be safe behind the locked doors of an office, until the day the office is ransacked, burnt down or flooded. With multiple offices, often in inhospitable regions around the world, the potential risk is magnified.

Placing storage in the cloud negates the need to manage and maintain onsite storage and complicated backup solutions. Professional cloud based solutions are hosted in physically secure datacenters behind secure firewalls, completely eradicating the worry of file storage and file security,” the Oil & Gas Council highlights.

Accordingly, it is easier for petroleum companies to recover from localized errors and breakdowns in the company’s devices, requiring just the purchase of a new device, internet connection, and signing up to the virtual desktop.

On the other hand, cloud computing’s reliability on internet access poses a major security concern: the cyber hacking threat. The alarming scandal involving the US’ National Security Agency (NSA) exposed by Edward Snowden, a former NSA contractor, is one of the major cases that awoke the world to this problem. As Snowden affirmed, the NSA was able to hack information from Google and Yahoo sent through fiber optic cables. The case brought the vulnerability of internet-based data to the spotlight, and, as cloud computing depends directly on internet access and transfers, the technology is highly seen with skepticism.

The ability of easily sharing data among employees and partners is one of the main benefits of the cloud to oil and gas companies; however, it can equally be a weak point. “It is not just the risk of our private data accidentally leaking to other tenants, but the additional risks of sharing resources. Multitenancy exploits are very worrisome because one flaw could allow another tenant or attacker to see all other data or to assume the identity of other clients,” Security Adviser Roger A. Grimes wrote to the CSO. “Every large cloud provider is a huge user of virtualization. However, it holds every risk posed by physical machines, plus its own unique threats, including exploits that target the virtual server hosts and the guests. You have four main types of virtual exploit risks: server host only, guest to guest, host to guest, and guest to host.

All of them are largely unknown and uncalculated in most people’s risk models,” Grimes added.

Yet, although the risk of cyber hacking do exist, the level of vulnerability is not a consensus among IT specialists. “The degree of security, whether within cloud-based or on-premises systems, is determined by two factors. One is the planning and technology that goes into engineering the security solution. The other is the organization’s ability to operate systems in proactive and secure ways,” David Linthicum wrote to the InfoWorld.

Accordingly, the vulnerability of data within the

cloud greatly depends on each company’s security protocols, and not only on the cloud’s features, as often believed.

Internet Reliability Another concern regarding cloud computing’s reliability on internet is the possibility of internet connection loss or slow speed. In 2015, for instance, both Google Drive and Google Docs went down for one hour due to an error, leaving many people clueless about how to proceed with their tasks without the data stored in the clouds.

When internet connection is lost, alternative ways of accessing data is costly. “One IDC estimate said the average cost of mission critical application failure can run as high as $500,000 to $1 million per hour for Fortune 1000 companies,” John Brandon wrote to the CIO. In case internet connection is slow, it makes it harder to complete projects and establish communication and data transfer within workers, possibly delaying important operations in the company.

However, both connectivity concerns can be overcome or mitigated. Built-in data encryption and automatic encrypted off-site data, for instance, are extremely helpful in case of internet loss, equally speeding up processes in case of slow connection. “One of the keys to keeping employees productive is to develop a contingency plan. IT consultant Chris Gerhardt says that every application in your Softwareas-a-Service portfolio should have an alternate option. For example, if workers depend on Google Drive for their sales presentation, they should have an on-premises file storage option that still allows them to access mission critical files,” Brandon stated.

As problems with internet connection and speed are already expected, many IT companies provide cloud computing with offline synchronization at reasonable prices. “If the Internet is down or there is a network problem, the user can keep working locally. When the access is restored, the app will automatically sync the files,” Brandon disclosed. He further explained that many employees panic when access to the cloud is limited or interrupted by internet oscillations.

In order to prevent workers from losing their productivity during internet breakdowns, oil and gas companies can train their employees on how to stay productive while the problem is being amended.

A Risk worth Taking As industry companies adapt to the new rules of the oil game, technological innovation remains as the key to overcome competition in the harsh market environment. Although cloud computing is still a new feature among the oil and gas sector, the technology’s security advances can potentially calm the sector’s fears of cyber threats, while providing massive scalability and collaboration capabilities, fast and wellestablished business network among workers and partners, and potentially reduction in IT costs.

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OVERVEIW

Study Overview:

Alternative Techniques for Vessel Inspection and CUI Management

V

By Mariana Somensi

essel inspection and corrosionunder-insulation (CUI) management for onshore, offshore, and subsea areas can be slow, costly, and dangerous.

Non-destructive-testing (NDT) techniques are commonly used to carry out these inspections; however, although effective, these techniques are slow and require extensive preparation. In order to speed up the process, reduce operational costs, and improve the safety of personnel, alternative and less sensitive NDT techniques can be applied through a large-scale screening process that enables the inspection of areas previously believed to be inaccessible. Lockheed Martin’s Asset Integrity Theme Landscaping Study, which was commissioned by Oil & Gas UK, presents a combination of alternative imaging techniques that could improve production efficiency and promote cost reduction. This new approach could potentially unlock more than $1 billion of revenue, the study notes, highlighting the importance of technical innovation in the petroleum industry.

Vessel Inspection The inspection of the inside of process vessels usually includes extensive safety precautions— such as isolation—before technicians are allowed to enter and evaluate the infrastructure.

Although a visual inspection provides a detailed assessment of the vessel’s internal condition, its time-consuming safety preparations and the potential risks to personnel in confined spaces turn it into a process that oil and gas operators tend to avoid. As such, upcoming technologies that do not require visual inspection will positively impact operations and bring considerable advantages to petroleum companies.

The low frequency electromagnetic technique (LEFT) is a good substitute for human inspections, according to the Oil & Gas UK study. LEFT, the study states, “offers good prospects at moderate cost and risk and has a high maturity score.” The

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technique is used to detect defects through a low frequency magnetic field. The LEFT scanner produces a 3D image with the exact defect’s depth and shape, enabling examination. It can be used on storage tanks and other “ferrous surfaces, in addition to non-ferrous tubing and pipelines.”

The technology is already in use in the oil and gas sector and it is readily accessible in different shapes from vendors, allowing the scanning of a wide variety of magnetic and non-magnetic surfaces. Furthermore, as it requires minimum or no surface preparation, it is significantly faster than visual inspections.

Another long-term prospect is the full-matrixcapture (FMC) technique, according to the study. FMC is a data-acquisition technique that collects possible transmit-receive combinations for a given ultrasonic-phased-array (PA) transducer. The usage of FMC data provides richer information than standard PA processing, and its fully focused images facilitate inspections.

FMC data’s high-resolution and sensitivity to small flaws considerably reduce the risks of misinterpretations. However, the detailed reports originated from FMC require that the equipment used is capable of supporting large data files and high data transfers.

The study further pointed out that the usage of robots can be combined with other sensor technologies. Robots alone have low-benefit scores, but, when their usage is combined with other techniques, they can assist in the reduction of human activity in confined spaces.

In October, Avitas Systems (a GE Venture) and Kraken Robotics formed a strategic partnership to “integrate autonomous underwater vehicles (AUVs), acoustic and laser sensor technology, and artificial intelligence-based navigation software into unique subsea inspection solutions,” exemplifying a potential operational approach for the oil and gas industry, according to a Kraken press release.

CUI Management Corrosion under insulation (CUI) is difficult to detect as the insulation masks the corrosion. The high cost of insulation removal leads to infrequent CUI inspections, leading many corrosion problems to be discovered only after it is already too late.

As much as 60% of pipe leaks are believed to be caused by CUI, the study suggested, citing industry data. Additionally, CUI is estimated to correspond to between 40% and 60% of pipe maintenance costs.

The conventional technique for detecting and managing CUI consists in cutting and removing plugs in the insulation to enable a visual inspection of the surface. The rest of the vessel will subsequently go through ultrasonic tests.

However, this technique is not always efficient as CUI is usually localized and the inspection plug must be accurately positioned to discover corrosion spots. If there is enough evidence that corrosion has spread, larger areas of insulation will need to be removed, increasing inspection costs and safety risks to technicians, according to the study. Techniques that do not require insulation removal provide great benefits.

The pulsed-eddy-current technique is an option with moderate cost and risk, according to the Oil & Gas UK study. The industry’s commitment to the development of this technology—which has a high maturity score in the oil and gas sector— is one of the advantages to the technology.

“Pulsed eddy drives an electromagnetic field though the insulation and into the pipe,” the study notes. Its sensors then capture variations to the pipe’s original shape, providing data such as “delta phase, amplitude, phase angles, and voltage spans.” The data is further analyzed in order to identify corrosion in both small and large areas. Pulsed eddy enables wall thickness to be measured without direct contact with the wall.

The removal of lagging, coatings, or protective

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materials is not necessary for corrosion to be exposed. Furthermore, it reduces inspection times as it does not require preparation and provides a permanent record that enables CUI to be compared and predicted. It is important to note, however, that pulsed eddy can be applied only in carbon steel and low-alloy steel facilities.

It also “cannot differentiate between internal and external defects” and requires a simple scanning surface that has clear electro-magnetic properties.

recommends that a single leading organization is given overall responsibility for focusing vessel inspection and CUI research and development efforts within the oil and gas industry,” the study stated. This organization should focus on the development of standards-based information technology (IT) architecture, the development of promising vessel inspection, CUI research, and cross-sector initiatives related to asset inspections.

Given the challenges to manage CUI, the study highlights vapor phase corrosion inhibitor (VPCI) as an important prevention technique that can minimize the negative effects of undetected corrosion. The technique consists of a volatile compound that creates a “stable bond at the interface of the metal,” according to the report.

This compound prevents the “penetration of corrosive substances to metal surfaces,” which efficiently secures stored equipment and oil and gas facilities. VPCI provides better corrosion management at lower costs than other preventing techniques, the Oil & Gas UK report noted. Although the nature of the chemicals used for VPCI should be considered, the technique should be considered in light of the high cost and production problems of CUI.

Human Impediments

Industry Collaboration Besides alternative techniques for vessel inspection and CUI management, the Oil & Gas UK study also pointed out the complexity of stakeholders’ relationships, noting that there is a great need for partners to focus on infrastructure inspection technology. “Lockheed Martin

Human constraints should also be considered to enable optimal inspections; however, identifying human impediments, as they are usually less obvious, might be harder than identifying physical and technical constraints. There are many potential management and cultural challenges— such as knowledge of the latest effective processes, implementation skills, finances, supervision, training, availability of resources, work scheduling, competency of staff, and information management.

These challenges can vary considerably according to organizational level and activity.

Addressing them requires knowledge of the company’s operations and staff. “Effective training and regular competency assessments, quality supervision and recognition by management of the importance of regular inspection regimes are vital to timely prevention and detection of corrosion and its consequences,” the Oil & Gas UK report stated.

Technology Aggregation The conventional techniques for vessel inspection and CUI management have enormous technology gaps that impose limits on the oil and gas industry.

For vessel inspection, conventional approaches still require time-consuming and expensive manual entries. As for CUI management, the current approaches still have limited resolution and require the removal of insulation. The alternative techniques mentioned by Oil & Gas UK’s Asset Integrity Theme Landscaping Study can potentially close these gaps. However, closing the technology gaps requires great collaboration between vendors and developers, as well as the implementation of different approaches together. The study indicates that one method cannot entirely improve vessel inspection and CUI detection and that different methods should be applied in parallel rather than alone. The aggregation of techniques and the industry’s special attention to infrastructure maintenance is key to cost reduction and operation optimization.

The study further noted that a high level of contractor and sub-contractor use, in addition

R/V KOBI RUEGG The Kobi Ruegg is a multi-purpose vessel suited for high resolution geophysical surveys and seafloor mapping. Measuring 59 metres in length, the vessel is ready for rapid deployment to locations throughout Egypt, the Mediterranean and Black Sea. WWW.FUGRO.COM

to frequent staff rotation between platforms, cause a harmful lack of communication between the engineers and technicians responsible for preventing and solving infrastructure damage.

The miscommunication can delay or prevent inspection operations, increasing safety risks and putting production levels in danger. The creation of an organization to oversee inspection activities, follow up on staff activity, and improve communication about vessel inspections and CUI detection can also prove beneficial.

Onboard instrumentation includes shallow and deepwater multibeam systems, a range of sub-bottom profilers and a HiPAP long range positioning system. Other systems that can be mobilised to meet project requirements include Fugro’s Hugin-based Echo Surveyor VII autonomous underwater vehicle (AUV), ROVs, High Res Seismic and a range of geotechnical equipment. Fugro’s StarfixTM Differential Global Positioning System (DGPS) is employed for accurate positioning.

Surveys are tailored to meet client needs.

Typical fieldwork involves projects for the energy and government sectors, as well as for engineering firms.

December 2017 - ISSUE 132

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IN-FOCUS

An Assessment of the Effects of the Currency Floatation on E&P activities

A

By Mohamed S. Khedr

s Egypt went through a volatile state during the past couple of years, the hydrocarbon industry followed closely in its struggles to remain afloat. Today, as most indicators highlight to an upwards trajectory, many experts address the direction the sector will take.

various issues that IOC are facing within the Egyptian market today, which will drive further investments and increase IOC confidence in Egypt,” said Gasser Hanter, Vice President Upstream, Country Chair and Managing Director for Shell in Egypt.

Mainly fueled by the increase in foreign reserves due to the liberalization of the Egyptian pound, Tarek El Molla, Minister of Petroleum and Mineral Resources, has recently promised to pay all arrears accumulated to International Oil Companies (IOCs) by 2019, with the latest payment of $750 to be made in weeks expected to decline the dues well under $2 billion for the first time since the 2011 revolution, and for the first time since the peak debt of $8 experienced in 2012.

Having a similar positive view, Nicolas Katcharov, Edison’s General Manager Egypt Branch and VP North Africa and the Middle East Operations, told Egypt Oil & Gas that as a result to the reforms, and the new regulation, increase in investments in exploration is expected. On the other hand, he explained that the major obstacle to further investments is the remaining $2billion overdue towards IOC.

Reform in the Eyes of IOCs

“The liberalization of the gas market, for example, intends, to facilitate the progressive re-absorption of this debt. Everything depends on how the applicable rules of the new gas act will be designed, and particularly the possibility of using existing assets for an investor in the Egyptian oil and gas sector to recover,” Katcharov added.

For upstream players the issue lies in the level of arrears and the promise of a new production sharing agreement, while for the downstream market, the move to liberalize the natural gas market has been considered as the core move, expected to change the market.

“The authorities are determined to continue with the reforms, and there is great progress in addressing

Direct Effect on E&P Activities

Announced Debt to IOCs

October 2012 $8 Billion

August 2017 $2.3 Billion

Highest value announced

Lowest value announced

Egypt’s Foreign Dues to IOCs

Source: Egypt Oil & Gas

34

EGYPT OIL & GAS NEWSPAPER

Earlier in 2015, the ministry of petroleum faced some challenges in triggering enough interest in offered tenders; the reason of which is believed to be the increasing debt levels to IOCs. Between October 2013 and January 2015, 53 agreements were signed, with investments amounting to $2.9 billion and a total of $432 million in signing bonuses for the drilling of 228 wells, according to a statement by Sherif Ismail made during his reign as minister of petroleum and mineral resources.

However following the current reform program, figures highlight a hike in confidence of foreign players in the Egyptian market. Investments of IOCs in exploration and development operation in the fiscal year (FY) 2016/2017 amount to around $8.1billion, according to El Molla, who expressed that the ministry is targeting $10 billion worth of investments during the current FY 2017/2018.

The petroleum sector had succeeded in signing 79 new agreements for oil and gas exploration since mid-2013, with minimum investments of $15.3 billion, [while] from October 2015 to October 2016, 26 agreements were signed with a total investments of $12.1 billion, according to a press statement by El Molla.

According to the increase in incoming investments, the industry is seeing a remarkable recovery, yet the whole picture is wider than one single aspect. One topic to highlight is the current production sharing agreement and its impact on the deep-water drilling operations. By far, a handful of companies have the technological and financial ability to explore Egypt’s rich deep-water fields. The ministry of petroleum has formed a committee to build a new framework and contract, thus addressing this issue, promising yet another push towards more investments in the sector.

The Western Desert: An Examination of Egypt’s Black Gold Mine December 2017

REPORT IN PRINT

The Western Desert:

An Examination of Egypt’s Black Gold Mine

I

By Tamer Mahfouz

n terms of exploration, Egypt’s Western Desert has always had the spotlight, with significant production rates, especially in terms of crude. The area accounted for 55%, 49.3% and 56.3% of the country’s total oil, natural gas, and condensate production, respectively by the end of fiscal year (FY) 2016/2017, according to data reported by Egypt Oil and Gas in November. This equated to roughly 344,000 barrels a day (b/d) of crude oil and condensates during FY 2016/2017. New investments in this highly attractive, 700,000 square-kilometer area are forecasted to boost

36

EGYPT OIL & GAS NEWSPAPER

production to 368,500 b/d by the end of FY 2017/2018, according to data from EGPC. This new production will be the result of expansions in the second half of 2017 as well as new investments and expansions of existing operations that will come online during the first half of 2018. According to the Central Bank of Egypt (CBE), crude oil investments in FY 2015/2016 were EGP 4.1 billion while natural gas investments topped EGP 42.2 billion. This compares to EGP 23.59 billion and EGP 31.62 billion, respectively, in FY2014/2015.

Activity Overview The Western Desert has seen a steady decline in the number of active wells since FY2012/2013 when there were 101 exploration wells and 231 development wells. By FY2015/2016, the numbers had dropped to 41 exploration wells and 120 development wells, representing 59% and 48% decreases, according to data from EGPC. Currently, the number of active rigs in the Western Desert is 64 as of October, down from 75 rigs in 2012. However, it is worth noting that the relative percentage of the distribution of rigs throughout Egypt has been relatively steady; as

www.egyptoil-gas.com

production in 2015. Condensate production has recovered from a low of 16.5 million barrels in 2013 to reach 18.2 million barrels in 2015 and 18.07 million barrels in 2016.

39 Development

Faghur Basin: Kalabsha Development The Kalabsha region covers 830 square meters in the Faghur Basin, which is one of the biggest basins with proven oil reserves and active investments in the Western Desert.

18 65

Exploration

Agreements in W.D in 2017

“The Faghur Basin continues to be a successful focus area for Apache, with prolific oil and gas production from the AEB, Safa, and Paleozoic reservoirs that demonstrates the multiple-pay potential of this area of the Western Desert,” Tom Voytovich, Vice President of Apache’s Egypt Region, noted in a press release in 2011.

8 Both

of October the number of rigs in the Western Desert accounted for 65% of all rigs in Egypt, which is relatively close to the 63% recorded in 2012. As of FY 2015/2016, there were 65 active agreements. Out of these active agreements, 18 were exclusive development deals, 39 were development deals, and eight were hybrid exploration/development deals.

Despite fewer wells and rigs, reserves of oil, condensate, and natural gas in the Western Desert have been dropping significantly since FY 2011/2012 with new investments and expansions focused more on production than exploration. For oil, reserves went from 912 million barrels in FY2011/2012 to 665 million barrels in FY 2015/2016, close to a 27% drop.

Meanwhile, natural gas reserves fell from nearly 8,000 billion cubic feet (bcf) in FY 2011/2012 to just over 5,500 bcf in FY 2014/2015, a 29.5% decline. Lastly, condensate reserves dropped 48.3% to 126 million barrels. By the end of FY 2015/2016, Egypt’s oil and condensate reserves were estimated at 2.4 billion barrels, compared to 3.57 billion barrels previously. As it stands, natural gas reserves are hovering around the 60 TCF, an increase from last year’s the 50s.

Date

Among the first wells dug in the development was West Kalabsha-C-1X, which was announced in 2008. Its production tests demonstrated a maximum oil production capacity of 4,746 b/d of oil and 4.4 mcf/d of natural gas. In 2009, West Kalabsha A-1X was dug. Its capacity reached 2,906 b/d of oil and 16 mcf/d of natural gas. One year later, Apache announced the successful drilling of West Kalabsha-A-2X. The new well had a tested maximum capacity of 5,085 b/d and 130,000 cf/d. It was the fourth exploration test in the West Kalabsha Concession and Apache’s sixth in the Faghur Basin.

The West Kalabsha Tayim South development was announced in the fourth quarter of 2011.

The main well, Tayim South 1-X, produces 8,196 barrels of oil a day. Also in 2011, West Kalabsha-I-4 tested for a maximum production of 7,150 b/d of oil and 11.4 mcf/d of gas. Faghur Deep-1X is also in West Kalabsha. Its capacity is 6,671 b/d of oil with 2.76 mcf/d of natural.

This well is Egypt’s farthest west oil and gas discovery. West Kalabsha South-1X was dug in 2012 with a resulting maximum capacity of 2,244 b/d of oil and 4.3 mcf/d of natural gas.

Around the same time, West Kalabsha North-1X field started production with a capacity of nearly Western Desert Production 5,000 b/d of oil and 4.7 Crude Oil Equivalent Gas Liquified Gas Condensate mcf/d of natural gas.

Sep-16

9,299,999

7,255,714

679,271

1,428,603

Oct-16

9,534,872

7,646,429

758,131

1,481,052

Nov-16

9,100,251

6,966,607

672,119

1,340,746

Dec-16

9,100,251

6,966,607

672,119

1,340,746

Jan-17

9,156,664

7,781,786

718,062

1,399,238

Faghur Basin: regions

Other

Outside the Kalabsha Concession, but still Feb-17 8,135,625 6,923,929 588,192 1,273,650 within the Faghur Mar-17 8,938,146 7,212,857 609,294 1,279,819 Basin are several other Apr-17 8,663,986 7,380,000 693,316 1,338,110 concessions. The Heqet May-17 9,045,214 7,725,253 669,333 1,379,633 Safa oil accumulation Jun-17 8,992,506 8,201,302 666,806 1,512,321 in the Greater Khalda Jul-17 9,428,766 8,600,941 634,156 1,512,253 Concession in the Faghur Aug-17 9,385,426 7,748,503 701,523 1,520,214 Basin is one of the oldestdiscovered reservoirs.

Sep-17 9,216,732 7,748,503 619,021 1,434,526 The first well dug in it Unit: barrel was Haqet-1X in 1991, but the well is no longer Output, however, has stayed fairly stable since active. The Haqet-2X well was drilled in 2008, 2015, according to official figures. Oil production producing 2,100 barrels of oil a day. Since then, increased from 99.36 million barrels in 2012 –an Apache said it was going to drill four “wildcats average of272,000 b/d— to 114.4 million barrels targeting Jurassic oil pools,” according to a in 2016 –an average of 312,870 b/d. This is press release in 2008. However, no more wells slightly lower than in 2015 when oil production have been reported since then. topped 118.7 million barrels, averaging at a daily The Neith Concession production rate of 325,000 b/d. During the same timeframe, natural gas production went from 463 In the Neith Concession, Neith South-1X was bcf in 2012 to 494 bcf in 2016—nearly equal to tested in 2000, recording a flow rate of 2,778

b/d of oil and 4.5 mcf/d of natural gas. Huni-1X, another well in the Neith Concession, was dug in 2011. It has a tested capacity of 970 b/d of oil. Neith North-1X was dug in 2013, but no test results from the well have been published.

The Faghur Concession In the Faghur Concession, Faghur-8X demonstrated an average production rate of just under 3,000 b/d of oil in 2011. In the same year, tests at Faghur North-1X demonstrated a capacity to produce 1,444 b/d of oil and 3.9 mcf/d of natural gas. Also in 2011, Faghur South1X was producing 2,768 b/d of oil and 4 mcf/d of natural gas. Buchis West 2X was announced in 2013, lying along the northeastern region of the Faghur Basin. Its maximum production capacity is 1,700 b/d of oil.

The Siwa Concession The first well in the Siwa Concession in the Faghur Basin was the Siwa-D-1X well, dug in 2011. Its tested capacity is 4,500 b/d of oil.

Siwa L-1X was dug in 2013. It has a capacity of over 2,000 b/d of oil. In the same year, testing demonstrated SIWA-R-1X had a capacity 1,900 b/d of oil. The Siwa Concession is equally owned

by Apache and state-owned Tharwa Petroleum Company.

The Khalda Offset Concession In the Khalda Offset Concession is the Hathor Deep-1X well, discovered in 2007. It has a tested capacity of 12 mcf/d of natural gas and 1,237 b/d of oil. In the same concession is the Narmer-1X well, which was dug in 2013.

Narmer-1X has a flow rate of 1,200 b/d of oil and 400 mcf/d of natural gas. It taps into oil reserves spread between the Faghur Basin and the northern coastal Shushan Basin. This field is not yet fully explored. Initial testing estimates that the reservoir covers 1,000 acres, making it one of the biggest fields in the Western Desert.

Its production can also be easily fast-tracked because it is close to existing infrastructure.

The latest discoveries in the Faghur Basin are the Bernice and Ptah fields in 2015. They are still in the exploratory phase, but Ptah is expected to be the largest new field discovered over the past few years, according to an Apache press release at the time.

Other Basins The Shushan Basin In the Shushan Basin is the Apries-1X well, which was dug in 2014. Its tests show a flow of 4,389 b/d of oil and 14.2 mcf/d of natural gas.

Another well is Bat-1X, dug in 2014. It is part of the Khepri-Sethos Development Lease. It has a tested capacity of 390 b/d of condensate and 31 mcf/d of natural gas. Meanwhile, the Ozoris Development in the same basin has the Ozoris-4 well, which was announced in mid-2004. It has a capacity of 29.4 mcf of natural gas and 1,775 b/d of oil. These development wells are part of the Greater Khalda Concession, which is 100 percent owned by Apache. The Shu-1X and Geb-1X wells in the Shushan Basin are still exploratory wells.

The Matruh Basin The NTRK-H-1X well is located in the North Tarek Concession of the Matruh Basin. In 2014,

December 2017 - ISSUE 132

37

REPORT IN PRINT it had a tested capacity of 20 mcf/d of natural gas and 250 b/d of condensate. The other well in the basin is the Herunefer-1X well, which was also dug in 2014. It is in the eastern portion of the Khalda Offset Concession. Tests show that its can produce up to 49 mcf of natural gas and 7,700 barrels of condensate per day.

is Khalda Petroleum Company, the joint venture established in 1995 by EGPC and US-based Apache Corporation. As of the end of 2016, the company had 22 concession agreements in the Western Desert covering 4.8 million acres.

By the end of FY 2016/2017, production reached 146,000 barrels of oil a day (b/d) and 810 million cubic feet of natural gas per day (mcf/d) —the The Alamein Basin equivalent of approximately 17.7% of Egypt’s oil The NRQ 3151-1X well is located in the Alamein production and 15.6%of Egypt’s natural gas in Basin, east of the Matruh Basin. It was dug FY 2016/2017, according to Khalda’s Investments in W.D data published by Reuters in July. During the first quarter of FY2017/2018, Khalda Petroleum $12B 146,000 b/d Company reported that it Total Investments Crude production in in W.D 2016/2017 produced 93,749 barrels of oil a day, compared to 110,809 barrels a day during the third quarter 810 mcf/d of 2016. The company’s Natural Gas Production natural gas production also declined in the first 22 quarter of the current fiscal Agreements in W.D year to 378,426 mcf/d from 405,863 mcf/d a year 97 earlier.

Wells worth of investments in

Gas. A new entrant to the Egyptian oil sector, GlobalConnect, bought a 25% stake in the Abu Sennan Concession, halving Kuwait Energy’s share. Co-owners are Dover Investments (28%) and Rockhopper Exploration (22%). All investments in the concession are executed

by Borg El-Arab Petroleum Company, a joint venture between Kuwait Energy and EGPC. The company is already producing a total of 3,860 b/d of oil and 3.03 Mcf of natural gas a day.

IPR Group

Active Fields in North Ras Qattara Concession Alamein

Akik

Yidma El Goura

Tarfa

2016/2017

in 2013 and is part of the North Ras Qattara Concession. The well tested a flow rate is 1,625 b/d of oil and 18.7 mcf/d of natural gas.

Concessions in Different Basins Another major concession in the Western Desert is the South Umbaraka Concession, almost four kilometers northwest of Kalabsha. Its most prominent well is Phiops-1X, dug in 2009. The tested capacity of the well is 2,278 b/d of oil and 5 mcf/d of natural gas. However, production is limited to 1,619 b/d of oil and 4.1 mcf/d of natural gas for undisclosed reasons. Phiops-2 and -5 are two appraisal wells currently being dug.

A major field in the Western Desert is the Qasr field, discovered in 2003. It has reserves of 40 to 50 million barrels of condensates and in excess of 2 tcf of natural gas. The field’s total development cost is around $5.5 billion, as reported by Oil & Gas Journal in 2004. The field’s biggest producing wells are Qasr-1X (51.8 mcf/d of natural gas and 2,688 b/d of oil), Qasr5 (53.5 mcf/d of natural gas and 1,739 b/d of condensate), and Qasr-6 (28.8 mcf/d of natural gas and 1,037 b/d of condensate). Meanwhile, the Qasr-7X well produces 1,579 b/d of oil and the Qasr-9X well produces 3,000 b/d of oil.

Other producing wells are Qasr 34 (18.4 mcf/d of natural gas and 725 b/d of condensates), Qasr 36 (2,945 b/d of oil and 2.1 mcf/d of natural gas), and Qasr 40 (2,000 b/d of oil).

In FY 2016/2017, eight exploration wells in the Western Desert demonstrated proven oil, natural gas, and condensates reserves. These wells are located in the Menis, East-Scorpion, Bravo, and West-Heroniver development areas. Productivity tests are yet to be announced, but it is expected that the wells will yield 3 million barrels of reserve oil. All eight are in Apache-owned concessions.

Khalda Petroleum Company’s total investments are over $12 billion with the company spending close to $1 billion on exploration and development every year. In FY 2016/2017, Khalda Petroleum Company invested $552 million to drill 74 development wells and $346.4 million to drill 23 exploratory wells. Its plan for 2017 is to build eight to 10 drilling rigs and 90 to 100 wells.

Investments by Other Players in the Western Desert Kuwait Energy Outside Apache-owned concessions, Kuwait Energy in 2016 announced that its Jahraa SE1X well in the Abu Sennan Concession had started producing 410 b/d of oil. In April, the concession co-owner, Rockhopper Exploration, and Kuwait Energy started drilling Al Jahraa SE2X in the Al Jahraa Southeast field. Tests are still being conducted, but company officials estimate that the well will access 20 million barrels in oil reserves. Another well in the Abu Sennan Concession is Al-Ahmadi-1X. Announced in late 2001, it produces 800 b/d of oil and 13.5 mcf/d of natural gas. The other well is GPZZ-4. Its initial flow from the Abu Roash “G” Member and the Upper Bahariya Formation was approximately 150 b/d of condensate and 1.6 mcf/d of natural gas, as reported in October by Egypt Oil &

Rockhopper Exploration 22%

Global Connect 25%

Abu Senan Concession

Khalda Petroleum Company By far, the biggest investor in the Western Desert

38

EGYPT OIL & GAS NEWSPAPER

Dover Investments 28%

Kuwait Energy 25%

Razzak North Razzak

Burg El Arab

Horus

West Razzak

Aghar

In the first five months of 2017, IPR Group dug 23 exploratory wells. In June, the company announced two discoveries: NRQ-11X and NRQ-9-2X. The two well have respective capacities of 715 and 3,700 b/d of oil. Both wells are located in IPR Group’s 100-percentowned North Ras Qattara Concession in the Alamein Basin. The discovery will increase the company’s output by 60%, according to company officials. Development in the North Ras Qattara Concession started in 2006. Active fields include Alamein, Yidma, Tarfa, Razzak, North Razzak, West Razzak, Aghar, Horus, Burg El Arab, El Goura and Akik. Future wells to be dug in the concession are NRQ-3151 and NRQ8X – both natural gas and condensate wells.

Cheiron PICO Also in 2017, Cheiron PICO acquired a 50% stake of Saharan North Bahariya, which was a 100%-owned subsidiary of EFG Capital Partners, for $83 million. Saharan North Bahariya Company owns the North Bahariya Concession with its Abrar, Fardous, Jana, Rawda, Sedar, and Rayan wells with their combined production of over 8,000 b/d of oil.

Transglobe Meanwhile, Transglobe has 100% working rights in three exploratory concessions in the Western Desert: The Northwest Sitra, the South Ghazalat, and the South Alamein.The rights were acquired between 2012 and 2015. Tests are still

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ongoing to measure production rates from the concessions.

Investment Level in 2018

Northwest Sitra

TransGlobe Presence in W.D

South Ghazalat

Apex International Energy Meanwhile, Apex International Energy announced that it signed two agreements with EGPC to invest nearly $46 million in its Western Desert concessions, according to Tarek El Molla, Minister of Petroleum and Mineral Resources.

Under the agreement, Apex International Energy will dig nine wells in the West Badr El Din Concession and Southeast Meleha Concession.

The company currently has $26.5 million invested in the South East Meleiha Concession and $19.4 million invested in the West Badr El Din Concession. Both concessions are located in the Abu Gharadig Basin in the Western Desert.

The ministry aims to increase national crude production beyond 700,000 b/d.

In 2017, the ministry has signed $255 M worth of exploration agreements in the W.D

Agiba Petroleum Company

South Alamein

Khalda According to the Ministry of Petroleum and Mineral Resources, it has signed agreements worth $225 million in 2017 with petroleum companies for Western Desert exploration and development project to occur in 2018.

According to an unnamed official from Khalda Petroleum Company, the company has allocated $810 million to invest in new wells during FY 2017/2018. It plans to dig 33 exploratory wells, mainly in the West Kalabsha and Khalda 3 regions. It will also dig 52 development wells to boost production to around 151,000 b/d of oil as well as maintain natural gas production at around 800 mcf/d. This is compared to the 146,000 b/d of oil and 810 mcf/d of natural gas produced at the end of FY2016/2017.

Also for 2018, the Ministry of Petroleum and Mineral Resources signed three exploration deals with Apache to dig 14 wells in the Western Desert. Apache will invest around $61 million in the exploration of the new Northwest Razzak Concession and $12 million in the South El Shawish Concession.

Royal Dutch Shell Royal Dutch Shell signed an agreement with the ministry in August to begin exploration operations in the Western Desert in 2018.

Per the agreement, the company will invest $64.2 million in drilling 63 wells in the region.

Currently, Royal Dutch Shell owns the West Delta Concession and has invested $1.6 billion in it, according to the company’s CEO, Andrew Brown. It has also invested $35.5 million in the North Um Baraka Concession through its joint venture with EGPC called Badr El Din Petroleum Company (BAPETCO). The joint venture only excavates oil and natural gas from the Western Desert. To date, BAPETCO’s reserves have topped 238 million barrels of oil and 4.779 tcf of natural gas. The company signed a deal with French-based Vallourecfor the latter to provide tubular services for 60 to 70 natural gas wells in the Western Desert.

Agiba Petroleum Company, a joint venture between EGPC (50% stake), Eni, Lukoil Overseas, and IFC, is expected to start shipping oil from its Meleiha field starting in the second quarter of 2018. In June it commissioned an engineeringservices company, Enppi, to develop oil shipping systems from the aforementioned field in the Western Desert. The project will take nine months to complete. This year, Agiba Petroleum Company drilled the Rosa N 1X well in its Meleiha field, giving it access to up a 20 million barrels of oil reserves. However, the company said that only 5 million barrels can be excavated using current technology. Agiba Petroleum Company also discovered oil and natural gas reserves in the Ras El Qatara region. Testing demonstrates the region could produce 600 b/d of oil and 1 Mcf/d of natural gas. Deeper drilling can add 5,500 b/d of oil and around 14 Mcf/d of natural gas, according to company officials.

owned banks, local banks, and Arab banks.

During FY 2016/2017, GPC made at least one oil discovery in the Western Desert. No details were made public.

Meanwhile, El Molla has prioritized oil excavations—especially in the Western Desert— in 2018 to reduce reliance on fuel imports. He aims to increasing national production beyond 700,000 b/d of oil—a production sum that has previously been achieved. “We are getting all the support we need from the presidency to expedite the execution of our investment plan,” El Molla said after a March meeting with President Abdel Fattah El Sisi and several international oil and gas firms, including Eni and BP. “We now have a conducive oil investment environment in Egypt, which will allow us to reach fuel self-sufficiency in the near future.”

Merlon Meanwhile, The Ministry of Petroleum and Mineral Resources signed an agreement with US-based Merlon. The company will invest $6 million in the Fayoum Concession during 2018. By the end of 2016, Merlon had 45 producing wells, producing 15.2 million barrels, in 11 development leases throughout its concession. Merlon can continue to operate in the Fayoum Concession until FY2034/2035.

Government Investments The state-owned General Petroleum Company (GPC) has signed agreements with six local banks in 2017 to secure an EGP 2.3 billion syndicated-loan facility to fund its oil and natural gas explorations for the next seven years. GPC said in a press release that it will allocate EGP 1.75 billion for exploration and drilling projects and EGP 99.3 million for its renewal and replacement programs. The banks providing the funding are a mix of governmentDecember 2017 - ISSUE 132

39

RESEARCH & ANALYSIS

A Look into the Immediate Impact of ZOHR on Egypt’s LNG Import Bill

A

By Mohamed S. Khedr

s Egypt’s famous mega gas field Zohr nears its official production date, many speculations revolve around how soon it will begin to impact the local market behavior, and more importantly, the national import bill.

With an ever-growing demand, Egypt is currently ranked as the eighth largest liquefied natural gas (LNG) importer in the world, according to Wood Mackenzi’s article on Egypt Oil & Gas. As several large fields approach their production date, the state has set an initial goal to decline its LNG imports, followed by an ambitious one to begin exports in 2019.

Currently, the state had imported a total of 118 LNG cargos in fiscal year (FY) 2016/2017, costing an import bill of $2.2 billion, according to a press release by the Ministry of Petroleum and Mineral Resources.

However, given the promising production of not only Zohr, but other deep-water fields such as Atoll, Nooros, Taurus, and Libra fields, the ministry is aiming at importing only 80 cargoes throughout FY 2017/2018, recording a reduction of 32% in Egypt’s current import bill of $200 million per month, Magda Zaghloul spokesperson of the Ministry of Petroleum and Mineral Resources explained to Egypt Oil & Gas. Expected Impact Initial production rate of Zohr is expected to be between 300-350 million standard cubic feet per day (mscf/d), which will increase Egypt’s current production from 5.1 billion cubic feet per day (bcf/d) to 5.4 bcf/d, according to a statement by the Chairman of the Egyptian General Petroleum Company (EGPC), Abed Ezz El-Regal, who expects the impact of Zohr –in the short term— to be a reduction of in the supply-demand gap by 30%.

LNG Imports 2016/2017 Imports 118 cargoes

Imports* 2017/2018 s 80 cargoe

Y.o.Y Decline* 32%

Import Bill % in Total .6 3 %

*Planned.

Source: Egypt Oil & Gas

40

EGYPT OIL & GAS NEWSPAPER

Furthermore, Zohr’s production rate is expected to gradually increase to reach a peak of 2.7 bcf/d by 2020, according to a televised statement by Egypt’s Prime, Minister Sherif Ismail, on October 20th.

On the other hand, Attia Mahmoud Attia, Professor of Petroleum Engineering, and an international energy expert told Egypt Oil & Gas that the real effect of Zohr natural gas field, would not be noticeable before the end of 2018, which is when the first development phase is scheduled to be completed, and production from the six wells drilled to officially begin, which will increase production levels to up to 1 bcf/d. He further added that current production from Nooros and West Nile Delta are already calculated in Egypt’s total natural gas production of 5.1 bcf/d.

Imports Reduction vs. Consumption Growth

Natural Gas Production

Current 5.1 bcf/d

Planned for 2018 6.2 bcf/d

The Egyptian Natural Gas Holding Company (EGAS) launched a tender to import 12 LNG cargoes in the first quarter of 2018; the low figure goes in line with the ministry’s plans to reduce LNG imports to only 80 cargoes in 2018. In FY 2016/20017, LNG imports accounted for around 3.6% of the country’s total import bill, an official from EGAS explained, adding that when Zohr starts production by the end of 2017, Egypt will reduce the import bill by around $50-60 million monthly.

In terms of impact on production he expects that “by the end of 2018, Egyptian natural gas production is estimated to reach 6.2 bcf/d, eliminating, or minimizing the need for imports.”

Offering a more conservative angle, CI Capital analysts estimate that Egyptian imports account for 7.6% of the domestic demands by 2018 –around 0.45 bcf/d which will help to reduce Egypt’s energy import bill in the near-term, these estimates are a result of their forecast that following the economic reform program, recovering economic growth, in addition to population growth, will lead to an increase of about 6.9% annually in energy consumption to reach 265 Terawatt per hour (TWh) by 2021; furthermore, both the residential and industrial gas demand are forecast to grow at an annual rate of 4.8% to reach 3.2 bcf/d over the same period.

Given the figures, local natural gas supply is expected to narrow the current supply-demand gap; as CI Capital expects consumption levels will increase to 6.37 bcf/d, a close estimate to the planned production level of 6.2 bcf/d, by the end of 2018. This narrowing of the gap will reduce the import bill to around $40 million monthly.

Yet, the impact may be short lived as growth of industrial sectors, electricity consumption, as well as end user usage is expected to widen the gap during the coming five years.

LNG import bill is planned to be reduced to $40 million/month.

Population growth will increase energy demand by 6.9% by 2021.

Residential and industrial gas demand are forecast to grow at an annual rate of 4.8%.

www.egyptoil-gas.com

‫ﺗﺤﺖ رﻋﺎﻳﺔ ﻓﺨﺎﻣﺔ اﻟﺮﺋﻴﺲ ﻋﺒﺪ اﻟﻔﺘﺎح اﻟﺴﻴﺴﻲ رﺋﻴﺲ ﺟﻤﻬﻮرﻳﺔ ﻣﺼﺮ اﻟﻌﺮﺑﻴﺔ‬ HELD UNDER THE PATRONAGE OF HIS EXCELLENCY PRESIDENT ABDEL FATTAH EL SISI PRESIDENT OF THE ARAB REPUBLIC OF EGYPT

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December 2017 - ISSUE 132

41

POLITICS In partnership with

In-Depth: Is the Gulf ready for VAT?

A

s government finances of all six Gulf Cooperation Council (GCC) member states continue to deteriorate due to low global oil prices, finding a new source of income for the government that is unrelated to oil has become vital. Hence the introduction of a 5% value added tax (VAT), the region’s first ever tax levied on products and services. “The introduction of VAT is a positive change for this region as it will create a new source of stable revenue for governments while having the least negative impact on regional economies,” said Pierre Arman, Thomson Reuters’ Market Development Lead for Tax & Accounting, in a Thomson Reuters survey analysis published in July. “These new tax reforms will support this region’s governments with economic diversification away from crude oil.”

Early signs indicate that VAT is going to be problematic for many GCC-based businesses who never needed to employ neither the human nor the physical resources to manage such a tax. This is evident in four surveys done in 2017 that revolve around the readiness of GCC-based companies to implement VAT. “The consensus alludes us to believe that only a minority of organizations have started preparing for such fiscal reform,” said Chas Roy-Chowdhury the Head of Taxation at the Association of Chartered Certified Accountant in the 2017 Thomson Reuters survey.

42

EGYPT OIL & GAS NEWSPAPER

GCC’s VAT Saudi Arabia was the first GCC country to get its parliament to approve the implementation of VAT starting 2018. This was in January 2017.

Within weeks the other five member states confirmed the implementation of the new tax.

To ensure continued legislative and economic harmony within the GCC, a Unified Agreement for Value Added Tax (UAVAT) was signed by all members last April. “The approval of the GCC UAVAT is a significant step in its own right. It also maps out the next steps,” said Michael PatchettJoyce, a commercial lawyer and arbitrator based in London and the UAE, to The National last February.

The agreement contains some basic stipulations applicable to all GCC such as the 5% tax rate.

Exemptions across the bloc include education, healthcare, real estate, and local and inter-GCC transport. Goods exported beyond the GCC will also be VAT-exempt. Lastly, GCC-based companies making more than $100,000 a year in revenue must register as VAT payers. Meanwhile, those making between $50,000 and $100,000 have the option to register. Lastly, companies making less than $50,000 are exempt from paying VAT. The UAVAT agreement allows each member state to exempt or levy different VAT rates on specific industries including the oil sector, petroleum

derivatives and natural gas. Furthermore, noncommodity food products, medical supplies and financial services, can be treated differently as per each member’s policy. The agreement also gives member states the freedom to choose how to treat companies in free zones, such as Jebel Ali in the UAE. Not Ready Yet To date only Saudi Arabia has announced its final VAT law. The legislative delay from other GCC member governments is putting many local companies at risk. “Many companies are waiting for these publications to be available before starting their VAT preparations,” said Arman.

“This proposes a high level of risk given the time frame.” This risk revolves around companies finding themselves not able to comply with VAT rules come 2018, which will result in penalties and being subjected to other enforcement measures.

Companies, however, can start their preparations without reading the law. “A considerable amount of the VAT impact assessment analysis can be done without knowing the details of the final law, as most of the VAT treatment can be extrapolated from other jurisdictions around the world,” said Arman who warned “[Implementing VAT needs a] pre-implementation period [...] in order to ensure the relevant technological tools, staff training, resource model and various other accounting facets are in place in order to comply with such reform.”Around 49% of GCC-

www.egyptoil-gas.com

said they knew about VAT. Around 50% of companies are confident they will be ready to apply it come 2018, according to the May survey.

Interestingly, none of the surveyed companies have set any action plan. Around 72% of them didn’t give a “clear answer,” said the survey report, as to why they don’t yet have a plan.

Meanwhile, 18% said they are waiting for their respective country law to be issued while 10% didn’t believe that VAT will affect them. This however doesn’t mean that the overwhelming majority of surveyed companies are not worried.

Around 80% of them have concerns, according to the Deloitte survey. Of them, 87.5% are worried about implementation.

The Ernst & Young survey, which was announced in March, found that 50% of companies haven’t started preparing for VAT; 29% have studied some of the VAT’s aspects; 6% have taken relevant workshops; and 4% have conducted an impact study but haven’t set an action plan.

Only 11% of surveyed companies have said they have such a plan. Of them, 51% are focused on having the right paperwork and procedures to comply with VAT. Around 17% are improving their computer systems; 13% are training their personnel; 10% are focused on their pricing strategy starting 2018; and 8% are focusing on the procurement side of the business to minimize costs.

Interestingly, the uncertainty arising from the implementation of VAT is not confined to local companies, but multinationals also. Around 78% of the surveyed multinational firms have said they will receive no support from their parent company, even if it is operating in a country that levies VAT, according to the Ernst & Young survey.

Meanwhile, 29% of surveyed multinational companies said they are completely invisible to parent company. based companies have said they have chosen to wait for their respective country’s laws before starting their VAT assessment, according to the Thomson Reuters survey. Meanwhile, 26% of surveyed companies said they completed the analysis phase but have yet to set any action plans while 11% have set action plans. The rest believe that VAT will not impact them or haven’t heard about it. It is therefore unsurprising that 75% of surveyed companies haven’t sat with their financial advisor to discuss VAT while 88% of companies have no idea how much will compliance cost them, according to the Thomson Reuters survey.

Despite the majority of companies not setting any actions plans, 51% have said they plan to implement VAT in-house; 36% are open to temporarily outsource the more complex aspects of VAT; 13% have said they will outsource this entire function. Worryingly, 44% of companies have some of the resources needed to implement VAT while 28% have none of these resources.

The remaining 18% have all the necessary resources to implement VAT immediately.

Not everyone agrees with the Thomson Reuters findings. Around 58.7% of companies have said that they are well informed about VAT and its requirements, according to another survey by Deloitte conducted in May. The rest have heard something about it. This is an improvement over the April survey when only 25.6% of companies

In the UAE, MENA’s top investment destination as per the 2017 Doing Business Report, 69% of companies believe that VAT will be implemented in January 2018, according to a February to April 2017 survey by UAE-based Hays, a research firm. Yet, despite this certainty, 52% have said they don’t yet have an action plan.

Interestingly, 61% of the surveyed pool said they will implement VAT in-house with no extra staff; 14% will hire specialized staff full time; and 9% will hire them on a part-time basis. The remaining 16% will fully outsource the function.

Companies hiring over 1500 employees seem to be better equipped to manage VAT compared to SMEs in the UAE, according to the Hays survey. Around 73% of large companies have already set an action plan compared to under 50% for the rest. Large companies are also less likely to manage VAT in-house (53% versus 66% for firms hiring less than 50 people). The extra resources of large companies means that 33% of them will hire extra personnel if they decide to do it in-house. Meanwhile, 24% of the smallest companies will hire more staff. Worryingly, 60% of surveyed companies haven’t set a VATcompliance budget. Meanwhile, 29% hope to pay less than AED 250,000. “With UAE VAT law yet to be fully announced, it is difficult for businesses to anticipate exactly how they will implement VAT and the subsequent costs involved,” Chris Greaves, managing director of Hays in the Gulf, said in the survey’s press release.

Uncharted Territory Unlike in Egypt, where their decades-old sales tax was being gradually modified to include features from VAT before it was officially replaced in 2016, for GCC-based companies the VAT is a game-changing reform. This is because it will impact every aspect of the business in ways never seen before.

Firstly, GCC-based companies will be effectively adding a new department in their finance division to process VAT. Its presence will impact standardoperating-procedures in all other departments to accommodate this new tax into their paperwork and operations. “Every department will be impacted by VAT,” said Arman, of Thomson Reuters in the survey report. This will mean significant upfront investments to build a pool of skilled personnel and adequate physical resources, such as suitable computer systems, to manage VAT. “This is a significant issue for GCC business,” said Justin Whitehouse, Deloitte Middle East Indirect Tax leader to Forbes Middle East last March. This will impact SMEs more as many of them don’t keep detailed records of their bills due to limited resources, according to Whitehouse.

Dealing with the outside world, VAT will change how the company chooses its suppliers, according to the Ernst & Young survey. For example, using imports or products that are VAT exempt means that the client company must pay VAT on 100% of the final price, according to the survey report. The other topic in question is pricing, and the decision of whether the company can afford to pass on 100% of the VAT to its customers, or will this cause a loss in sales because the product or service has become too expensive.

For consumers, VAT will most likely mean a noticeable overnight hike in prices. The hike will likely be more than the 5% VAT rate given that companies will see an increase in business costs to process VAT. “VAT will heavily impact high value luxury goods which will be borne by the end-consumers,” said Tonnit Thomas, the Founder and Creative Director of Tonnit Designs to Gulf Marketing Review last March. “If the new prices start biting the consumer [...] companies may downgrade to lower-end products [until] they adjust to the new pricing.”

Article contributed by DirectFN™, a subsidiary of National Technology Group (NTG) - one of the largest ICT companies in the Middle East.

DirectFN™ is a provider of exchange information to institutions via direct feeds or its DirectFN™ workstation, which includes reference data, charting tools and other content required by both the professional and retail investment community in the Middle East and global investment community.

December 2017 - ISSUE 132

43

OPINION COLUMNS

Bahariya Reservoir: More Studies, More Gain The Bahariya formation of the Early Cenomanian age contains the main producing reservoir layers of the Horus Oil Field in the Western Desert of Egypt. The formation is divided into three reservoirs: the Upper, Middle, and Lower Bahariya Reservoirs. Most production comes from the Middle and Lower Reservoirs, but the Upper Bahariya Resevoir needs more investigation.

Bahariya is characterized by a sequence of interpreted argillaceous sandstone and shale with subordinate carbonates which were deposited in a tidal flat complex (lower part) that grades upward into a shallow marine shelf. The sandstones, which make up the reservoir layers, are commonly glauconitic and frequently cemented by siderite, ferroan dolomite, and calcite.

Evaluation of the Bahariya formation from conventional logs has been hampered by two main problems.

The first problem is the presence of thin beds which are below the vertical resolution of the conventional logs.

New high-resolution logging measurements have been tried in the Bahariya Reservoir. They include Nuclear Magnetic Resonance Spectroscopy (NMR), Elemental Capture Spectroscopy (ECS), Rt Scanner Triaxial Induction Tool, Electromagnetic Propagation Tool (EPT), and Accelerator Porosity Sonde (APS). The resulting measurements have been interpreted and analyzed, yielding better vertical bed definition and more accurate porosity and oil saturation determinations.

The second problem is glauconite, which cannot easily be differentiated from shale. The addition of ECS and EPT logs helps to solve this problem since the response of these measurements to glauconite is quite distinct from that of shale.

The end result and the benefit of these analyses is a significantly better accuracy in Oil-In-Place (OIP) estimation as compared with conventional analysis.

By Dr. Ahmed Abd El-Gawad Sultan

Petrophysics Department Manager - Tharwa Petroleum Company

Lifting Energy Subsidies Leads to a Decreasing Consumption The subsidies system is based on delivering subsidies to the people eligible for them. Therefore when subsidies decrease and prices increase, citizens start rationalizing their consumption. For example, when electricity prices increase, people decrease their usage of electricity. The same goes for gas.

We hoped that the recent fuel price increase would lead to consumption rationalization and that cars would not be used except when necessary. We cannot evaluate the decrease/increase in consumption before 6 months; yet it is believed that consumption will be rationalized after the recent fuel price hike, which will help the country to decrease its imports of gasoline and petroleum products and, eventually, to save the dollars spent on fuel. This will assist Egypt in balancing the trade scale and will increase the value of the Egyptian pound.

Lifting subsidies is an economic decision, not a commercial one, as the Egyptian economy would weaken due to increasing consumption if the subsidies were not decreased.

The fuel market was not affected by the price increase as Egypt secures the same amount of fuel in the market. Yet the amount supplied may decrease if consumption decreases. The fuel price hike will increase the state’s budget’s expenditure; hence, if consumption decreases, the burden of securing foreign currency will ease as well.

The lifting of fuel subsidies comes as a result of the continuous increase in consumption of fuels by an average of 10% to 15% per annum.

In my opinion, the country’s target could be achieved by creating markets—supported by the country—that are parallel to the free market, securing the product, spreading awareness of recent events and how to deal with them, and having only one official source of information.

Lifting subsidies has a positive impact in rationalizing consumption and securing foreign currency, as well as lifting the pressure on the country’s budget. It helps in implementing new national projects, securing national natural gas in order to reduce imports, and, hopefully, securing sufficient local fuels to meet domestic demand and to be able to export.

Lifting subsidies further helps the government in paying its arrears to international oil companies (IOCs) to encourage exploration and production (E&P) in order to reach self-sufficiency, export products, increase income, and secure foreign currency.

By Khaled Mohamed Othman

Deputy Executive Manager for External Trade, Egyptian General Petroleum Corporation (EGPC)

44

EGYPT OIL & GAS NEWSPAPER

New Opportunities to Maximize Egypt’s Oil Production and Reserves Crude oil production declined during the past several years partly due to the natural decline, as well as the increased water production from wells due to aging reservoirs. The delayed output of some development projects is a main reason for low production.

EGPC is working on a strategy within the framework of the oil sector modernization project to maximize both oil production and remaining oil reserves. This can be performed by adding reserves from new exploratory wells, production optimization, and reservoir studies updates. The main object of this maximization project is to satisfy the local market’s needs for the petroleum products. On the other hand, it is also vital to keep part of the reserves for future generations.

To achieve the mentioned goals, the government began studying the vital subject of increasing oil production rates and reserve levels through several measures: firstly, Increasing data collection, especially geological data acquired by new 3D seismic data in the undiscovered area in the Red Sea, Mediterranean, and Western Desert.

Secondly, adding new reserves by increasing the exploration activities in new concessions, especially those near to existing big fields—like the Gupco and Petrobel fields in the Gulf of Suez.

Thirdly, reviewing existing closed exploratory wells which were discovered and abandoned because they produced at un-economical rates at the time of the drilling. These wells have to be re-evaluated using updated technologies.

Fourth, for the un-economical discoveries, the agreement conditions can be revisited to encourage the IOCs to invest in these areas.

Fifth, improving the ultimate recovery for the big, old fields with limited remaining reserves— this improvement can be achieved by applying secondary or tertiary recovery methods.

Sixth, there are big extensions for some existing producing reservoirs outside their concession areas that need more geological re-evaluation.

Seventh, start studying drilling to deeper horizons, especially in the Western Desert and the Mediterranean. Eighth, optimizing the production and the reserves from small fields by applying new technologies in the seismic processing to update the structure maps and the geological data—which could result in the discovery of new oil-bearing horizons. Ninth, statistics show that a considerable amount of oil reserves can be added from these small fields which could increase daily oil production.

Finally, concession agreements have to be revisited and updated—to include the Production Service Agreements—especially for heavy oil and unconventional oil production.

By Hassan Salem

Reservoir Engineering Studies Assist.

General Manager, Egyptian General Petroleum Corporation (EGPC)

ECONOMIC SNAPSHOT

www.egyptoil-gas.com

Eg

Egypt’s New Investment Law No. 72 of 2017 Investment Guarantees • Fair and equitable treatment for Egyptian and foreign investors

• Fair • Residence permits for foreign investors

and Egyptian a

• Protection against nationalization

• Seizure of money is only allowed by virtue of a court judgment • Protection

• No coercive or discriminatory measures against invested money

• Land and property licenses may not be withdrawn without prior notice • No coerciv

• The right to repatriate profits outside Egypt and receive foreign funds

against inv • Liquidation process to be finalized within 120 days

• No importation license needed for machinery and equipment

• Expats can be employed up to 10% ofEgypt and total employees

• The right t

• No impor machinery

Investment Incentives General Incentives

Special Incentives

Additional Incentives

7-year tax incentive as follows: • Exemption from stamp duty tax and notary public fees for 5 years

• Exemption from land registration fees • Unified flat customs duty rate of 2% on all machinery and equipment

Return of PrivatelyOwned Free Zones

Customs-free and tax-free; they are rather subject to fees of: • • •

1% of revenues achieved from exporting 2% of revenues achieved inside Egypt (For manufacturing or assembly projects) 2% of total revenue from other projects

General Ince

• 50% of investment cost of setting up projects in areas that are in most need of development • 30% of investment cost of projects set up in other areas • Reduction amount shall not exceed 80% of paid-up capital

Corporate Social Responsibility

Allowing investors to allocate up to 10% of their net profits to social development systems to be tax deductible.

• 50% refund of land cost if production starts in 2 years • Free land for specific strategic projects

• Exemption from stam and notary public fees

• Government to share cost of utilities and vocational training

• Allowing projects to have their • Exemption from own customs gates

fees

land

New Arbitration and Mediation Center • Unified flat customs d

on all machinery and

Under the name of “the Egyptian Return of Priva Center for Arbitration and Owned Mediation”; for amicable disputeFree Z resolution.

Customs-free and tax are rather subject to fe

December 2017 - ISSUE 132

•

45

1% of revenues achieved

DRILLING Rigs per Specification Land Semi Fixed Jack-Up Workover Submersible Platform

Standby/ Stacking

Drillship

Total

0

58

2

149

1

1

53

2

149

11

1

1

49

2

149

37

11

1

1

52

2

149

42

37

11

1

1

55

2

149

Sep-17

39

40

10

1

2

56

0

149

Oct-17

41

43

10

1

1

50

2

148

Nov-17

41

45

10

1

1

49

2

149

Date

Land-Drilling

Apr-17

41

36

11

1

May-17

44

37

11

Jun-17

45

40

Jul-17

45

Aug-17

Fixed Platform

0%

Standby/Stacking

-2%

Semi-Submersible 0%

Jack-up 0%

M.o.M Change in Rig Count per Specification

Land Workover 4.6%

Drillship

Land Drilling 0%

0%

Rigs per Area Month

G.O.S.

Med. Sea

W.D.

Sinai

E.D.

Delta

Total

Apr-17

8

6

55

11

6

5

91

May-17

9

6

58

12

6

5

96

Jun-17

9

6

61

13

6

5

100

Jul-17

9

6

59

14

6

3

97

Aug-17

9

5

59

13

5

3

94

Sep-17

9

5

61

11

5

2

93

Oct-17

10

4

64

12

6

2

98

Nov-17

10

4

63

13

7

3

100

50%

13%

7%

Total 2%

Med. Sea

W.D.

Sinai

E.D.

G.O.S 0%

PRODUCTION Q3 2017 Crude Oil

Equivalent Gas

Liquified Gas

Condensate

-

41,207,014

554,732

1,828,837

E.D.

5,745,707

52,156

9,480

4,302

W.D.

28,030,924

23,283,333

1,954,700

4,466,993

3%

GOS

12,142,476

2,289,132

839,400

226,242

Delta

125,163

23,112,275

416,239

1,361,163

Sinai

G.O.S.

Med Sea 0%

Delta

Total

5,257,977

23,710

115,471

55,089

51,302,247

89,967,620

3,890,022

7,942,626

*Natural Gas figures are in Boe.

*Crude total excludes Upper Egypt production

DRILLING UPDATES Region

Western Desert Delta Mediterranean

G.O.S

46

Company

Well

Well Type

Rig

Depth

Well Investments

HPS

N.GAZALTI-1X

Exploratory

EDC-53

6096

$1.2 M

HPS

SWA1-1X

Exploratory

EDC-53

15243

$3.5 M

Khalda

PTAH-2X

Development

EDC-11

14500

$1.92 M

BAPETCO

SITRA 8-BO ST

Water Injection

EDC-51

11604

$2.65 M

BAPETCO

BED3 C6 S-A

Development

EDC-42

12008

$1.7 M

HPS

NG 3-1X

Exploratory

EDC-53

11917

$2.0 M

OAPCO

W.Q 34/15-23

Development

ECDC-2

7185

$1.2 M

Khalda Petroleum

MENES-2

Development

EDC-61

12010

$1.35 M

BP

MOCHA-1

Exploratory

EDC-56

19488

$74.5 M

Petrobel

NIDOCO NW3

Development

EDC-59

13819

$2.9 M

Abu Qir

N.AQ.P1-10X ST-1

Exploratory

Al QAHR 1

12850

$15.79 M

GPC

AL-SHUKR-4

Development

ADMRIN-3

6407

$3.5 M

GPC

SE ALHAMD-4

Development

ADMRIN-3

6410

$3.2 M

GUPCO

GS 327-A12 ST

Development

BAHRI-1

9502

$2.9 M

EGYPT OIL & GAS NEWSPAPER

Unit: Barrel

63%

W.D -1.5%

M.o.M Change in Rig Count per Area

Delta

Med. Sea

4%

8.3%

16.6%

Distribution of Rigs November 2017

10%

Sinai

E.D

www.egyptoil-gas.com

Third industrial zone A, 10th of Ramadan City, Egypt. Tel. (+2055) 4411780 - (+2055) 4411781 Email: info@alphaforled.com

December 2017 - ISSUE 132

47

48

EGYPT OIL & GAS NEWSPAPER