Sherine Nasr listens in on the optimistic message of Egypt's minister of energy regarding the challenges facing the country's oil industry Optimistic figures despite major challenges was the essence of what Sameh Fahmi, Egyptian minister of petroleum and mineral resources, had in store for his American Chamber of Commerce audience last week. Key indicators from the oil sector, according to Fahmi, are bright: investment in upstream activities has grown to $24.7 billion compared to $9.5 billion in the 1990s, the total number of discoveries now 427, some of which are very promising, daily production at two million barrels of oil, 77 trillion cubic feet (tcf) of natural gas proven reserves in addition to upgraded petroleum services delivered by a number of qualified Egyptian companies such as Enppi and Petrogas in a number of Arab as well as African countries. "From a global perspective, Egypt still has an important role to play. We have a good amount of gas and oil, but we need to decide when to develop these resources," said Fahmi. He added that Egypt presents the highest exploration development rate in North Africa with 27 exploration companies representing 16 different nationalities and 38 agreements to explore for oil and gas. According to Fahmi, in the Western Desert, more than five per cent of exploration wells were successful, "many of which are in the low and deep layers and they provide one of the best crude qualities." Western Desert oil and condensate production has reached 271,000 barrels per day (bpd), doubling the production of 10 years ago. In Upper Egypt, there are 100,000 barrels accumulated through the very high potential of Baraka 1, 2, 3 and 4. "There are 15 petroleum agreements already signed. Baraka is only a milestone of oil discoveries in Upper Egypt." Meanwhile, the gas pipeline has already reached the Upper Egyptian governorates of Sohag and Aswan. It will soon reach the New Valley. "Natural gas will not only change the face of Upper Egypt, but this is the carrot to attract more investment to look for natural gas in this area," said Fahmi. Of significant potential is a wealth of oil shale estimated by Fahmi at five to seven billion barrels. Further, Fahmi indicated that the ministry is investigating the possibility of producing bio-fuel from cheap sources such as rice straw and molasses to meet ever-growing energy demand. The potential to become an energy hub is still being examined. Fahmi underlined that Egypt can obtain supplies from resource rich countries and re-export them to other markets. "We have huge storage capacity and transportation facilities. The best is yet to come." But when hot issues such as subsidies were raised, little was revealed. "In the short term, there is nothing to declare. Our main concern is the people of Egypt and we need to address the issue in a positive and transparent manner," said Fahmi, making no reference to the ongoing struggle to re-fill a gas cylinder, used mostly for cooking, which has led to the loss of two Egyptian lives. Rapid growth in local demand has indeed been one of the biggest challenges the oil sector has had to deal with. For the past 10 years, local demand has grown by six per cent per annum from 35.4 million tons in 1998/99 to 66 million tons in 2009/10, resulting in oil subsidies ballooning from LE1.2 billion in 1998 to LE66 billion last year. Downstream activities (refining and marketing) are another major challenge. "We need to introduce more refining capacities." Moreover, the global financial crisis has had a negative impact on the oil industry in Egypt. According to Fahmi, upstream potentials have slowed down. "Most of the companies delayed their programmes as a direct result of the economic crisis. They had to be very selective on their future plans," the minister said, adding that most of the money invested came from inside Egypt. Changes in the energy market, the high degree of volatility for oil and gas prices, rising project costs, the obsolete state of Egyptian refineries, and the requests by international companies to review gas prices in concession agreements, in addition to the increased regional competition for attracting foreign direct investment, particularly in Libya and Iraq, have all posed major challenges on the oil industry in Egypt. Fahmi noted that oil prices hovering around $70-80 per barrel are acceptable to both consumers and producers, "but prices are expected to surge within the next two years as demand will grow higher."
