Oil and Natural Gas Sector in Egypt

Throughout history, Egypt has had significant energy resources, both in traditional fossil fuels and in renewable energy, largely due to the abundance of underutilized land and year round sunshine within the country. Egypt’s strategic geographic location also provides potential for it to become among the most important gas producing nations in the world in the near future. After the discovery of the Zohr Well in 2015, an additional goal was set for Egypt to be self-sufficient for natural gas by 2020, and this goal is well on its way to being realized.

The next phase in the development of this sector concerns putting in place infrastructure which will facilitate transfer of the gasoline liquefaction plants located in Egypt, allowing the country to export the liquefied natural gas to Europe, which has long been Egypt’s target market.

To support this expansion plan, the government has also signed a memorandum of understanding with the European Energy Commission who will provide financial or technical support to allow Egypt to reach its mission of becoming an energy hub within the next four years.
In addition to exporting gas, international companies can invest in several frontier locations within the country such as the Red Sea, the western side of the Mediterranean on the northern coast, and the western side of the Nile delta off shore.

Advantages

1 | Strategic location

Geographically, Egypt is ideal for people from all corners of the world, and travel is facilitated through direct flights from Europe, Africa and the Middle East. A number of ‘Passage Projects’ have created various naval passages which connect European countries with Egyptian cities such as Alexandria and Port Said. Additional ports are found along the Red Sea (Ras Shukhair, Al Adabia and El Sokhna Ports), two of which, (El Sokhna and Eastern Tafreea) constitute two of the five naval axes which link the European Union to its neighbors.

The accessibility of the country has also allowed it to retain a larger share of international petroleum products and to be a key player within natural gas trade. This is particularly important when we consider neighboring countries in the Gulf, West Africa and the Caspian Sea, all of which are primary crude oil and natural gas production areas.

2 | Mature Petroleum Industry

The petroleum industry in Egypt is considered one of the oldest in the world, starting with the dawn of the twentieth century. Today, the sector has matured, employing a multitude of technical experts in searching, exploration and production as well as transporting and refining activities.

3 | Supporting Infrastructure

Over the last few decades the Egyptian government has invested tens of billions of pounds in constructing national pipe grids to transport crude oil, natural gas and petroleum products to and from the seven refinery labs which are present within the country. As the sector grows, the government will continue injecting money to create additional supporting infrastructure which will keep Egypt at the forefront of these developments.

4 | Governmental Support

The government of Egypt has focused a considerable amount of effort into the development of the oil and natural gas sector, by primarily restructuring its governing system’s. This has included amending the entire body of legal provisions regulating the oil and gas sector to preserve Egypt’s mineral wealth and to encourage additional direct foreign investment.

To keep up with urgent local demand, the government has also put in place a plan of action which includes:
– Development of Egyptian refineries that lack technology.
– Increasing petroleum product trade.
– Restructuring the financial support system for petroleum products to take into account energy prices.
– Allowing private sector companies to import natural gas to meet current local demand.
– Ensuring the delivery of natural gas to residential areas as well as industrial establishments.
– Increasing the number of distribution and supply stations within the country.

Rights Granted

Private companies are capable of exploring and exploiting oil and gas through concession agreements with the government.

Generally speaking, the government requires contractors to acquire a certain amount of any oil or gas discovered in accordance with a production sharing scheme. The contractor can then sell and export his share

according to the price valuation set out under the concession agreement. These agreements include specific provisions to encourage foreign investors to enter into a bidding process announced by the Minister of Petroleum.

Concession Agreements

Terms

The Egyptian General Petroleum Authority (EGPA) is responsible for the governance of the conditions pertaining to the exploration and exploitation of oil and gas set out under Law No. 66 of 1953 and Law No. 86 of 1956 (Law No. 167 of 1958)

A concession agreement is the only mechanism and document that grants the contractor the right to carry out oil and gas exploitation activities.

The term of these agreements must then be approved by Parliament, signed by the Egyptian Minister of Petroleum and the contractor. In general, the terms for exploration range from seven to nine years, and are divided into three terms – the initial term and two extensions. However, if there is a commercial oil and gas discovery, the agreement may be granted for 25 years to be extended to 35 years.

The contractor’s rights can then be assigned by a deed of assignment to a third party in accordance with the terms of the concession agreement, after the approval of the Government.

Granting of Licenses

Oil and gas concession agreements are awarded to contractors through a bidding process. Generally, the Egyptian General Petroleum Company (EGPC) and the Egyptian Natural Gas Holding Company (EGAS) announce specific tenders to solicit the best and most appropriate contractor.

The tender documents are usually offered in accordance with the provisions of the Law No. 182 of 2018.

Fees

Generally, the contractor’s financial liabilities are determined by virtue of the provisions of the concession agreement, and there are no set fees associated with acquiring the right to practice exploration and exploitation activities.

Liability

The contractor is considered a party to the concession agreement, meaning that he is bound by certain contractual liabilities under terms of the concession agreement.
These rights and obligations can only be altered or amended through written approval from both parties

Taxes

Profits attained as a result of the exploration and/or exploitation activities will be subject to a 40.55% tax as per Egyptian Income Tax Law No. 91 of 2005.
Additionally, contractors who work under a concession agreement will be subject to Egyptian income tax law and must comply with the requirements to file returns, assess tax, keep and show books and records on the stipulated dates.
The Egyptian General Petroleum Company (EGPC) pays income tax on behalf of the contractor out of EGPC’s share of the petroleum saved under the terms of the concession agreement.

Ongoing Projects

1 | Assiut Oil Refinery Project

Assiut National Oil Processing Company (ANOPC), in collaboration with Enppi and Italy’s Technip firm have announced the biggest oil refinery project to be implemented in the Upper Egyptian Governorate of Assiut. The project is currently under planning and will add 3.4 million tonnes per year to the national production capacity.

2 | 13 New Wells by Egyptian Natural Gas Holding Company

The Egyptian Natural Gas Holding Company also announced plans to drill 13 wells by 2020. These projects are set to cover 100% of all natural gas sector’s demands, as well as decrease mazut consumption.

3 | Benzene and Diesel Complex Project in Suez

Additionally, significant progress is underway with the benzene and diesel complex project in Suez, which costs will cost a total of $2.4 billion. The complex’s capacity is approximately 3 million tons of diesel, and more than a million tons of high quality benzene. This project is under the leadership of the Red Sea National Company for Refining and Petrochemicals.

4 | Increase refining capacity of Middle East Oil Refinery

The Middle East Oil Refinery (Midor) also announced plans to increase its refining capacity, reaching 4.5 million tons annually after completing the development and rehabilitation processes. Increasing the refining capacity will contribute to meeting the domestic needs of fuel and petroleum products, a proportion of which is currently being imported. The current capacity is about 3 million tons per year .

5 | Zohr Natural Gas Field

In August 2015, one of the world’s largest natural gas discoveries was made in Egypt’s Mediterranean Sea, namely, the Zohr Field. The field was found by Italian company Eni, however minority stakes in the Shorouk concession where the field is located have been sold to BP (30%) and Rosneft (10%).

Zohr has the potential to produce 850 billion cubic meters of gas, and could therefore double Egypt’s natural gas production in the near future. More specifically, experts have stated that the discovery of this well will potentially allow Egypt to be self-sufficient for natural gas by 2020. As it stands, over 80% of the development of the field has been completed, so the target is well on its way to being reached.

6 | Mediterranean Sea Gas Projects

Egypt’s Ministry of Petroleum has recently announced the commencement of new natural gas projects near the Mediterranean Sea, which will help to double the production of natural gas by 2020. The first stage has already increased natural gas production by 50 % as of the end of 2018, and this will eventually increase to 100% by 2020. These new projects will account for approximately $8.3 billion of investment within the sector. It is believed that these projects, coupled with the rapid developments of the Zohr field will make Egypt a hotspot for trading oil and gas by 2021.

7 | Western Desert Exploration Projects

The Minister of Petroleum and Mineral Resources signed three new agreements for oil and gas exploration in the Western Desert of Egypt worth approximately $79 million. The first and second agreements were signed with American company Apache, enabling them to explore within the concession areas of the Western Desert using $73 million of investments, while the third agreement with Merlon Company was made to enable exploration within the Fayoum region, with approximately $6 million of investments. These projects are part of much larger expansion plan wherein 79 new agreements for oil and gas exploration were signed, with predicted investment amounts reaching a minimum of $15.3 billion.