Interview withH. E. Mr. Sameh FahmyMinister of Petroleum of Egypt

Egypt is a significant oil and gasproducer in the Middle East

and Africa, and is fast exceeding its ownexpectations for reserves. What can you tellus about the real estimates of reserves?

A: The country’s oil production hastapered off over the past two decades despitethe challenges facing crude oil productionand also as a result of the natural declinein production from the mature fieldsdiscovered in the 60’s and 70’s. The Ministryof Petroleum succeeded in maintaining itsproduction levels with a minimum declinerate over the last five years and we currentlysit at a little under 700,000 bpd of oil andcondensate production.

Today, proven oil and condensate reservesstand at 3.7 billion barrels. Proven gasreserves reached 67 trillion cubic feet (tcf) atthe closing of our last calendar year. Therealso exist an additional 100-120 tcf ofpotential reserves (according to the studiesof international companies operating inEgypt that is compatible with a recent studydone by a major reputable internationalconsultant). This study focused on petroleumpotential and the future expectations forinternational offshore reserves. The studyreached the distinctive conclusion thatEgypt occupies the 2nd place in the totalestimates of gas reserves in deep-water,offshore worldwide.

Q: Demand for petroleum products hasbeen relatively flat since 1999 (largely due tothe increased use of natural gas). What areEgypt’s expectations in terms of exploration?

A: Intensive exploration and productionactivities are on-going, at about over 30% ofEgypt’s total area. There are 58 internationaland private companies currently operatingthrough more than 102 concession agreements

including major international companiessuch as BP, BG, ENI, Shell, Apache andPetronas, amongst others.

During the last two years about 63agreements and amendments were signedwith financial commitments reaching$2,188,130 billion and with the drilling ofmore than 258 wells. This significant numberof agreements reflects the willingness of IOCto invest in Egypt for its significant potentialin the oil and gas sector and for thediscoveries achieved in the last few years(especially in the Mediterranean, Nile Deltaand Western desert). Exploration activitiesare currently directed for new frontier areas inthe Red Sea, Upper Egypt and Western Desertand offshore in the Western portion of theMediterranean deep-water area.

In addition to the above, a new holdingcompany called “GANOPE” was formed in2003 following the Ministry of Petroleum’sstrategy to enhance exploration activities inthe Upper Egypt area and has sincesucceeded by offering three rounds ofbidding. It has also announced the fourthround of bidding and has made greatprogress in attracting companies to explorewithin its vast territory. It has awardedseven blocks in the Upper Egypt and theRed Sea area and the first exploratory wellwill be drilled before the end of this year.

Q: What are the output perspectives inEgypt’s four traditional areas; the Gulf ofSuez (about 50%), the Western Desert, theEastern Desert and the Sinai Peninsula?

A: Of the country’s most known producingregions, the Gulf of Suez, is synonymouswith being mainly an oil rich area, anddespite the fact that production in the area ison the decline, international and national oilcompanies have not yet given up hope on

Q:

Contents

Interview with the Minister of Petroleum

Introduction & Well Defined Plans Shape Egypt’s Future

Transportation

Natural Gas

Downstream & The Petrochemical Master Plan

Offshore Potential

Conclusion & Future

Data & Acknowledgements

All production and editing was done byStar Communications. For more information:www.star-communications.us

Writing: John L. Kennedy, 21st CenturyEnergy Advisors, Inc.

Journalism: Jacques Fernández de Santos

Production Development: Susan Brophy

Design & Layout: Dispar Comunicación

Special thanks to Daniel Bernard of Oil andGas Journal and to the staff of themagazine for their support and cooperation.

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Interview with the Minister of Petroleum

02making further oil discoveries. For example,in 2003 the largest oil discovery was made todate with proven oil reserves about 80mmbbls and an expected rate of 45,000 bpdafter field development. Additionally in 2004,there was another major discovery in theoffshore area by the National Company withproven reserves up to 60 mmbbls oil,(currently the field was producingabout 15,000 bpd with the potentialto produce 30,000 bpd with full fielddevelopment.)

Q: Offshore oil productionpossibilities in the Mediterraneanare beginning to be explored; canyou please expand on this?

A: Due to extensive explorationactivities all over the country,especially in the deep and ultra-deepwater of the Mediterranean (as well asonshore the Nile Delta and WesternDesert last year) several gas discoverieswere achieved. We expect to increasethese discoveries as we are offeringadditional bidding rounds everyyear through several entities: EGPC,EGAS and GANOPE. Furthermore,offshore Mediterranean is achievinga phenomena record of successfuldrilling. Recently, oil was discoveredin the Mediterranean and Nile delta(which have always been consideredgas producing areas. These discoverieswill open more opportunities forfinding more oil reserves in thedeeper targets.

Q: The government has plans to increaseproduction of lighter products, petrochemicals,and higher octane gasoline by expandingand upgrading existing facilities?

A: Upgrading refining efficiency, improvingprofitability, and meeting the worldwide demandare some of our main policies. In addition, allof our plants must meet the required regulationsset out by the international community.

While aiming to improve the overallquality of our products we must addressenvironmental issues by developing ways toreduce pollution, while increasing productionof middle distillates with higher added values.

Promoting this goal we now possess oneof the most sophisticated and advancedrefineries in the Middle East (MIDOR). It is astate of the art refinery with a capacity of fivemillion tons per year to produce state-of-the-art petroleum products that comply with

European standards and also satisfy localdemands. Once achieved, we can also exportthe surplus to international markets. In2005, the company successfully exported1.65 million tons of high-octane gasoline andjet fuel with a total value of about one billiondollars (US). Our list of exporters include:

England, United States, Canada, France,Spain, Italy, India, Singapore, Jordan, SaudiArabia, and UAE.

In addition, we have two major companiesthat are devoted to the production of highquality refined products. First being, AlexandriaNational Refining and Petrochemical Company;ANRPC that produces unleaded high-octanegasoline and Alexandria Mineral Oil companyAMOC that converts heavy distillates to gas oiland naphtha production.

Q: The Ministry is considering oneproject with a capacity of 200,000 to300,000 bbl/d, to be co-located with a majorpetrochemicals complex. If built, it wouldbe primarily an export oriented facility?

A: This comprehensive ambitious complexis under study to produce highquality, clean-burning transport fuels and petrochemicalintermediates that meet the strictest Europeanstandards.

It is set to be one of the top 20 complexesin the world. It consists of eight main projectsnamely; a sophisticated refinery for theproduction of high quality gas-oil, unleadedgasoline, naphtha and kerosene. In addition,there are another five projects that wouldproduce ethylene and polyethylene, propylene

and poly-propylene, styrene andaromatics. There is also a project forpower and steam generation andanother for transportation and storageutilities. Estimated total investmentof the projects is approximately 9.5billion $US with a capacity of350,000 bbl/d. This huge complex isexpected to create about 100,000 jobopportunities during its constructionand implementation phases, which isconsidered in itself an added economicvalue and the implementation of thecomplex will take around five years.

Q: What will be the political andeconomic criteria for concedingexploration blocks in the near future?

A: The Ministry of Petroleumrestructured the oil sector establishingnew specialized entities for oil, gasand petrochemicals (EGAS, ECHEMand GANOPE in addition to EGPC)to speed up the decision-makingprocess and focus on growingactivities in the gas and petrochemicalsectors, as well as further extend theoil and gas activities in Upper Egypt.They participate in joint-venturepartnerships with international oil

companies operating in Egypt. The state-owned entities are in charge of offeringacreage for tender in international biddingrounds and recently, several bidding roundswere announced offering a multitude ofopportunities for E & P companies.

As in the past, the petroleum sector stillplays an important role in the country’seconomy. We succeeded in attracting $10billion of FDI in the past five years comparedwith $5.6 billion during 1996-2000, and$3.5 billion during 1991-1995. The petroleumsector has set an economic model forinvestment and the main point of ourstrategy is to increase our petroleum product’sexports, reduce the burden on the state’sbudget, and attract more private and Arabinternational investments. Our projectionsfor the next five years are to attractapproximately 20 billion US dollars ofinternational and national investments, with$16 billion as FDI, 50% of which will beinvested in upstream activities.

H. E. Mr. Sameh Fahmy, egyptian Minister of Petroleum

Egypt’s petroleum future:Critical assets and well-defined plans willadd value to large resources

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o keep pace with the relentless growthin global energy demand in the decades

ahead, it will be necessary to find, develop anduse more oil and gas more efficiently, and withless impact on the environment.

Meeting tomorrow’s energy demand willrequire a complex array of talents and assets.Adequate oil and gas resources coupled withconvenient access to both raw materials andmarkets will be critical advantages intomorrow’s competitive global energymarketplace.

Just as important, the leaders that emerge totake up the challenge will be those nations andcorporations that encourage innovation, offerattractive investment opportunities and striveto improve living standards for all citizens.

For decades, Egypt has taken advantageof its strategic location to build an importantlink in the chain that connects large oilreserves with markets around the world. Inthe last decade, it has begun to implement along term strategy to add value to its ownconsiderable natural gas resources bybuilding a strong export prominence and aworld-class petrochemical industry.

Egypt’s participation in the criticaltransportation infrastructure built around theSuez Canal and the Suez Mediterranean(Sumed) pipeline is one of the country’s mostimportant physical assets. Egypt’s late PresidentSaddat saw the pipeline as a strategic projectand together with the Canal, the two nowtransfer around 98% of Arabian Gulf crude oilto the Mediterranean.

In addition to its ongoing role as a leadingglobal oil transportation hub, Egypt also has:

• An aggressive exploration effort underwayto further define its natural gas resource,much of which lies in deep water

• A Master Plan to develop its petrochemicalindustry and expand natural gas and liquefiednatural gas (LNG) exports

• A reputation as a politically stable,investment-friendly country with a long history

of partnering with international companiesof all types

• A focus on environmental responsibilitythat embraces both operations within Egyptand the products it produces for consumersaround the world

Adding to the resourceIn fiscal year 2004/2005, Egypt’s oil productionaveraged 641,000 barrels per day (b/d) ofcrude and condensate; gas productionaveraged about 3.8 billion cubic feet per day

(cu ft/day). At year end, remaining oil reserveswere estimated at 3.669 billion barrels (bbl)and natural gas reserves stood at over 66trillion cubic feet (tcf).

In addition to proven gas reserves, much ofthe country’s future will be driven by anestimated 100-120 tcf of gas yet to be discovered.

During the last fiscal year, 77 explorationwells resulted in 38 oil and five gas discoveriesthat added 196 million bbl of oil and 0.8 tcf ofgas to Egypt’s reserves base. Production wellsdrilled or re-completed totaled 230, most ofwhich were completed in the Western Desert.

Also during the year, 23 agreements weresigned and amended that include financialobligations totaling $899 million and thecommitment to drill 96 wells.

The continued search for new reserves byboth Egyptian and international companies inrecent years has helped slow the inevitabledecline in oil production from fields discoveredin the 1960s and 1970s.

In 2003, for example, the biggest oildiscovery in 14 years added reserves of about80 million bbl. When developed, the field isexpected to produce 45,000 b/d, according toMinister of Petroleum H.E. Eng. SamehFahmy. In 2004, another big oil discoveryoffshore proved reserves of 60 million bbl.After full development, the field couldproduce 30,000 b/d.

In early 2006, five new oil discoveries weremade in the Gulf of Suez and the WesternDesert. The Gulf of Suez accounts for abouthalf of Egypt’s production, the rest is from itsthree other key areas: The Western Desert, the

Eastern Desert and the SinaiPeninsula.

“The Gulf of Suez is likelyto continue to be the mainoil producing region,” saidPetroleum Minister Fahmy.

But aggressive explorationin the Western Desert hasresulted in significant oil and

gas discoveries in recent years. The search alsohas been intense in the deep water of theMediterranean, and onshore in the Nile Deltaand Western Desert, resulting in several gasdiscoveries. Recently, oil discoveries have beenmade in the Mediterranean and Nile Delta,areas traditionally considered gas-prone.

SUMED pipeline is one of the country’smost important physical assets.

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“These discoveries in theMediterranean and Nile Deltaopen more opportunities forfinding more oil reserves in thedeeper targets.” Petroleum Minister

Sameh Fahmy

Egypt’s Petroleum Future

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“These discoveries open more opportunitiesto find additional oil reserves in the deepertargets,” said Petroleum Minister Fahmy.

Egyptian General Petroleum Corp. (EGPC),in its strategy to achieve the goals of theMinistry of Petroleum to increase the country’spetroleum wealth, will:

• Tender new open areas in differentsedimentary basins with international bid rounds

• Improve and upgrade the petroleumagreement process to lure more investment

• Apply the latest exploration andexploitation technologies

• Use exploration theories to reducerisk and increase success

Downstream developmentCrude oil and natural gas reserves arefundamental to Egypt’s energy future. Butadding value to those raw materials byproducing products for a broad range ofmarkets is the key to economic growthand stability.

Being competitive in tomorrow’srefined product market will require a lighterproduct slate, improved plant efficiency andlower cost, and those are key objectives ofexpansion and upgrading projects underwayand planned for Egypt’s refineries.

“We devote our attention to addressingenvironmental issues by developing ways toreduce pollution, increasing the productionof middle distillates with higher addedvalues, and improving product quality,” saidPetroleum Minister Fahmy.

Egypt’s state-of-the art Middle East OilRefinery (Midor), for example, can produce 5million metric tons per year of petroleumproducts that meet European standards.

Other companies also produce high qualityrefined products. Alexandria National Refiningand Petrochemical Co. (Anrpc) makes unleadedhigh octane gasoline and Alexandria Mineral

Oil Co. (AMOC) converts heavy distillates togas oil and produces naphtha.

Along with the inexorable growth indemand for refined products, global economicexpansion and a rising world population willdrive increased demand for petrochemicalproducts. Egypt’s Master Plan to become aleading petrochemical manufacturer is designedto take full advantage of that opportunity.

“Egypt’s abundant natural gas resources andits ability to move downstream to producehigher added-value products will have apositive impact on the country’s economy,” saidMs. Sanaa A. Moneim El Banna, Chairperson,Egyptian Petrochemicals Holding Co. (Echem).

As petrochemical feedstock costs rise,proximity to gas supply becomes an importantcompetitive advantage. Areas such as thenortheastern coast of Egypt that haverelatively low-cost feedstock represent anattractive investment opportunity, said Ms.Moneim El Banna.

Partners and investment welcomeParticipation of a broad cross section ofinternational and private companies inexploration and production activities that span30% of Egypt is just one indication of the

opportunities available in the country.About 58 firms, including BP, BG Group,

Eni, Shell, Apache, Petronas and others arecurrently operating under 102 concessionagreements. In the last two years, 63 agreementsand amendments were signed that involvedfinancial obligations totaling $2.188 billionand commitments to drill a total of 258 wells.

Since its creation in 2003 to enhanceexploration in Upper Egypt, Ganoub El WadiPetroleum Holding Co. (Ganope) has heldthree bid rounds and announced a fourth. Thecompany has awarded seven blocks in UpperEgypt and the Red Sea and the first exploratorywell will be drilled before the end of this year.

“The company has made great progress inattracting companies to explore within its vastterritory,” said Petroleum Minister Fahmy.

Before Ganope was established, only 6% ofEgypt’s working area was covered by explorationand production (E&P) agreements; now 26% isunder production sharing agreements (PSA).

More than 25 new concessions are plannedfor 2007.

“Our plan is to issue at least one internationalbid round per year,” said Eng. Hassan M. Akl,Ganope Chairman. With seven agreements inplace; he expects to have 15 by the end of 2006

and 25 agreements by 2008.

Technical competenceTechnology is increasingly critical tocompetitive success throughout thepetroleum value chain. In response tothat trend, Egypt is becoming animportant exporter of expertise,building projects in Saudi Arabia, Syria,Sudan, Jordan and elsewhere.

“Having access to technology meansworking closely with technology owners,including international companies,”according to EGAS experts. “We oftenbegin with a number of foreign experts,

then build our capability to the point whereEgyptians dominate operations.”

Other Egyptian companies also follow thisprocess, including Engineering for thePetroleum and Process Industries (Enppi),Egyptian Drilling Co., Petroleum MaritimeServices (PMS) and Petroleum Projects andTechnical Consultation Co. (Petrojet).

Petrojet began working overseas three yearsago, and now gets 40% of its revenues fromoutside Egypt, said Eng. Hany Dahy, Chairman.

By the end of 2006, Enppi’s businessabroad will account for 30% of revenue, saidEng. Fakhry Eid, Chairman.

“We are planning to reach 50% abroad inthe future,” he said. “Our vision is to makeEnppi one of the top 10 engineering/procurement/construction (EPC) contractorsin the Middle East/North Africa region.”

President Hosny Mubarak and Minister of Petroleum Sameh Fahmy indicate towardsa model of the Idku terminal during a press conference.

Suez Canal and Sumed:New transportation services keep Egyptat center of global oil trade

hen the idea of linking theMediterranean Sea and the Red

Sea with a navigable waterway first occurredto the Pharaohs, the commercial world was afar smaller place. As trade expanded over thecenturies, so did the value of a route thatwould connect Europe, the Middle East,Africa and Asia that did not require a long triparound the southern tip of Africa.

Turning that ancient idea into today’sreality took centuries and claimed manylives before Egypt’s Suez Canal was finallyinaugurated in 1869. But it now is one ofthe world’s most strategic trade routes,shortening the distance between most of theworld’s markets.

At the heart of international trade andcommerce, Egypt today can competitivelysupply a market of one billion people.

As important as the Canal became tomoving goods from source to consumer,however, the growing importance to theworld of Middle Eastern oil called foradditional capacity and a different kind oftransportation facility.

That need was met by the 320-km SuezMediterranean (Sumed) pipeline systemlinking Ain Sukhna on the Gulf of Suez to SidiKerir on the Mediterranean. Sumed’s twinparallel 42-in. pipelines, with a designcapacity of 117 million tons/year, has been inoperation since 1977 as a companion to theSuez Canal for transporting oil from theArabian Gulf region to the Mediterranean.

Through 2004, it had transported morethan 16 billion bbl.

A regional alliance, Sumed is owned byEGPC, 50%; Saudi Arabian Oil Co., 15%;three Kuwait firms, 15%; the InternationalPetroleum Investment Co. IPIC (Abu Dhabi),15%; and Qatar Petroleum Corp., 5%.

The pipeline system is part of the local andinternational long-term political vision that hasremained unchanged since the presidency ofGamal Abdel-Nasser.

Suez Canal: Improvement continuesThe Pharaohs dug a canal linking theMediterranean and the Red Sea through theeastern branch of the Nile Delta but itremained neglected. The Greeks, then theRomans dug it several times, but it was againneglected. Dug once again at the time of theArab conquest of Egypt, the Canal existed for atime, but was later filled up.

The enduring idea was finally set on thepath to reality in 1854 when Frenchengineer Ferdinand De-lesseps signed anagreement with the Egyptian Government todig the Canal. Digging began in 1859,coincidentally the year that the firstcommercial oil well was drilled in the US.For 10 years, more than 2.4 millionEgyptian workers worked on the Canal;more than 125,000 lost their lives.

In 1869, the Suez Canal was finally openedfor navigation. In July 1956, Egypt nationalizedthe Canal after it had been an internationalcompany for 87 years.

With a total length of 192 km, Suezremains the world’s longest canal withoutlocks. Today, it transports 14% of total worldtrade, 26% of oil exports and 41% of the totalvolume of goods and cargo that reach ArabianGulf ports. It can handle about 25,000 vesselsannually.

About 3,300 oil tankers passed through theSuez Canal in 2004, a 20% increase in tankertraffic from 2003. Total northbound andsouthbound oil shipments increased from 1.4to 1.7 million b/d between 2003 and 2004.Transit in the Canal employs a convoy system.The northbound convoy consists of two groupsand southbound traffic includes two convoys.

There are no length restrictions for shipstraversing the Canal. Currently, the Canal canaccommodate ‘Suezmax’ class tankers withdrafts to 62 ft and 200,000 dead-weight-ton(dwt) maximum cargos. Depending on the typeof vessel and its load, speed is limited to 11-16km/hr; an average transit time is about 14 hours.

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MUBARAK KOUL PROJECT

Unemployment is a real issue inFayum Governorate where FGCoperates. FGC participated inthe “Mubarak Koul Project”,

which allows students in FayumSecondary Vocational Schools to

receive training in FGC sitesapart from their normal studies.Fathy, pictured above, is one of

the students that joined theFGC Technical section. The

training gave him a good chanceto start his occupational lifewith a real work experience.

In 2001, the Suez Canal Authority (SCA)launched a 5-year program to reduce averagetanker transit times to 11 hours. The SCA alsois moving ahead with a 10-year project towiden and deepen the Canal. By 2010, it willbe able to accommodate very large crudecarrier (VLCC) and ultra large crude carrier(ULCC) class tankers with oil cargos of up to350,000 dwt.

Sumed: Stable, economical, flexibleThe Sumed system includes the terminal at AinSukhna where up to four tankers of any sizecan discharge their cargo simultaneously. Atthe other end of the pipeline, Sidi Kerirterminal can load five tankers of up to 400,000dwt at the same time. Large tank farms at eachterminal provide spare storage capacity andpipeline operating flexibility that helps meetcustomers’ varied requirements.

Original capacity of the Sumed system wasabout 1.6 million b/d. It has grown to about2.4 million b/d currently and is operating atabout 96% of design capacity, said Eng.Moustafa Gomaa, Chairman of ArabPetroleum Pipelines Co. Future capacityincreases will depend on crude oil marketconditions, he said.

As political tensions grow, Egypt’s access tothe Mediterranean for Middle East oil becomesincreasingly valuable.

“This is especially true since Sidi Kerir hasbecome one of the important storage areas in

the Mediterranean,” said Eng. Gomaa. “As wekeep the Sumed pipeline the safest route to theMediterranean, it also provides continuousstability for oil flow from the Arabian Gulfcountries to Europe.”

From the Mediterranean, oil can reachsouthern Europe in three days and northernEurope in seven days. The pipelinesystem can help deliver ArabianGulf crude to European refineries15-22 days earlier than a tankermaking the journey around Africa’sCape of Good Hope.

“Regardless of the situation, Sumed hasproved that it is the most economical way tomove crude from the Arabian Gulf to Europe,”said Eng. Gomaa.

In 2004, about 65% of deliveries to AinSukhna came from Saudi Arabia, 24% from

Iran, 6% from Egypt, 4% from Kuwait. About35% of the crude lifted from Sidi Kerir duringthe year went to the eastern Mediterranean,26% to the western Mediterranean, 34% tonorthwest Europe and 5% to the US.

Adequate storage and pumping capacityare keys to the flexibility of the Sumed system.

Fifteen double deck floating roof storagetanks at Ain Sukhna terminal have a totalcapacity of 1.5 million cubic meters (cu m).Two pumping stations—one for eachpipeline— can each pump at rates to 9,300cu m/hour. A boosting station at Dahshour isequipped with six pumps.

Sidi Kerir has 24 floating roof tanks with atotal capacity of 2.6 million cu m. Five pumpstations load crude, each connected to onegroup of tanks. The de-ballasting plant at theterminal treats ballast water, delivering cleanwater with less than 10 parts per million (ppm)dissolved solids into the Mediterranean.

Operating in batch mode, the Sumedsystem is controlled and monitored by asophisticated integrated supervisory controland data acquisition (Scada) system at thedispatching center at Ain Sukhna. Backupcontrol at Dahshour provides redundancy and

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“As we keep the Sumed pipeline the safest route to

the Mediterranean, Sumed also provides continuous

stability for oil flow from the Arabian Gulf countries

to Europe.” Eng. Mr. Mostafa Gomaa, Chairman of Sumed Arab Pipeline

Satellite image of Suez Canal

A state of the art facility has emerged at Port Said East as a trans-shipment centre for the Eastern Mediterranean and the Northern entrance to the Suez Canal.

local control centers are part of the system.“Our main objective is to assure the

customers of Sumed that their products are insafe hands,” said Eng. Gomaa. “We strive to dothis in the most economical, and withminimum environmental impact.”

More than just a transporterOil transportation is not the only serviceSumed provides. It also helps companiesmarket their crude from Sidi Kerir, whichcan serve as a stable strategic focal point forsale of oil on a free-on-board (FOB) basis.Shippers discharging a VLCC or ULCC atAin Sukhna terminal, for example, cantailor liftings from Sidi Kerir in the volumesand types needed by their refineries, FOBcustomers, or to meet destination portlimitations.

This ‘cargo tailoring’ lowers freight costsand provides flexibility.

Other related services include:• Stock transfer of crude oil while in

Sumed custody• Cargo topping, a process that avoids

dead freight by advancing the balance when acustomer’s crude type in Sumed custody isless than the tanker size

• Crude oil swap to clear small amounts ofa customer’s remaining inventory

• Methods to facilitate financial transactionsInnovation has helped the system keep

pace with larger vessels and volumes andshifting supplies and markets. Sumed iscooperating with the Suez Canal Authority,for example, on a system of lightering calleddrop and pick, which was established in1997. The process makes it possible for aVLCC to be partially unloaded at Sumed’sterminal at Ain-Sukhna so the tanker can passthrough the Canal safely and reload at SidiKerir terminal.

Making it possible for VLCCs to use theCanal, although they cannot transit it fully

loaded because of the draft limitation, allowsthe Sumed/Canal partnership to serve theeast coast of North America, as well as othermarkets.

“This technique has increased our capacityand we hope more users will take advantageof this option,” said Eng. Gomaa.

Another project was launched recently toreceive Mediterranean and Black Sea crudesat Sidi Kerir terminal for storage and

reloading. Growth of Mediterranean, Russianand Caspian exports prompted Sumed tomodify two single buoy mooring (SBM)facilities to be able to receive crude at SidiKerir and reload it again.

Storage at Side Kerir provides a buffer toMediterranean refineries, minimizing theirneed to invest in storage or maintain largeinventories. VLCC cargoes can be accumulatedto save freight for the long-haul US-boundcargoes. And Mediterranean crude can becombined with Arabian Gulf crude transportedthrough the pipeline.

Three new tanks with a total capacity of1.2 million bbl were added to enhance theflexibility of this ‘back loading’ option.

Another change under consideration isthe ability to pump crude from North toSouth to handle potential exports from theCIS and North Africa to Asia.

“The Sumed pipeline is also very importantto the Midor refinery,” said Mr. MahmoudNazeem, Midor Chairman. Midor currentlyhas an agreement with Saudi Arabia underwhich almost half of the refinery’s crude dietis met with the Saudi crude. That oil must betransported from the receiving port on theRed Sea to Sidi Kerir on the Mediterraneanwhere the other terminal of the refinery’scrude supply pipeline is located. Sumed hasinstalled special import facilities at Sidi Kerirto receive Mediterranean crude for Midor.

A community partnerSince it began, part of Sumed’s net profit hasgone to community development, includingthe support of many universities and healthcare facilities in both Suez and Alexandria.

It introduced an up-to-date ultrasonicscanning medical device in the Alexandriangovernment hospitals, and has financedmany facilities for the handicapped inEgypt. The company also focuses on thedevelopment of its employees by offeringtraining courses and a health care programfor employees and their families.

Environmental protection has also been anongoing effort. In the mid 1970s, Sumed spent$40 million to build its plant to treat ballastwater from tankers. Sumed managementcontinues to be committed to preventingpollution. Along with the ballast watertreatment facility, a key part of that effort is thesystem’s sophisticated continuous monitoringcapability that provides early warning of anyincident. Strategically placed pollution fightingequipment uses the latest technology.

“We also are working under the umbrellaof the Ministry of Petroleum and AlexandriaUniversity to support research in the industryand to forge a solid link between the universityand the industry,” said Eng. Gomaa.

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Workers oversee security of plant.

Movement of ships in the Damietta complex.

Other key pipeline projectsCritical to Egypt’s oil and gas strategy are naturalgas exports, both by pipeline and as LNG.

The first phase of the Arab Natural GasTransmission Pipeline, a regional system toserve neighboring countries, was inauguratedin mid 2003. A second phase came on streamat the end of last year. Further expansion isplanned to connect Syria and Lebanon, as well

as the European gas network through Turkey.In early 2006, Egyptian Petroleum Minister

Fahmy and Turkish Minister of Energy, HelmiGuler, agreed to establish an Egyptian-Turkishcompany to extend the Arab Gas Pipeline to theSyrian-Turkish border and market gas to Europe.

The first phase of the Arab Natural GasTransmission Pipeline system, mostly onshore,

was completed in 18 months. It connects AlArish, Egypt to Aqaba in southern Jordan viaTaba with a 350-km 36-in. pipeline. Thesecond phase of the system, the JordanianGas Transmission Pipeline, extends fromAqaba north 370 km to Rehab, Jordan, alsowith a 36-in. line.

Egypt’s vision for making natural gas anincreasingly important component of thecountry’s energy consumption also requiresexpansion of the domestic distribution system.According to Ganope Chairman Eng. Akl, thenational gas grid will be extended from Bani-Swef to the south, and up to Aswan in stagesthat will add 738 km of pipelines.

“This will create a real industrial revival in all

fields, which will have a positive impact on thedevelopment of Upper Egypt,” said Eng. Akl.

An extension of the petroleum productspipeline from Sohag to Qena then to Aswanis also planned.

All these planned projects will bring directand indirect job opportunities, environmentalimprovement, and attractive Upper Egyptprojects for investors.

Pipeline construction expertisePetrojet, the leading integrated pipelineconstruction firm in Egypt, has constructedthe entire Egyptian national grid of pipelines(oil, gas and products), a total length of morethan 17,000 km.

The company executed the first portion ofthe Egyptian natural gas export pipeline system

to Aqaba, as well as the second portion ofthe pipeline. That 393-km segment of 36-in. was successfully completed 15 monthsahead of schedule.

Another significant major project wassuccessfully finished late last year in

Libya, said Eng. Dahy, Petrojet Chairman. The30-in. pipeline, about 725 km long, extendsfrom the Sharara area in the very south of Libyato Mellita in the north. The project wasexecuted by Petrojet on an EPC basis afterwining the tender in a fierce internationalcompetition.

The project involved construction andschedule challenges. The route traversed veryremote areas with soft sand dunes, then itcrossed the Hamada plateau with its very hardigneous rocks and altitude differences of asmuch as 800 m.

A similar pipeline of the same length,diameter required about three years tocomplete, but this Petrojet project was

finished in 10 months, considered a worldrecord, according to Eng. Dahy.

Since its formation in 1975 as a joint stockcompany capable of competing with foreigncontractors in petroleum, Petrojet’s goal has beento become a world class player in its field. Thatvision is built on using state of art technologies,ensuring operational excellence and costefficiency, and complying with international

health safety and environmental standards.In Egypt, Petrojet is already the foremost

oil, gas and petrochemical projects contractor.“Our target is to be one of the top fivecontracting companies around the world in thecoming decade,” said Eng. Dahy.

Enppi also was involved in the Arabpipeline system segment from Aqaba to theJordanian /Syrian border as well as the segmentconnecting El-Arish to Taba. Phase II of thepipeline system is completed to the Syrianborder and the compression station wasscheduled to be finished by mid 2006,according to Eng. Eid, Enppi Chairman.

Enppi’s other major projects in Egyptinclude expanding production of ethane andpropane, as well as the linear alkaline benzeneproject to be executed by a consortium thatincludes Enppi and Petrojet.

During its 28 years, Enppi has completedover 500 major projects. It is the only nationalcompany working as an EPC primary contractoron a turnkey basis for oil, gas, petrochemicalsand infrastructure either in Egypt or in theMiddle East. The company has acquired threemajor projects this year from Saudi Aramco,Venezuela’s PDVSA, and Syria’s HPC.

About 97% of Ennpi’s shares are held byEGPC. Petrojet holds 2% of the shares, and thePetroleum Housing Fund, 1%.

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“Our target is to be one of the top five

contracting companies around the world

in the coming decade.”

Eng. Mr. Hany Dahy, Petrojet Chairman

The Egyptian workforce plays a key role in the petrochemical sector.

Egypt’s natural gas future:A world class resource will fuel expandedlocal use and LNG exports

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gypt’s natural gas resource is vital to thecountry’s energy future.

At home, natural gas is steadily replacing oilfor commercial, industrial and residential use tothe long term benefit of the environment.Beyond Egypt, the world’s appetite for cleanburning fuel offers great potential to serve a rangeof markets with both pipeline and LNG exports.

And natural gas is a critical element inEgypt’s unfolding Master Plan for a world classpetrochemical industry.

To fully exploit these opportunities, theEgyptian Ministry of Petroleum’s policy willbalance medium term export commitments,local needs and long term strategicrequirements.

The country already is on the road to its gasfuture. During fiscal year 2003/2004, naturalgas production reached 1.3 tcf. Electricitygeneration accounted for about two-thirds oftotal consumption and the number ofresidential, commercial and industrial gasusers reached 2 million. Egypt also is a leaderin natural gas-fueled vehicles with more than54,000 such vehicles on the road at the end ofthe year and 83 fueling and conversion stationsin place.

Because its emerging natural gas industry isso critical to Egypt’s future and implementingits comprehensive gas strategy will be complex,the Petroleum Ministry established theEgyptian Natural Gas Holding Co. (EGAS) toguide activities along the entire chain of naturalgas operations.

To execute the country’s gas utilization planover the next two decades, EGAS plans to:

• Increase reserves at an average annualrate of 4/6 tcf

• Meet total demand that is expected togrow at an average annual rate of 4%

• Develop an infrastructure that covers theentire country

• Create a comprehensive plan forexpanding the use of compressed natural gas(CNG) in vehicles

Size of the resourceFundamental to the success of the strategy is asignificant proven natural gas resource and thepotential for more discoveries, including thosein the deep water of the Mediterranean. At theend of fiscal year 2004/2005, Egyptian gasreserves of 67 tcf accounted for more thanthree-fourths of Egypt’s proven hydrocarbonreserves. The bulk of those gas reserves are inthe Nile Delta area and in the Mediterranean.

In addition, potential reserves are estimatedat 100-120 tcf. One of the most promisingsources of gas is the deep water of theMediterranean, which will be a focus ofexploration and development. A recent studyranked Egypt second in the world in potentialdeep water gas potential.

From 2001 to 2004, two international bidrounds were held and 41 discoveries added

about 15 tcf of gas and 127 million bbl ofcondensate to proven reserves. PetroleumMinister Fahmy signed the first two EGASconcession agreements in the MediterraneanSea during the period, one for the Tina areaand one for the Baltim area. Anotherinternational bid including 12 explorationblocks in the Nile Delta, North Sinai onshoreand Mediterranean Sea closed in July 2006.

Major discoveries during 2003/2004 fiscalyear included Kasr-2 which added 1.8 tcf ofreserves and three programs that added 1 tcfeach—Raven, Tarot, and Kg 45.

Export facilities: Up and runningExporting natural gas is a cornerstone ofEgypt’s oil and gas development strategy,according to Petroleum Minister Fahmy. Andgas export operations are off to a fast start. Boththe pipeline export of natural gas and LNGexports began almost simultaneously fromdifferent locations.

The Arab Natural Gas TransmissionPipeline, a regional system to serve neighboringcountries, now extends to Rehab, Jordan andagreements have recently been put in place toexpand it to the Syrian-Turkish border, makingit possible to market gas to Europe.

At the same time, three LNG trains beganshipments within little more than a year. Twoor three more LNG trains could be built ateither of the existing plants—Damietta orIdku—over the next five years, depending onexploration success, according to HeshamMekawi, Chairman, BP Egypt.

A final element of the natural gas valuechain is natural gas liquids. NGLs extracted ata processing plant put on stream in 2004provide liquefied petroleum gases (LPG) andcondensate for the local market, propane forexport and ethane for the production ofethylene and polyethylene.

In 2003/2004, production of LPG, propaneand ethane totaled more than 1 million tons;condensate production was about 1 million bbl.

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Arab Gas Pipeline, Jordan.

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Already in sixth placeLNG export will be an important driver ofEgypt’s economic growth and a reliable sourceof natural gas for world markets far into thefuture. The country now has two plants onstream and a vision for aggressive expansion.Within four years after EGAS was established,the country became the 6th largest LNGproducer in the world.

Damietta, the largest LNG plant with adesign capacity of 7.56 billion cu m/year, wasput on stream in December 2004 after a recordof only 52 months from inception to firstshipment. LNG from Damietta is sent to theSpanish market by Union Fenosa, 80% ownerof The Egyptian-Spanish Natural Gas Co.(Segas), which operates the facility; and toMediterranean and US markets by EGAS, 10%owner of Segas.

Two liquefaction trains of the Idku LNGproject east of Alexandria, each with a designcapacity of 3.6 million tons/year, were put onstream in 2005. Construction of both trainswas completed ahead of schedule, Train 1 bythree months and Train 2 by nine months.

Beheira Natural Gas Liquefaction Co. ownsthe first train, output from which will be takenby Gaz de France under a 20-year agreement.Though output from Train 1 has been sold toGaz de France, BG Group will purchase fromGaz de France about two cargoes of LNG permonth between July 2005 and the end of 2006.

BG Group lifted its first LNG cargo fromIdku LNG Train 1 on 29 May 2005, some threemonths ahead of schedule. This was the first ofthree pre-commissioning cargoes from Train 1.

Idku Natural Gas Liquefaction Co. ownsTrain 2, which will supply BG Group withLNG for export to the Lake Charles terminal inthe US, and to Italy. For about the first three

years of LNG production, BG Group intends tosend the entire output to Lake Charles. Aportion of Train 2 output will then be suppliedto the Brindisi LNG import terminal in Italywhich BG Group is developing.

Gas fields in the West Delta Deep Marinearea of the Mediterranean will be furtherdeveloped to feed the Idku LNG complex.

Idku uses the proven Phillips liquefactiontechnology. Total project cost of Trains 1 and 2

was about $1.9 billion. Project financing of$949 million was secured for Train 1 in April2004 and $880 million was secured for Train 2in July 2005. The latter includes $320 millionto repay the Train 1 owner for Train 2’s share ofthe common facilities.

There is sufficient space at the Idku site forfour more LNG trains. BG Group, for example,is seeking reserves that would support a thirdtrain through its own exploration program andin partnership with third parties, according tothe company.

The project’s commercial structure has beendesigned to allow future expansion without theneed to involve all existing partners and it ispossible that third parties could supply gas tofuture trains. The Egyptian LNG Co. ownsboth the Egyptian LNG site and commonfacilities. Its sister company, Egyptian OperatingCompany for Natural Gas LiquefactionProjects (Opco), operates all trains.

EGAS roleEGAS was established in 2001 to realize theMinistry of Petroleum’s strategy to restructurethe petroleum sector in Egypt according tothe vision of HE the Minister of Petroleum.

“We have more than one window to

monetize gas reserves.” Eng. Mr. Ismail H.

Karara, Gasco Chairman

A final element of the natural gas value chain is natural gas liquids. NGLs extracted at a processing plant provide liquefied petroleum gases (LPG).

Train 2, Idku Natural Gas Liquefaction Co.

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activities including exploration, production,transmission, distribution, marketing andexport, EGAS will:

• Encourage investments in natural gasactivities

• Prepare action plans for natural gasindustry and related projects

• Develop techno-economic studies forgas projects

• Manage sales gas transmission &distribution systems and coordinate allrelated activities

• Develop LNG projects on its own or withnational and international partners

• Participate in exploration, developmentand production from gas discoveries

• Develop the natural gas industry database• Study and define optimum locations for

gas projectsA special focus is to apply advanced

exploration techniques and concepts in thesearch for the potential 120 tcf of undiscoveredgas reserves thought to exist. EGAS also willwork to expand gas export pipelines to linkwith the European Gas Pipeline system andimplement additional LNG trains.

Leveraging opportunitySuccess in all this will require a dedication toregional and international cooperation.

EGAS has a number of explorationconcessions with international companies in theMediterranean and in the Nile Delta onshore. Inthe near future, EGAS will have approximately25 concession agreements in place.

The latest bid round, including 12 blocks,nine of them offshore and three onshore, hasgenerated great interest among internationalcompanies.

There is more than one way to monetizethe reserves found. In addition to exports byboth pipeline and LNG, the local market hasbeen expanding in the last five years toaccommodate new fertilizer manufacturing,petrochemical and methanol plants.

Egypt has extensive infrastructure and anational pipeline grid that is continuouslyupgraded to accommodate new production.Most important is Egypt’s business expertise,its modern petroleum sector, and itsreputation for political stability. Someinternational companies have been operatingin Egypt for more than 40 years.

“We have never been to arbitration, and allour differences with our partners have beenamicably resolved.” states EGAS insiders.

Throughout the entire oil and gas valuechain, the Egyptian petroleum sector hasbeen attracting foreign direct investments of$2-3 billion per year. With the current plan toextend the national gas grid as far as Aswan

by 2011, there will be opportunities forinvestments in pipelines and downstreamfacilities, as well as new opportunities forexploration.

And Egypt’s strategic position makes itpossible to serve European, US and even FarEast LNG markets at a very competitive cost,he said. The opportunity for more LNGprojects exists. There is plenty of room toexpand and add many more trains.

Serving domestic marketsGasco has an important role to play inpromoting the utilization of gas in Egyptthrough its presence at every point of theEgyptian gas chain, said Eng. Ismail Karara,Chairman. The company is owned 70% byEGPC, 15% by Petrojet and 15% by EGAS.

Since its establishment in 1997, the companyhas been responsible for the management,operation, maintenance, development andupgrading of the national gas grid. A pioneer intransmission, distribution, processing andmarketing, Gasco has always been a linkbetween natural gas producers and consumers.

That connection now has extended toconsumers in neighboring countries. Gascosupplies gas to the Arab Natural Gas Pipelineand transmits natural gas to the Damietta LNGplant where it is exported to Europe.

“In political terms, the Arab Natural GasPipeline system helps consolidate Arabintegration,” said Eng. Karara.

With about 2 million household, commercialand industrial consumers now connected, theplan is to bring that total to 6 million consumerswithin the coming six years, he said.

Gasco also plays a leading role in gasprocessing, recovering LPG for local use, anethane/propane mixture for petrochemicalfeedstock, and commercial propane for export.As gas processing moved to the forefront ofGasco strategy, the company integrated theoperation of the Western Desert Gas complexand the Ameryia LPG recovery plant.

Gasco currently has several projects underwayto enhance productivity. One of the projects willboost production of the ethane/propane mix fromthe Western Desert Gas Complex and Ameryiaplant. Scheduled for completion within 30months at an approximate cost of $200 million, itwill almost double production.

Several projects are also in progress toexpand the national gas grid. The El Tina-AbuSultan pipeline will satisfy the demand in Suez,and north of the Gulf of Suez, the Dahshour-Koraimat pipeline will cope with increaseddemand resulting from expansion of theKoraimat power station. South Valley Pipelinewill feed the south of the country, andfeasibility studies have been conducted toevaluate a plan to supply natural gas to SharmEl Sheikh and Hurghada.

Using technologyGasco also operates Egypt’s National AdvancedControl Center (NATA) that provides controlfor the national gas grid. NATA monitors andregulates the gas flow using a sophisticatedcommunication network that collects datafrom all pipelines, delivery points, distributioncenters and consumption stations in eachgeographic center and sends them through a

LNG Tanks, Western Desert Gas Complex.

The largest LNG plant, Damietta.

Gas Center in Alexandria.

Idku LNG plant.

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subsidiary control center to the principalcontrol center.

Conceived by the Ministry of Petroleum,NATA covers a system that includes 150 gasproduction sites and delivery points and 4,700

km of pipelines with a transmission anddistribution capacity of 135 million standardcubic feet per day (MMscfd).

Gasco’s On Line Inspection technology isanother part of the diverse effort that maintainsthe reliability of the gas grid. The technologyrecently was used to rehabilitate Egypt’s oldestnatural gas pipeline.

First installed in 1975 to move gas from theAbu Madi field to a power plant and fertilizerplant at Talkha, the 12-in. 40-km line was notproperly coated when installed and largesections had corroded.

Reducing the operating pressure from 70 to40 bar (atmospheres) would reduce capacityby 65%. Instead a rehab plan was devised todeal with more than 700 defects and faultsranging from superficial to dangerous andreturn the line to safe operation at 70 bar.

The rehabilitation plan called for the pipe

surface at seven sites to be sandblasted, cleanedand recoated. For other defects, the pipe wallwas reinforced without shutting down thepipeline system. A patch was welded into theline to repair 16 other defects, again without

the need to shut down the line. But torepair some very severe flaws, the linehad to be shut down and sections ofpipe replaced.

Key international gas partnersIn addition to LNG, BG Group’sactivities in Egypt span the gas chainfrom exploration, through developmentand production, including:

• Operatorship of two gas-producing areas offshore the NileDelta, the Rosetta Concession and theWest Delta Deep Marine (WDDM)

Concession• Production of 345 MMscfd of gas from

the Rosetta concession for the domestic market• Production of gas from the Scarab

Saffron fields in WDDM, including 475MMscfd for the domestic market, and 225MMscfd for five years through the DamiettaLNG plant

• Production of gas from the SimianSienna fields in WDDM that supplies IdkuLNG Train 1 with 565 MMscfd

• Development of the Sapphire field inWDDM to supply Idku LNG Train 2

• A major shareholding in the Idku LNGproject

• A shareholding in the Nile Valley GasCo., which has the distribution franchise forUpper Egypt

BG Group undertakes upstream developmentand production activities in Egypt through

joint operating companies. In the case ofRosetta, this is the Rashid Petroleum Co.(Rashpetco); in the WDDM, it is the BurullusGas Co. These companies are 50% owned byEGPC. BG Group and its partners in eachconcession hold the remaining 50%.

With its various partners, BP has, over thepast few years, discovered 8 tcf of gas. All of theproduced gas is sold into Egypt’s domesticmarket. BP expects its aggressive explorationstrategy to form the foundation for significantLNG business.

In early 2006, Egypt and Greece signed amemo of understanding for oil and gasexploration that also calls for discussing thebest economic means to export gas to Greeceeither through LNG, CNG or pipelines. Greecewould become a transit point in moving gas onto Europe. Formation of a joint work groupmade up of the two countries’ experts will bethe first phase of the cooperation.

Greece already has begun to study a plan totransfer CNG to the Greek islands of Crete andRhodes in cooperation with Egypt. By the endof 2006, the natural gas pipeline between Turkeyand Greece will be completed along with a studyof a gas pipeline between Greece and Italy.

The two pipelines will enable gasmovement from Italy to Turkey and it will playa major role in getting Egyptian natural gas toother new markets.

“With about 2 million household,

commercial and industrial consumers

now connected, the plan is to bring

that total to 6 million consumers

within the coming 6 years.” Eng. Mr. Ismail H.

Karara, Gasco Chairman

Simian Sienna Gas plant. The bulk of egyptian gas reserves are in the Nile Delta area and in the Mediterranean.

Building Egypt’s downstream:Master petrochemical plan, refinery expansionwill make a world leader

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conomic growth and growingpopulations will keep global demand

for transportation fuels and petrochemicalproducts growing at a brisk pace for theforeseeable future. Meeting that demand willrequire large investments in additional refiningand manufacturing capacity.

To be competitive, that capacity should belocated where it is convenient to both feedstockand markets. And it should be capable ofproducing the high quality, lighter products thatworld markets increasingly demand.

Egypt’s significant petroleum resources—especially its gas reserves—and its strategiclocation make it an attractive place to invest innew capacity. The country’s long termeconomic and political stability serve toreduce the risk of investment and add anothermeasure of competitive advantage.

With these assets—and its technicalexpertise—Egypt has a unique opportunity totake a leadership position in meetingtomorrow’s demand for high qualitypetroleum and petrochemical products.

To ensure that full advantage is taken of the

potential that tomorrow’s markets promise, theGovernment of Egypt and the Ministry ofPetroleum have formulated plans and begun totake action to convert that opportunity intogrowth for Egypt and products for world markets.

Among those plans and actions are aworld-class grassroots refinery, upgrades toexisting refineries and a comprehensivepetrochemical industry Master Plan.

As the world’s spare refining capacity continues toshrink, Egypt’s position as a venue for investmentin the expansion of existing plants and newfacilities becomes increasingly attractive.

Meeting the global need for more refiningcapacity will focus on sophisticated ‘complex’capacity to produce the light sweet petroleumproducts that markets now demand. A morecomplex refinery also is able to produce morelight transportation fuels from cheaper heavyoil, providing a competitive advantage whenhigh crude prices combine with ever morestringent air quality regulations.

Last year, Egypt’s refineries produced about30.4 million tons of products. Domesticdemand for petroleum products in fiscal year2004/2005 was almost 26.5 million tons and isexpected to exceed 27 million tons in thecurrent fiscal year.

Also last year, EGPC began a program toupgrade the capacity of existing plants to 31.4million metric tons annually, an increase of 1%from the previous year. The company alsoestimates capacity of existing refineries could beboosted further, perhaps to 35 million tons/year.

The upgrading plan will increase keroseneand jet fuel production by 5% over the previousyear and gasoline output by 3%. Production ofhigh value solvents will increase by 10%.

At end of the 2004/2005 year, a variety ofupgrading projects were in progress under adetailed plan to maintain capacity, removebottlenecks and fulfill health, safety andenvironmental requirements.

Key upgrading projects among Egypt’srefineries included:

• Upgrading a lube oil complex tomaintain efficiency and increase production

• Rehabilitation of furnaces to maintainproduction capacity

• Installing six boilers at three differentplants to meet operating steam demands

• Replacing current solvents at threelocations to increase lube oil productioncapacity and meet international specifications

• Building a hypochlorite sodium unit totreat and filter process water

• Installing a hydrogen compressor tomeet hydrogen demands

Midor: State of the artAmong Egypt’s nine refineries, the Middle EastOil Refinery (Midor) is one of the mostimportant, said Mr. Nazeem.

Midor is a grass roots refinery with adesign capacity of 100,000 barrels per streamday (b/sd) built around eight licensed units.With high conversion capability based on

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Kerosene storage tanks. Midor refinery produces LPG, 95 (RON) gasoline, jet fuel and diesel.

Refining

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hydrocracking and delayed coking technologies,it is designed to produce LPG, 95 ResearchOctane Number (RON) gasoline, and jet fueland diesel that meet Y2005 Europeanspecifications.

“Those products represent more than 85%“white” products recovery,” said Mr. Nazeem.

Also under study is a capacity increase.“The refinery business has seen the strongestrefining margins ever in the last two years andmost forecasts indicate a continuation of thistrend,” said Mr. Nazeem. An ongoing study toevaluate the most economic expansion schemeindicates that throughput could easily beincreased by 20%, he said.

In periods of high oil prices, hydro-skimming refineries are the most adverselyaffected because they convert almost half of thecrude barrel into fuel oil. For a complexrefinery like Midor, however, crude oil pricehas much less impact. Rather, it is the ratio ofproducts prices to feedstock (crude) prices thathas the largest influence on refinery margin.

To remain competitive, refineries such asMidor must be constantly updated as newtechnology becomes available. Installation ofan advanced process control system is being

considered, and other investments in operatingand management technology are under study.

“We are always keen to update the tools andsoftware to ensure the best technology is beingapplied,” said Mr. Nazeem.

Serving the global marketThe lack of spare refining capacity has recentlymade it difficult to meet international productdemand. But that market challenge is anotheropportunity for Egypt’s refining industry,especially for Midor.

The refinery is fulfilling its share ofinternal demand, said Mr. Nazeem. LPG anddiesel are the most crucial products required

for domestic consumption and therefinery is dedicating all of its productionof those two products to the local market.“Products for the local market meet a verystrategic governmental requirement, andthe products exported are the ones

significantly increasing the value added to thecrude processed through the refinery,” saidMr. Nazeem.

The refinery is exporting all of its 95-octanemotor gasoline and jet fuel production;product exports account for about 45% of therefinery’s total production.

As far as feedstock goes, more heavy endsremain after distillation of heavier crude thanis the case with lighter crude. But heavy crudeis much cheaper than light crude. For acomplex refinery like Midor, the ability to

process heavy crude is an advantage becausethe bottom of the barrel can be converted tohigh value products.

“That’s why we always try to maximize theheavy part of our crude diet as long as weremain within the refinery’s design limits,” saidMr. Nazeem. Midor is directly linked to theSumed pipeline, giving the refinery access to arange of crudes.

Grassroots projectAlso in response to the world’s need for morerefining capacity, Egypt’s Ministry of Petroleumis considering a grassroots refinery that wouldbe co-located with a major petrochemicalcomplex and have a capacity of 200,000 to300,000 b/d. The estimated total cost is about$9.5 billion.

According to Petroleum Minister Fahmy,the ambitious project now under study wouldproduce high quality, clean burning transportfuels and petrochemical intermediates meetingthe strictest European specifications.

“It is set to be one of the top 20 complexesin the world,” he said.

The complex would include these mainelements:

• A sophisticated refinery to produce highquality gas oil, unleaded gasoline, naphtha andkerosene

• Units to produce ethylene and polyethylene,propylene and polypropylene, styrene andaromatics

“Among Egypt’s 9 refineries, the Middle

East Oil Refinery Midor is one of the most

important.”

Mr. Mahmoud Nazeem, Midor Chairman

Midor is a grass roots refinery with a design capacity of 100,000 barrels per stream day (b/sd) built around eight licensed units.

• A power and steam generation facility;• Transportation and storage utilities.This huge complex would offer about

100,000 job opportunities during its 5-yearconstruction and implementation phases,according to Petroleum Minister Fahmy.

The Ministry of Petroleum plans toestablish a private holding company toimplement the complex, and make it a keyelement in the development of Egypt’sdownstream petroleum capability.

Also in response to growing demand,Ganope established a new petroleum productsmarketing company, Nile Petroleum TradingCo., which plans to build 25 integrated fueland services stations in the next five years alongthe new main roads that connect the Nile sidewith Oasis and Red Sea areas to support thedevelopment of Upper Egypt.

Since it was established to fuel thedevelopment of that region, Ganope hasboosted the number of its LPG filling stationsby 55% and increased its LPG distributionunits by 31% to help meet increasing demand,said Eng. Akl, Ganope Chairman.

“And studies for new refinery andpetrochemical projects are ready to beimplemented when warranted by new oiland gas discoveries in Upper Egypt.” saidEng. Akl.

Construction expertise“Petrojet has helped execute a number of largemodern refineries, including the Assiutrefinery and Midor,” said Eng. Dahy.

Established in 1975 to handle the constructionof oil, gas and petrochemicals related projects,over the past five years, it has extended itsoperations outside Egypt with a presence inLibya, Jordan, Sudan, Yemen and Saudi Arabia.New bases are planned in U.A.E. and Qatar.

Petrojet also has executed a number oflarge gas processing and gas liquefactionplants. It is currently building oil, gas,chemical and petrochemical plants, and hassigned contracts recently in Saudi Arabia andQatar. In petrochemicals, Petrojet currentlyhas a significant role in three projects, one forpropylene, one for linear alkyl benzene and athird for a fertilizer plant in Damietta.

Also expected are new LPG and LNGprojects as well as new gas transmissionpipelines throughout Egypt.

Petrojet also has specialized capabilitiesincluding the fabrication of equipment used inrefineries, gas plants and industrial plants.

One of the main objectives of the Ministry of

Petroleum is to endorse the role and involvementof national companies in national plan projects.“Our plans definitely match and complement theMinistry’s plans,” said Eng. Dahy.

The market for petrochemical products isclosely tied to both economic and populationtrends. Those trends can be cyclical, and thecost of petrochemical feedstock can be evenmore volatile, making strategic plan that iscomplete, yet flexible a key to success.

Though feedstock also includes lighter crudeoil products, natural gas is increasingly at theheart of the global petrochemical industry’sability to produce building blocks for everythingfrom plastics to medicine to computers, andmaterials for products that span from surgicalgloves to fertilizer to auto parts.

Petrochemistry has an essential role inoffering future generations a more sustainableworld through developing new technologies,

new materials and new solutions toage-old world problems, accordingto the European Chemical IndustryCouncil (Cefic).

Because petrochemistry underpinsa host of other essential industries, it is an‘enabling’ industry, according to Cefic. Since itdrives innovation in industries such ashealthcare, telecommunications, constructionand transport, it is central to the pursuit of asustainable society.

Like refiners, petrochemical producersmust keep pace with changing—andincreasing—regulatory requirements. Forexample, new European Union legislationrequires industry to register all existing andfuture new substances with a new European

Chemicals Agency. The Registration,Evaluation and Authorisation of Chemicals(REACH) legislation will take effect in mid2007. About 30,000 existing substancesmust be registered within the first 11 yearsduring the phase-in period.

The regulation will affect all substancesproduced or imported in quantities of 1ton/year or more.

A long-term strategic planEgypt’s petrochemical sector dates to the 1950swhen its polyamide unit to produce Nylon-6became one of the first such production unitsin world. In the 1970s, fertilizer began to bemanufactured from natural gas.

Then over the next two decades, polyvinylchloride (PVC), polyester, linear alkyl benzene,ethylene, polyethylene and polypropylene wereadded to Egypt’s petrochemical product slate.

With the rapid growth of the country’snatural gas reserves, a strategic location, and afast-growing global demand for a wide range ofpetrochemicals, Egypt now has a specialopportunity to take its petrochemical industryto the next level.

To fully exploit that opportunity, theEgyptian Government has crafted a strategicMaster Plan to guide development of thecountry’s petrochemical manufacturingindustry. Implementation of the plan will costan estimated $10 billion over 20 years andcreate 14 petrochemical complexes producing15 million tons of products annually.

Though the plan is continuously updatedto reflect changes in local and internationalmarkets, as now envisioned, it wouldinvolve an estimated 24 projects and 50production units.

Almost 30 million sq m of land in sevenareas has been designated for possiblepetrochemical projects in Alexandria, Beheira,

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Petrochemistry has an essential role in offering future generations a more sustainable world.

“An ambitious refinery project now under study

would be one of the top 20 complexes in the

world.” Petroleum Minister Sameh Fahmy

Petrochemicalmanufacturing

Kafr El Sheikh, Dahkalia, Damietta, Ismailiaand Suez. Sites feature access to roads, utilitiesand local labor and feedstock.

The National Petrochemicals Plan is one ofthe largest long term strategic developmentplans in Egypt.

Egypt’s current production of polyethylene,polypropylene and polyvinyl chloride meets aportion of local demand and abundantfeedstock will help the industry expand. Aftercompleting the Master Plan, the 15 milliontons/year of petrochemical products expectedto be produced will be worth $7 billion.Imports worth $3 billion will be displaced andexports worth $4 billion generated.

In developing its petrochemical industry,Egypt benefits from its location at the crossroads between three continents and itsproximity to these markets. But with apopulation of more than 70 million, growingdomestic demand also adds to theattractiveness of Egypt as a place to invest inpetrochemical capacity.

Egypt has a bright petrochemical futurefor many of the same reasons it hasopportunities in other segments of thepetroleum industry. It offers:

A reliable infrastructure with constantexpansion;

• Committed available feedstock atcompetitive prices throughout project life

• Stable political, economic and legalenvironments

• An Investment Encouragement Law thatincludes guarantees and incentives

• Logistical advantage due to its proximityto European, Arab and African markets

• Availability of specialized technicalexpertise with relatively low labor cost

• Growing market demand

Executing the planEgypt’s petrochemicals development plan willbe implemented through the EgyptianPetrochemicals Holding Co. (Echem).

“The goal in creating Echem in 2002 was toestablish a strong entity capable of carrying outthe petrochemical Master Plan, and encourageand promote investment in the petrochemicalindustry,” said Petroleum Minister Fahmy.

In managing and marketing Egypt’semerging petrochemicals industry, specialattention will be paid to development of theprivate sector with emphasis on joint venturesand mixed capital companies. Echem will

promote the plan to local and internationalinvestors and assist and support thoseinvestors—technically, financially andcommercially—in planning, building andoperating projects.

“As it pursues its vision to become a majormanufacturer and marketer of petrochemicalproducts, Echem will develop a competitiveindustry based on local human and naturalresources using state-of-the-art technology,”said Ms. Moneim El Banna, Echem Chairperson.

Echem’s mission to establish and promotean advanced petrochemical industry willmaximize the value added to the country’spetroleum resources and support the nationaleconomy, she said.

The Master Plan for Egypt’s petrochemicalindustry calls for a disciplined approach toeach project that involves two phases—projectdevelopment and implementation.

Project development begins with an in-house feasibility study that looks attechnology, markets, sites and feedstock. Abudget is also outlined and the environmentalimpact of the project is assessed. This stepinvolves identifying groups of products andselection of the best combination of productsalong the product chain. Project objectives areassessed and a preliminary technical/economicpicture created.

During this phase, the project is promotedto potential investors and a memorandum ofunderstanding (MOU) is executed.

During the implementation phase, a“bankable” feasibility study is conducted and

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Almost 30 million sq m of land in seven areas has been designated for possible petrochemical projects. Amonia/Urea Complex in Damietta.

LPG Tower.

the sponsor group of investors, technologyproviders and financiers is formed. Front endstudies proceed and major agreements aresigned for feedstock, product sale, land andconsulting services. An EPC contract is alsosigned and financing is closed. In thisexecution phase, an important goal is to applyinnovative contracts and financing schemes.

Finally, during start up and operation,Echem will evaluate performance tests andsupport ongoing operations.

Selecting projectsEchem developed an investmentmethodology to be followed inselecting and prioritizing projectsover the period of the Master Plan. Theapproach is based on models designed toattract foreign direct investment throughequity participation by internationalorganizations, or to provide financingthrough local and foreign institutions. Theprocess involves:

• Detailed feasibility studies conductedby independent consultants to maximizesafety of investment, generate credibility withinterested parties and facilitate financing

• Providing appropriate project sites thatare suitable for future expansion and areconvenient to utilities, feedstock and exportfacilities

• Guaranteed feedstock at competitiveprices and long-term off-take agreements toguarantee loan payback

• Providing diversified financing resources• Participating as an equity partner• Applying a profitable exit strategyEchem also is focused on research and

development, according to Ms. Moneim El Banna.That effort will develop a new technological base,provide easier implementation of foreign expertiseand develop local technological capabilities.Among its R&D activities, Echem will design andoperate pilot plants for research purposes.

Echem also plans a new headquarters tocope with the larger staff and workload thatwill be required by Master Plan projects. It hasacquired four acres at New Cairo and hiredEnppi and Petrojet to select the architecturaldesign by competition and build the newheadquarters.

Monitoring and developmentAnother of Echem’s goals is to develop theperformance of operating petrochemicalcompanies including Egyptian Petroleum Co.(EPC), Sidi Kerir Petrochemicals (Sidpec),and the linear alkyd benzene (LAB) unit ofAmeryia Petroleum Refining Co. (APRC).

EPC, established in 1987, producespetrochemical intermediates including PVC,caustic soda, and chlorine gas. During fiscal

2004/2005, it produced 66,000 tons of PVCand exported 27,000 tons of caustic soda.Echem implemented a bankable feasibilitystudy to evaluate the expansion of EPC’s PVCcapacity to 240,000 tons/year.

The Sidpec ethylene and polyethyleneplant went on stream in 2001 using localnatural gas as feedstock. The first olefinsproducer in Egypt, it replaced ethyleneimports that were required for EPC facilities.

Echem acquired 20% of Sidpec from EGPC inMay 2005.

APRC’s linear alkyl benzene unit producesLAB for the detergents industry. Thecompany’s capacity of 50,000 tons/year meetsabout 75% of local demand. Periodic marketsurveys keep track of LAB demand that willbe met with the new 100,000 tons/yearfacility now being built.

In 2004/2005, petrochemicals importsreached 1 million tons valued at $1 billion.Echem expects projects in Phase I of the Master

Plan to provide about 3.5 million tons ofpetrochemicals annually for export that will beworth about $1.8 billion.

HSE: Top priorityThe common thread running through all facetsof the Master Plan and its implementation is acommitment to protecting the environment andsafeguarding the health and safety of employees,contractors and other involved parties.

Because their diversified operations posea range of environmental challenges toEchem companies, a top priority has been todevelop policies and guidelines that lead to

solutions. Echem’s EnvironmentalManagement System (HSE-MS) isdesigned to meet the requirements oflocal laws and internationalstandards, and to be able to adapt toregulatory changes and the needs of

new projects. Important HSE programs at Echem have

trained specialists and liaison officers onchange management, HSE-MS, internal auditand trained 90% of Echem’s employees on in-house fire protection systems. The effort alsohas prepared all company disciplines for ISOcertification and integrated HSE requirementsand applications into new projects. Thecompany also monitors the performance ofoperating companies with monthly visits andmeetings.

In addition to completing the first revisionof HSE-MS, it helped EPC and Sidpec obtainHSE international accreditation for ISO 14001and OHSAS 18001.

Key projectsA number of petrochemical projects are invarious stages of development in Egypt, withcompletion dates stretching to 2009. Together,the following projects represent a totalinvestment of more than $4.3 billion:

• A methanol plant at Damietta to cost$650 million will produce 1,260,000 tons/yearafter it starts up in the fourth quarter of 2009

• Ammonia/urea will also be produced atDamietta in a 1.2 million tons/year, $800million facility, also scheduled for startup in thefourth quarter 2009

• At Port Said, a $520 million facility toproduce 350,000 tons/year of propylene andpolypropylene will start up at mid 2008

• Polystyrene production at a $150 millionplant set to start up in third quarter 2008 atAlexandria will be 200,000 tons/year

• Also at Alexandria, the EPC contract for a$450 million linear alkyl benzene plant withan output of 100,000 tons/year was awarded inDecember 2005

• A $70 million acrylic fiber plantcompleted in early 2006 at Alexandria isdesigned to produce 18,000 tons/year

• Polyvinyl chloride production at a $35million plant at Alexandria that will start up in2008 will be 150,000 tons/year

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EPC produces petrochemical intermediates.

Nafta secondary product. Sidpec plant.

“Echem aims to produce the petrochemical productsneeded to meet the growing regional and localdemand, creating new job opportunities.” Eng. Ms. Sanaa

A. Moneim El Banna, Echem Chairperson

• After it starts up near the end of 2009, a$1.7 billion polyethylene plant at Coastal Roadwill be able to produce 750,000-1 milliontons/year

In addition to the petrochemical projectsnow being developed, opportunities fortechnologies like methanol-to-olefins willalso be explored, said Mr. Karara, GascoChairman. And a number of fertilizer plantsare also possible.

“Obviously, there will be growing demandfor gas and petrochemicals in the localmarkets, and we have to balance all our needs,”he said.

Gas is becoming more and more importantin feeding petrochemical projects. “All theseprojects depend on gas,” said Eng. Eid, “inaddition to our gas projects such as gasfractionation and gas liquefaction.”

Ethylene, propylene leaderOne of Egypt’s most important petrochemicalcompanies is Sidpec. Organized in 1997 underthe country’s law of investment, Sidpec’s mainproducts are ethylene and propylene.

It currently produces about 300,000 tons ofethylene and 225,000 tons of high and lowdensity polyethylene annually. It also has twosmall plants to produce 50,000 tons of LPGper year and another that produces 10,000tons of butane.

Sidpec cites several factors that are importantto its success, including the availability ofnatural gas resources in Egypt and a location

between Gasco and the Egyptian Power Co.that allows integration of utilities and logistics.It also relies on highly trained personnel anduses the latest technology to comply withenvironmental regulations.

Working with different providers ofproven technology has also been important toSidpec’s success, according toMr. Mohamed Nour El-Din,Chairman.

“Inovene technology forpolyethylene was unknown inour area, but we startedworking with ABB Lummus and now ourproduct ‘Egyptene’ is very well known, notonly in Egypt but in more than 50 countriesaround the world,” said Mr. Nour El-Din.

The Egyptene polymer portfolio includeslinear low density polyethylene (LLDPE) andhigh density polyethylene (HDPE).

Sidpec also supplies LPG to sistercompany Gasco. And Sidpec provides about40,000-45,000 tons/year to the EPC for usein the production of PVC. The remainder ofSidpec’s LPG output is used in its plant for theproduction of polyethylene.

About half of Sidpec’s 225,000 tons/yearof polyethylene output is exported. Since theproduction allocated to domestic market doesnot fully meet demand, the company isconsidering an expansion that would make itcapable of meeting all local demand whilemaintaining its export volumes.

“Continuing to produce the same volume

for export is important in maintaining ourreputation in the international market,” saidMr. Nour El-Din. In addition to quantity,quality is of critical importance in acquiringand keeping export markets.

“It’s very important because we exportmore than 50% of our products,” he said.

“If we are not environment friendly, we won’tbe successful.”

Beginning at homeMr. Nour El-Din is also Chairman of acommittee comprised of all the industrialcompanies located in Sidpec’s area that dealswith the benefits of the member companiesand the surrounding environment.

For example, medical insurance andmedical treatment are provided for the peoplein the area, an especially poor region. Fundsare available for schooling and for socialservices. A medical and educational conferencefor children is also currently planned.

“We and all the companies in thiscommittee are trying to improve the livingconditions in the area,” said Mr. Nour El-Din.“This committee is not only for thepetroleum sector companies but for othercompanies as well.”

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“In addition to the petrochemical projects now

being developed, opportunities for technologies

like methanol-to-olefins will also be explored.”

Eng. Mr. Ismail H. Karara, Gasco Chairman

The Sidpec ethylene and polyethylene plant went on stream in 2001.

Egypt’s deepwater potential:Deep offshore growth promises dauntingchallenges, but great rewards

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eep and ultra-deep waters aroundthe world offer impressive potential

as a source of oil and gas.In a 2004 study of deep water petroleum

potential, Wood Mackenzie Group concludedthat total resources expected to be discoveredin the world’s deep waters total 260 billion bblof oil equivalent (boe). About 50 billion bbl ofcrude and 28 billion bbl of gas equivalent havebeen discovered to date; yet-to-find reserves ofabout 180 billion boe include 114 billion bblof oil and 68 billion bbl of gas equivalent.

In 2004, oil and gas production from deepwater accounted for about 5% of the world’stotal, a share that is expected to reach 9% by2010, according to Wood Mackenzie.

The challenges—technical and economic—are daunting. But the rewards are enormous.For one thing, the volume of oil or gasdiscovered by each deep water well is fivetimes the reserves added by a similar well onshore or in shallow water, said the study.

An enviable positionThough still in the early stages of evaluatingoptions and implementing plans, Egypt ispoised to realize the potential of its deep waterareas. Independent studies indicate gasproduction from deep offshore could play amajor role in Egypt’s petroleum andpetrochemical future.

The Wood Mackenzie study estimatedfuture exploration in the deep water of theMediterranean will add 70 tcf of gas reservesand 3 billion bbl of oil reserves to Egypt’shydrocarbon storehouse. The study rankedEgypt’s deep water gas potential second in theworld after the US Gulf of Mexico. If 70 tcf isindeed added, Egypt would have 18% ofinternational deep water gas reserves.

The country’s exploration success coupledwith the large size of discoveries promise tomake the cost per equivalent barrel of its yet-to-be-discovered reserves among the lowest,said the study.

To conduct the deep water study, WoodMackenzie analyzed the potential of about110 deep water reservoirs (below 400 m) in30 sedimentary basins and river deltas in18 countries.

A recent example of the promise of Egypt’sdeep water regions is a discovery in theMediterranean Deep Marine Area. PetroleumMinister Fahmy announced the discovery byRashpetco in the West Delta Deep Marine(WDDM) concession 120 km offshore at adepth of 750 m. The well encountered naturalgas zones as well as intervals containing largeamounts of hydrocarbon liquids. Studies areunderway to estimate reserves.

Just beginningIn addition to Egypt’s current proved gasreserves of 67 tcf, the consensus of internationalcompanies and consultants is that undiscoveredgas resource is between 80 and 120 tcf.

“We trust we have not explored the wholeeconomic zone in the Mediterranean yet,” saidMr. Karara. “And the extensive exploration

campaign for deeper targets has not started inthe Mediterranean.”

Most of the production now coming fromthe Mediterranean is from shallow structures.But recent discoveries by British Petroleum innorth Alexandria and by Italy’s ENI in PortFouad indicate deeper structures are present.

“It is evident that deeper structures will playan increasing role in future supply,” said Mr.Karara. “This makes Egypt a very good place forexploration for the next two or three decades.”

Future concessions will be for both onshoreand offshore areas. But companies areparticularly interested in offshore Mediterraneanand onshore in the Nile Delta and northernparts of Sinai Peninsula, said Mr. Karara.Companies have already begun very aggressiveexploration campaigns and are expected tocontinue despite the current challenge ofsecuring the offshore rigs.

EGAS’s current pipeline network puts it ingood position to begin to handle new production.The network currently transports about 6,000MMscfd from current EGPC concessions. “Weexpect EGAS to start production from newconcessions in the very near future afterdrilling begins this year,” said Mr. Karara.

With the expectation that much greaterdemand for deepwater facilities is on thehorizon, Petrojet has begun to modify itsplatform designs and tool up its workshops toprovide equipment for more severe operatingconditions, according to Eng. Dahy, Chairman.

The conventional platforms that thecompany has been building are designed forwater depths to 150 m. Last year the companyfabricated and assembled a new record of17,000 tons of offshore platforms in its Maadiayard in Alexandria. It has another yard at Zeit Baynorth of Hurghada to serve Red Sea projects.

Offshore and sub sea capabilityAccording to Eng. Eid, offshore projects—especially those in Mediterranean waters to2,000 m—are the future of Egypt. Platforms

D

Offshore Rosetta Gas Field.

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can be installed economically in water depthsto 100 m, and from 100 to 600 m, sub seacompletions are an option. But beyond 600 m,high gas pressures call for more advancedtechnologies.

“Enppi has a long history of internationalcooperation,” said Eng. Eid. “During the last 30years we have worked with almost everyinternational company, depending on theproject we were engaged in.”

As offshore exploration and developmentin Egypt expand, so does the need for anexpanding array of marine services.

Petroleum Marine Services (PMS), anEGPC company founded in 2001, hasexpanded its capabilities and grown from adomestic pipe-laying and platform installationcontractor—work it has done since 1980 aspart of EGPC—into a competitive player thatcan provide a diverse range of offshore, sub seaand marine services.

“We are specialized in all aspects of offshoreconstruction and installation from theengineering phase to final installation andpre-commissioning,” said a company official.

To comply with its vision to serve both localand international markets, PMS has beenqualified by most of the international bodieswhose certification is required for offshore work.

The first international PMS project, asuccessful job in Saudi Arabia, helped toestablish the company’s reputation for qualitywork and innovation. Its unique approach tothe installation of the Duba unloading facilitiesproject for Saudi Aramco received industryattention and the appreciation of the client.

“It was a key project for the image andfuture of the company,” said a spokesman.

PMS is open to joint venture agreementswith international companies to provide theneeded technology and capacity to cope withnew discoveries.

Diverse vessel fleetPMS has a large fleet of marine vesselsincluding two derrick lay barges, aderrick/hook up barge, two materialsbarges, two supply vessels, four tugs,three launches and a diving support vessel.

In mid 2004 PMS purchased the PMSMayo, a dynamically positioned divingsupport vessel equipped for saturation divingin water depths to 300 m. With two divingbells and 16 divers working at same time, it canwork around the clock. PMS Mayo is one of thelargest such vessels in the world.

PMS also has expanded its ROV andgeophysical survey businesses. And it isperforming intervention work, an importantservice in Egypt today, and one that will beincreasingly important as deep waterdevelopment and production expand.

The company is working in theScarab/Saffron and Simian/Saffair fields wherewater depths are about 1000 m. Theseoperations use an ROV rather than saturationdiving, but both can be supported by thedynamically positioned vessel.

A full service providerDeveloping Egypt’s undiscovered oil and gasreserves will require a broad range of technologies

and services. Over more than two decades, PicoEnergy has developed into a service leader,providing comprehensive upstream anddownstream services and products.

At first, Pico operated under licenses, butadded new services until now it works through

strategic alliances with two major oilfieldservice companies, Halliburton EnergyServices and Weatherford International. It alsooffers its own services and operates a machineshop. Pico Petroleum Services today is ISOcertified and its workshops are AmericanPetroleum Institute (API) approved.

These alliances bring a number of benefitsto Pico, including the ability to standardizeits services to better serve its multinationalcustomers.

“Technological transfers are very importantto us,” said Mr. Sherif Abdel Wadood,Managing Director of Pico Group. “Blendingforeign technical know how, local knowledgeand local content is essential.”

An example of Pico’s innovative approach isits risk sharing and payment terms thatmatched cash flow requirements for CenturionEnergy’s work in its El Manzala concession. Andrecently, it implemented a lump sum contractapproach with Offshore Shukheir Oil Co. thatallowed the operator to complete drilling aheadof schedule and reduce well costs.

“Deeper structures will play an increasing role

in future supply. This makes Egypt a very good

place for exploration for the next two or three

decades.” Petroleum Minister Sameh Fahmy

Offshore Abu Quir Field. Offshore projects—especially those in Mediterranean waters to 2,000 m—are the future of Egypt.

On the way to Egypt’s petroleum future:Leverage location, encourage investment,reduce environmental impact

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ts Ministry of Petroleum has built astrategy that gives Egypt control of its

bright oil and gas future. And the country'sunique assets-location, hydrocarbon resources,people, and expertise-make it an attractiveplace to invest.

As it becomes an increasingly importantpartner in the world's largest industry, Egypt'spetroleum sector has a broad range of opportunitiesto add value to the country's resources andenhance the quality of life of its citizens.

Taking full advantage of these opportunitieswill require capital, expansion, innovation,and the help of international investors andpartners. And it must all be done in the contextof reducing the environmental impact of bothpetroleum production and consumption.

A key goal: Attract investmentThe Ministry of Petroleum's restructuring ofthe oil sector will speed up the decision-making process and focus on growingactivities in gas and petrochemicals, saidPetroleum Minister Fahmy. These companiesparticipate in joint venture partnerships withinternational oil companies.

As in the past, oil and gas still play animportant role in the country's economy. Witha well defined economic model for investment,about $10 billion of foreign direct investmentwas attracted in the past five years, comparedwith $5.6 billion during 1996-2000, and $3.5billion during 1991-1995.

The Petroleum Ministry expects the countrywill attract approximately $20 billion ofinternational and national investments over thecoming five years, $16 billion of which will beforeign direct investment. The Ministry expectshalf of the foreign investment to be directed toupstream projects.

“The main thrust of our strategy is toincrease petroleum products exports, reducethe investment burden on the state budget andattract more private and Arab internationalinvestments,” said Petroleum Minister Fahmy.

Ambitious plans for gas, petrochemicalsThe world's growing preference for natural gaswill drive much of Egypt's petroleum future.The country's reserves, its LNG experience, itspetrochemical Master Plan, and its access tomarkets all combine to make it a significantforce in the global gas business.

Proved and yet-to-be-discovered gas reservestogether provide Egypt the potential to becomeone of the leading gas producers and exportersin the world, while also providing feedstock fora world class petrochemicals industry.

“And there still are excellent opportunities forexploration to add more gas reserves andincrease production,” said Mr. Ismail. “There willbe a variety of new investment opportunitiesalong the entire value chain.”

“Echem's mandate is to deliver an ambitious20-year investment plan involving newpetrochemical projects valued at $10 billion,”said Ms. Moneim El Banna.

Though the plan was prepared after aninternational market overview that consideredmany factors, it is important to remember thatthe plan is dynamic.“Echem is the catalyst thatwill create many opportunities for serious andinterested entities,” she said.

Sumed: Prepared for growthThe petrochemical Master Plan and refiningcapacity expansion that the government isimplementing will be closely related to theSumed pipeline.

“We will build new pipelines with thecapacities and lengths needed,” said Eng. Gomaa.“The extensions depend mainly on the availabilityof new projects.” Expansions are expected inthe Suez area or in areas very close to Sidi Kerir.

“We look forward to being one of the mostimportant suppliers of crude oil for newrefineries,” he said. Sumed now supplies theMidor refinery, and wants to supply newrefineries, including the 350,000 b/d grassrootsplant being considered for Kafr El Sheikh.Sumed management also is considering aproduct handling facility at Sidi Kerir terminal.

All of this is in addition to Sumed's storagerole that makes it a crucial hub for crude oil inthe Mediterranean.

Fundamental responsibilitiesResource utilization and business expansion arecritical elements in economic growth. To ensurethat growth has a positive impact on society andthe lives of individual citizens, however, businessgoals must be balanced with social responsibilities.

While it does pose risks, the petroleum sectorcan be one of the most effective industries inbringing positive change to the lives of peoplein the communities in which it operates.

In Suez, for example, two large refineriesprovide many jobs and support social services.In Damietta and Beheira, LNG projects havegenerated new industries and companies, andmade infrastructure development possible. Andin Alexandria, a petroleum industry center,large projects and ongoing operations continueto lower unemployment and contribute to thedevelopment of adjacent areas.

“It's not only the industry's expansion thatis important to us; the environment is also veryimportant,” said Mr. Nour El-Din. “Keepingthe environment clean is a must.”

And in the end, a company's success isdetermined by its people. Little progress can bemade unless development of the health, skills,knowledge, responsibility and enthusiasm ofemployees is a top priority.

I

Illuminated tower creates night scenes.

• Official Name: Arab Republic of Egypt • Capital: Cairo • System of Government: Multi-party Republic• President: Hosni Mubarak (Since 1981)• Prime Minister: Ahmed Nazif (Since 2004)• Languages: The official language is Arabicwhich is spoken by the majority of thepopulation, although other important minoritylanguages include Coptic, Nubian and Berber. • Location & Geography: Egypt is located inthe north-eastern corner of Africa.• Climate: The larger part of Egypt has adesert climate which is hot and arid. Thereare two seasons.• Land Area: 384,344 sq mi (995,451 sq km);total area: 386,662 sq mi (1,001,450 sq km)• Population(2006 est.): 78,887,007 • Currency: The official currency is theEgyptian Pound (EP).• GDP/PPP (2005 est.): $339.2 billion; percapita $4,400.

• Real Growth Rate: 4.7% GDP Inflation:4.3%. Unemployment: 10%• Industries: textiles, food processing, tourism,petrochemicals, chemicals, pharmaceuticals,hydrocarbons, construction, cement, metals,light manufactures. • Natural Resources: petroleum, natural gas,iron ore, phosphates, manganese, limestone,gypsum, talc, asbestos, lead, zinc. • Exports: $14.33 billion f.o.b. (2005 est.):crude oil and petroleum products, cotton,textiles, metal products, chemicals. • Imports: $24.1 billion f.o.b. (2005 est.):machinery and equipment, foodstuffs,chemicals, wood products, fuels. • Major Trading Partners: Italy, U.S., Syria,Germany, Spain, France, China, UK, SaudiArabia (2005).

Source: Altapedia, Governments on the www,

Columbia Encyclopaedia

Energy Minister: Sameh Fahmy (Minister ofPetroleum) Proven Oil Reserves (1/1/05E): 3.7 billionbarrels Oil Production (2004E): 698,000 barrels perday (bbl/d), of which 594,000 bbl/d is crude oil Oil Consumption (2004E): 564,000 bbl/d

Net Oil Exports (2004E): 134,000 bbl/d Crude Refining Capacity (1/1/05E): 726,250bbl/dNatural Gas Reserves (1/1/05E): 67.0 trillioncubic feet (Tcf) (based on data released byEgypt’s Ministry of Petroleum)Source: EIA - Country Analysis Briefs on Egypt.

We would like to thank the following people andorganizations for their assistance, support andprofound insight into the production of thisendeavour. It was a great pleasure working on aproject that has such a promising future. Wethank all of the people for such a warm andhospitable welcome while we were in Egyptpreparing the editorial. We look forward to nextyear’s edition and we hope that the informationhas been valuable to our vast list of readersthroughout the energy sector.

First and foremost we thank Ministry of Petroleum,the Honourable Mr. Sameh Fahmy whose energyvision has allowed such important communicationof the sector to the international community.

The Undersecretary of the Minister, Mr. ShamelHamdy and to the Head of the Central Dept. ofthe Ministry for Media Mr. Hamdi Abdel Aziz.

And of course a special thanks to Gasco andall the Public Companies without whosecollaboration and interviews it would havebeen impossible to have the editorial base forthe report.

Special thanks to the Chairman of Gasco,Mr. Ismail H. Karara.

SidpecSpecial thanks to one of the emergingpetrochemical companies and to its Chairman,Mr. Mohamed Nour El-Din.

Pico Energy GroupSpecial thanks to one of the most important andinternational private groups of Egypt. Thestatements of its Managing Director, Mr. SherifAbdel Wadood have been extremely enrichingfor the editorial.

FOR MORE INFORMATION ON THE CITED COMPANIESIN THIS MAGAZINE PLEASE CONSULT THE FOLLOWING:

Ministry of Petroleum: www.emp.gov.eg

Gasco: www.gasco.com.eg

EGPC: www.egpc.com.eg

ECHEM: www.echem-eg.com

Petrojet: www.petrojet.com.eg

Petroleum Marine Services PMS: www.pmsoffshore.com

ENPPI: www.enppi.com

Sumed Arab Pipeline: www.sumed.org

GANOUB: www.ganope.com

Pico Energy: www.picoenergy.com

SIDPEC: www.sidpec.com

Egypt General Data& Economic Information

Energy Overview

Acknowledgements

EGYPTIAN MINISTRY OF PETROLEUM