SECTOR ANALYSIS Egypt: Energy Sector The in Cairo March 2014 Keywords: Egypt, The in Cairo, energy, oil, gas, wind energy, solar energy, hydroelectric power. Resume: In this sector analysis you will find relevant and updated information on the energy sector in Egypt. The analysis focus on oli, gas and wind, solar and and hydro energy sources. Each sub-sector analysis provides information on the structure of the subsector, facts, market opportunities and conclutionally an overall market assesment.
ENERGY AND ENVIRONMENT Egypt has a wide variety of possibilities in the energy sector, including oil, gas, wind, solar and hydroelectric power stations along the river Nile. Egypt has been in the forefront of starting oil exploration activities and is the largest refining centre in Africa. Throughout its long history the Egyptian oil industry has always been in the forefront with worldwide trends and holds the sixth largest proved oil reserves in Africa. Egypt has great strategic importance because of its operation of the Suez Canal and the Sumed pipeline, which is the alternative route of oil transportation from the Persian Gulf to Europe. The Sumed pipeline connects Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean Sea and has a capacity of 3.1 million barrels per day (b/d), in comparison with the Suez Canal that transports 0.7 million b/d. Within the energy sector the government controls four holding companies under the ministry of Petroleum, which facilitates each their area within energy production. Egyptian General Petroleum Corporation (EGPC) was established by the Egyptian government in 1962 as the first economic corporation established in the petroleum industry in Egypt. It is active in the upstream, downstream and petrochemical sectors, has full responsibility for all sectors of the Egyptian petroleum industry and holds the sole right to import and export crude oil and other petroleum products. As a controller of the industry, any foreign investments in Egypt are maintained through a joint venture with the EGPC and are supervised by the government. Among the major activities of the EGPC are petroleum agreements, exploration, production, transportation and refining. Egyptian Natural Gas Holding Company (EGAS) was established in 2001 after recognizing the increasing importance of natural gas. The purpose of EGAS is to manage foreign investment in exploration and to expand gas export activities by increasing gas export pipelines to link with the European Gas Pipeline system. Egyptian Petrochemicals Holding Company (ECHEM) manages and markets Egypt s emerging petrochemical industry. It was established in 2002, with a mission of developing a competitive petrochemical industry based on the use advanced technology. ECHEM promotes investment, facilitates the development of new projects and is continuing to establish production plants. Ganoub El Wadi Petroleum Holding Company (GANOPE) was established in 2003 to promote and develop activities specifically in Upper Egypt (Sohag, Aswan, Assyout, Qena, AL Wadi El-Gedied), which represent over half of total land areas of Egypt. Oil consumption per inhabitant increases due to rise in wealth and living standards combined with heavily government subsidised gasoline prices, which mean that Egypt is now importing more oil than they export. However, by committing to developing the sectors of other energy recourses domestically, such as gas and renewables, Egypt has an expectation of increasing net export of oil in the future. Cairo, Egypt 2
GAS EXPLORATION AND PRODUCTION Natural Gas was introduced to the Egyptian local market in 1975 when the first natural gas field Abu Madi was put on stream. To date natural gas has been found in the Mediterranean Offshore / Nile Delta and the Western Desert areas. Egypt s gas reserves are estimated (2013) to be around 2186.1 billion cubic meters (bcm), equivalent to 1% of world s gas reserves. However, some estimates are much higher due to the possibility of undiscovered gas reserves offshore. Total Production (2013) Total Value of Production Proven Reserves 61.2 bcm /year USD 32.3 bn /year 2186.1 bcm Egypt Gas (BMI, 2014) The importance of natural gas is growing rapidly with government policy currently encourages the domestic consumption of gas in order to free more crude oil for export. Egypt s gas production used to be distributed domestically exclusively, but the success of the gas exploration programme resulted in the approval of the export of gas since 2000, both by pipeline and liquefied natural gas (LNG) tanker. The construction of the first LNG plant in Egypt began in 2001, and it started exporting in 2005. The Egyptian exports of gas go through the Arab Gas Pipeline supplying Jordan Syria, Lebanon, and Israel. Half of the gas consumed in Israel is imported from Egypt through the Arab Gas Pipeline. The Arab Gas Pipeline is planned to be extended to Turkey. However, Egypt faces strong competition from Russia and other large players with an interest in the large Turkish market. At present, 54 % of Egypt s gas production is used for electricity generation. A plan has been implemented to extend the gas distribution infrastructure in Upper Egypt and for the use of compressed natural gas (CNG) to be used in taxis. Currently around 15.000 taxies in Cairo are fuelled by CNG. Natural gas production in Egypt has reached 61.2 bcm by 2013, and is expected to reach 75.3 bcm by 2020. The Egyptian gas industry is willing and determined to cooperate with business partners in the upstream activities, to make use of the technology advances and industry trends and to coordinate with gas markets in order to effectively participate in the global gas industry. Foreign firms involved in exploiting gas in Egypt at the moment include British majors BP and BG Group and Italy's Eni. Cairo, Egypt 3
OIL EXPLORAITON AND PRODUCTION Oil is the far most common source of energy in Egypt. The Egyptian oil industry was nationalized in 1964 under the control of the Egyptian General Petroleum Corporation (EGPC); however, EGPC operates mainly through joint ventures with private companies with the suited expertise and access to technology and capital. Major joint ventures between private partners and the EGPC account for more than 90% of the oil produced from the Gulf of Suez. Oil is also being extracted in the Western Desert, the Eastern Desert, and the Sinai Peninsula. Total Production (2013) Total Value of Production Proven Reserves 266.2 mn b/year USD 28.9 bn/year 4.4 bn barrels Egypt Oil (BMI, 2014) Egypt has the largest oil-refining sector on the African continent. The ten refineries have the capacity to process 775,800 b/d of crude oil. The largest refinery is the 146,300-b/d El-Nasr refinery at Suez, which is owned by EGPC. In cooperation with international companies the EGPC is building new refineries and the plan is to expand capacity by over 600,000 b/d by 2016. The export revenues from oil production continue to grow, nonetheless, this is primarily driven by increases in the global market price for oil and not from increasing quantities, since the export levels has dropped in order to meet the constantly increasing domestic demand, which grows faster than the oil industry can keep up with, both due to increases in gasoline consumption and electricity consumption, whereas the latter is supplied 20% from oil recourses. The Ministry of Petroleum is well aware of this challenge and state that they priorities strategies to attract foreign investment in the oil sector in the coming years. Tenders for international bid will be available already in midt-2014. SOLAR ENERGY Due to its location, topography and climate, Egypt has an average level of solar radiation of between 2,000 to 3,200kWh per square metre a year, giving it significant potential for utilising this form of renewable energy. To date, however, uptake of solar projects has been slow due to high capital costs. In 2010, Egypt s only major solar power project was commissioned in Kuraymat. The plant is a 140MW solar thermal combined cycle power plant of which 20MW is from solar energy. Egypt is recognised as having vast potential for solar energy application, but the investment cost of solar power plants is currently very high, which means that the Egyptian government is highly dependent on private finance. In October 2013 a tender was put up for bid to private companies by the Ministry of Electricity for setting up a new solar plant with construction taking place in the city of Kom Ombo in the southern Egyptian province of Aswan. The plant will operate on a build-ownoperate (BOO) scheme and produce a total of 200 megawatts of energy. Several international institutions, including the World Bank, the United Nations' Clean Energy Fund and African Development Fund, will fund the project. The project is part of the ministry's five-year (2012-2017) solar energy plan, which aims to increase Egypt's energy production by 3,500 MW. Cairo, Egypt 4
WIND ENERGY Egypt is an excellent wind regime, especially in the Gulf of Suez where average wind speed reach 10 m/sec, this potential has been a focus for the Egyptian government since the late 1980 s, however, the first windmill was not established before 2001. The sector has developed rapidly since the introduction and the production is now reaching 2016 GWh (2013). The government s target is that 20% of the country s electricity should come from renewable sources by 2020. Of this about 12% is expected to be produced by wind power. ELECTRICITY GENERATED FROM WIND SOURCES, GWh 2500 2000 2016 1500 1000 500 350 497 524 585 789 880 1100 1200 1350 1359 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 The Egyptian government has, as a part of its energy policy, an objective to increase the production of wind energy. By increasing the production of wind energy, the government strives to cover parts of the domestic demand for oil and gas in the future, which the government then expects to export. Egypt has a growing number of large windmill farms where Zaafarana Wind Farm is the largest in Egypt and also one of the ten largest wind farms in the world. The Elsewedy windmill park was the recipient of the 2011 World Wind Energy Award for its leading role in introducing wind power on a large scale in the Middle East and North Africa. The tender for establishing new windmill parks is frequently up for bid by the Ministry of Energy, which is given to both Egyptian and foreign companies. Denmark has in many years been supporting the wind energy sector through Danida. Both in the areas of wind mapping and to set up wind farms. Danida has been involved in the first and second phases of the Zafarana wind farm and Vestas has supplied several turbines. Furthermore the predecessor program of the current B2B program (Private-Sector Development Program) has supported a co-operation between Vestas and the Egyptian company Ferrometalco for production of foundations and tubular towers for Vestas. Danida has through its mixed credits programme offered a loan of approximately DKK 825 mn for a third phase with a new wind farm at Zafarana with the capacity of producing 120 MW. Egypt s New & Renewable Energy Authority (NREA) is currently finalising a 200MW project in the Gabal Al Zeit area which is expected to become operational during 2014. And additionally 700 square kilometres have been set aside for new wind projects in the Gabal Al Zeit area, which has wind speeds of 11 metres a second. The market is still new, and there are plenty of opportunities related to the sector, as in local production of spare parts, maintenance and service. Cairo, Egypt 5
HYDROELECTRIC POWER Hydroelectricity has played a role in electricity generation in Egypt for decades. Projects such as the Aswan Dam produce 15,300 GWh a year, or roughly five to ten per cent of Egypt s annual energy needs. As 85 % of Egypt s hydropower potential has already been developed, this is not regarded as a premier growth sector and the Government s focus has been directed more towards the wind and solar energy sectors. MARKET ASSESMENTS Despite obstacles in the Egyptian energy market, such as; setbacks in the development of the sector due to political instability since the 2011 revolution and complicated institutional framework for registering and licensing, one can be sure that the demand for gasoline and electricity will be growing steadily within the next many years. The increasing demand for energy makes Egypt in great need for solutions at the energy market which currently consumes more gasoline and electricity than they produce, or can afford to buy at the global market. The government temporarily solves the supply problems by cutting off power systematically in Cairo and other larger cities. There is a great willingness from the government to meet the challenges in the energy sector by investing in more efficient solutions and renewable energy sources with substantial budgets for PPPs. A challenge for foreign investors in the Egyptian energy market is the prospect of increase in competition in the future from companies that wishes to enter the energy market after political destabilisation of Egypt. Cairo, Egypt 6