EOG Newspaper April 2007 Issue by Egypt Oil & Gas

April 2007

Issue 4

Assessing the impact of removing energy subsidies on energy intensive industries in Egypt page 14 Cement seal units eliminates the inter-zonal communication page 16

PVSS II Best fit SCADA system for the oil and gas industry page 17

Published by Egypt Oil and Gas S.A.E Enduring to explore by taking it offshore Demand for maritime service companies has increased recently, this feature explores why and the measures taken to meet this rising demand

24 pages

Protecting the environment, securing the future Eng. Ashraf Sabet talked about PESCo’s ambitions and current activities

page 8

Sharing the oil cake? While some regard the new Iraqi oil law as oil on troubled waters, others consider it a squander of the world’s third largest reserves

page 12

page 13

Subsidies have become the keyword to an ongoing controversy in the Egyptian energy sector. Arguments swinging between keeping and lifting oil and gas subsidies have raised concerns about the negative effects of “inefficiency” in implementing the subsidization system; its threats endangering the future of energy reserves and its state of being an economic burden on the government. Egypt Oil & Gas Newspaper examines the different perspectives of this debate By Yomna Bassiouni Subsidies: The Facts ACCORDING to the Shura Council’s Financial and Economic Affairs Committee report, the subsidies allocated to petroleum products have increased from nearly LE290 million in 1970 to more than LE40 billion at present. Egypt’s Minister of Petroleum Eng. Sameh Fahmy revealed in an interview in Al-Ahram Newspaper that the bill of subsiding petroleum products costs around LE44 billion annually ($7.4 billion). Meanwhile, the total revenue of exports counts for $10 billion. However, the bill of subsidies has been increasing and the Ministry of Petroleum had to request the interference of the People’s Assembly to decide whether to keep the subsidies or cut them down. Fahmy pointed out that subsidies are not just directed to the lower income bracket, some of the wealthy people benefit from subsidies as well. “We need to face this problem clearly regardless its negative effect on the ministry’s image,” Fahmy said. Last May, the Shura Council approved an amendment of LE20 billion in the 2005/2006 budget aimed at

subsidizing petroleum products and natural gas. In the session, the Minister of Finance Youssef Boutros Ghali stated “three urgent reasons” behind this additional budgetary allocation. The first reason lies in the dramatic increase in oil prices worldwide. Secondly, this rise has consequently led to an increase in the price of petroleum products, which the government buys from oil companies operating in Egypt. Thirdly, the local consumption of both petroleum products and natural gas has increased. “The government’s strident efforts to raise growth rates to more than seven percent have resulted in a large increase in the consumption of these products,” Ghali said.

The Debate However, the increasing subsidies’ budget draws more economic problems as it is a temporary solution to monetary problems. Ghali said that in Africa, governments “usually bear only 10% of the price of petroleum products while the government in Egypt bears around 75%,” which represents a huge economic burden. For instance, the

approved subsidies’ increase will result in an additional deficit of LE5 billion to the state budget. Continued on page 19

ENPPI and Petroleas de Venezuela Sociedad Anonima (PDVSA) signed a $4 million contract to train a group of Venezuelan workers in different petroleum fields. ENPPI will be responsible for organizing an integrated training course for 70 engineers from PDVSA in the fields of operations engineering, electricity, mechanics, pipelines, controlling, construction and civil operations, supplying operations and supervising projects. Eng. Fakhry Eid, ENPPI’s Chairman said that the training activity is part of the integrated activity offered by ENPPI in the petroleum engineering design domain for workers in Egyptian petroleum companies and some Arab countries. Petroleum industry workers from Syria, Libya and Sudan have benefited from these trainings; 293 Arab trainees were trained through 99 training courses in various specializations. w

April 2007 - Issue 4

Editor in Chief Reem Mohy El-Din Nafie rnafie@egyptoil-gas.com

Administrative Manager Marwa Madi

Administrative Assistant Sarah Rashdan Art Director Mohamed Madany Assistant Art Director Ahmed Ali Webmaster Ayman Rady Production Advisor Mohamed Tantawy Accountant Mohamed Al Agamy Legal Advisor Mohamed Ibrahim Newspaper Technical Advisors Eng. El-Sayed Orabi - EGPC Geologist Magdy Wedad - PICO Energy Petroleum Services Dr. Mohamed Ghareeb - Lufkin Eng. Said Zaki - Weatherford Middle East Cairo-Egypt Dr. Sameh Macary - IPR Capt Tarek Shawkat - Maridive & Oil Services

Publisher Mohamed Fouad

Technical Advisor Geologist Nasser Wali - EGPC

Senior Staff Writer Yomna Bassiouni Contributors Mohamed El-Sayed Sarah Broberg Researcher/Analyst Diana Elassy Distribution Manager Basma Naguib Business Development Manager Laila Fayek lfayek@egyptoil-gas.com Business Development Officer Amgad Madi Amr Hegazy Amr Youssef

APRIL is a month dear to my heart. It’s when spring comes in, when it’s not too cold and not too hot to clear your mind and have a “good” walk. It’s also the end of the first quarter of the year, when rough assessments are made and companies and governments start re-thinking their strategies. Iraq was one of the countries that found it necessary to take a step forward and redraft their oil law. The Iraqi cabinet approved last month a draft oil law that aims to equitably share profits from its oil revenues among the country’s ethnic groups. The new law allocates oil revenues between Iraq’s 18 provinces based on their population count. Of course the sole beneficiaries of this new law will be foreign oil companies that will be granted long-term contracts. In terms of government initiatives, policy-makers are decisively rethinking the all too touchy issue of subsidies. This does not mean that we will all wake up to gas prices skyrocketing, but it does mean that industries will have to better utilize their oil consumption when it stops coming to them so easily and so cheaply. Oil is not a cheap commodity and industries must be the first to come to such a conclusion. Moving to our feature this month, in Egypt, maritime export is of extreme importance, but so is maritime procurement of energy sources. With technological advancements, deep sea drilling has begotten mass production of oil and natural gas. Companies who so choose to tap the sea cannot do it on their own. While maritime service companies do not specialize in exporting energy commodities, they do specialize in providing support for oil and gas operators. These companies’ in essence support offshore oil rigs and provides them with all their needs during operations. With the increasing demand for maritime services, we explore the reasons behind this increase and the efforts exerted to meet them. This issue also includes an interview with Engineer Ashraf Sabet, Chairman of Petro Environmental Services Company (PESCo) – an international joint venture company established in January 2003 – that has become one of the leading companies in environmental protection and marine support. In our academic focus we debut Dr. Abdallah Shehata’s working paper “Assessing the Impact of Removing Energy Subsidies on Energy Intensive Industries in Egypt” that also tackles the controversial issue of subsidies. This month, we have started a new section entitled “IT for oil and gas” that provides the industry decision makers with the latest IT solutions for their oil and gas facilities. In this issue, Advanced Computer Technology (ACT) and ETM Professional Control, explain to us the benefits of the PVSSII system – the best-fit SCADA system for the oil and gas industry. Finally, we thank our readers and remind you that your comments and suggestions are always welcome at info@egyptoil-gas.com.

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Editor-in-Chief

April 2007 - Issue 4

Kuwait-based Kharafi Group in Cairo is scheduled to launch works to construct its chemicals and petrochemicals complex in the governorate of Fayoum within the coming six months, reported the Daily Star. Al-Kharafi’s $675 million project got a final approval from the Egyptian Ministry of Environmental affairs. This approval was granted based on a recommendation by the Environmental Protection Apparatus (EPA) following a study by the EPA scrutinizing the project’s technical aspects, especially those pertaining to salt extraction environmental procedures and standards. Amr Assal, head of the Egyptian Industrial Development Authority revealed that the Kuwaiti group designed their two-phased project on a total area of 4,000 acres, expected to produce during the first phase 220,000 tons of sodium sulfates, 250,000 tons of sodium chloride and 66,000 tons of caustic soda annually. The bi-products are to be extracted from salt deposits in Qaroun Lake in Fayoum, in addition to a facility producing hydrochloric acid at the capacity of 30,000 tons per annum. The Egyptian official asserted that this Kuwaiti investment is to create approximately 5,000 job opportunities in the governorate. The second phase of the project incorporates building

The Chief Executive Officer of Eni Corp announced that the Italian company achieved a record level of crude oil, condensates and natural gas production, for the first time, where it exceeds half a million barrels of oil equivalent daily during March. The announcement came during a meeting with Eng. Sameh Fahmy, Egyptian minister of petroleum who discussed the work progress of Eni in Egypt. Eni’s official said that this is the highest production level ever achieved since starting its work in Egypt in the early 1950s. Fahmy also reviewed the work progress of Russian Gazprom Co. with CEO Alexander Ivanovich and discussed means to increase cooperation domains with Gazprom, the largest producer and exporter of natural gas worldwide. In addition, Fahmy tackled the possibilities of deepening and exchanging bilateral technical expertise, particularly as Gazprom possesses experience and stateof-the art technologies in upstream and production domains and gas pipelines execution. (Al-Alam Al-Yom & MoP)

Egypt’s Minister of Petroleum Eng. Sameh Fahmy and Croatian Minister of Finance Ivan Suker discussed means of boosting joint cooperation between both countries in the domains of petroleum, gas, and refining during a meeting held in Cairo, in the presence of the Croatian Ambassador to Cairo. The two ministers exchanged their points of view on global oil and energy issues, securing supplies in addition to the exchange of expertise and human cadres in the petroleum industry in both countries. They reviewed the status of Croatian INA NAFTA Co. acting in Egypt by two petroleum exploration agreements at the Western Desert in participation with German and Italian companies. The Croatian company succeeded to achieve a significant oil discovery in the Western Desert near Al Hamra port facilities in the Alamein area. Suker expressed his country’s desire to increase the Croatian companies’ activities in the oil and gas exploration and production domain. In addition, he praised the distinctive relations as well as the credibility of the Egyptian petroleum sector in dealing with foreign companies operating in Egypt, as it provides all its potentialities to achieve the planned programs. (MoP)

Eng. Sameh Fahmy, Minister of Petroleum announced that the fields’ production of the whole state owned company, the General Petroleum Co. (GPC) was raised by 40% after operating the four wells of Al-Hamad field with a production capacity of 13.5 thousand bpd, 30% of the company’s current total production. This announcement came during the minister’s visit to the production and development projects of Al-Hamad and Sakkara Fields at the Gulf of Suez. The minister added that the investments of the offshore Sakkara field development project at Ras Shukair area, owned by the Gulf of Suez Petroleum Company (GUPCO), are about $366 million and production capacity of 40,000 bpd, which is considered one of the biggest crude oil discoveries at the Gulf of Suez area since 14 years.

Melrose Resources plc announced that seven million new ordinary shares of 10p each (the Placing Shares) have been placed, conditional, inter alia, on UKLA related party approval, at a price of 385 pence per share. The net proceeds of the placing of approximately £26.5 million will be used for continuing exploration and development expenditure in Egypt; to allow medium term retention and exploration of the company’s East Texas assets; and to provide flexibility for the company’s forthcoming drilling program in Bulgaria. The placing shares, which will rank pari passu in all respects with the company’s existing ordinary shares, represent approximately 6.8 percent of the current issued share capital of the company. Application will be made for the placing shares to be admitted to the official list of the UK Listing Authority and to trading on the London Stock Exchange’s market for listed securities. Robert Adair, Executive Chairman, and Caledonia

a calcium production unit with a capacity of 232,000 tons per year, a magnesium chloride plant at the capacity of 150,000 tons per annum and a regular magnesium facility at the capacity of 32,000 tons per annum, devoting a large chunk of the project’s output to exports. (Daily Star)

Fahmy clarified, during his meeting with the workers at the oil fields locations in the Eastern Desert at the Red Sea, that intensifying oil and gas upstream activities in Egypt are considered a national strategy undertaken by the petroleum sector to meet the increasing rates in domestic consumption of oil and its derivatives, and exports. Eng. Reda Mustafa, GPC Chairman pointed out that total recoverable proven reserves of Al-Hamad field’s wells reach about 59 million barrels. The addition of more reserves with the completion of exploration programs, and drilling more wells (two new wells El-Hamad 5, 6) are expected to enable production to reach 20,000 bpd. Geo. Refaat Khafagy, Chairman of GUPCO, declared that the Sakkara offshore field development project includes an offshore platform comprising of nine production wells besides the latest technical production facilities and remotecontrolled operating system. The project contains an offshore pipeline and an onshore processing station to separate oil, gas and water. Production of Sakkara field is planned to start by the end of the year. The minister listened to a description of GUPCO’s infrastructure rehabilitation of production facilities which ranges between 20 to 40 years exceeding its life span in order to achieve long-term safety enhancement, as well as expanding its economic life. GUPCO’s chairman reviewed the project of discovering and developing Gulf of Suez 327 offshore field, North West Al Tor city and south east Al Morgan field, of which reserves reach 17 million barrels and is going to start production during the current month with a production rate of about 10,000 barrels daily. (MoP, Ahram & Akhbar)

Investments plc participated in the Placing approximately pro rata to their shareholdings in the company. (Rigzone)

Groundstar Resources Ltd. has provided an operational update of its Egyptian activities. In the West Kom Ombo block license, reprocessing of the previously acquired 2Dseismic on the block was awarded to Spectrum, Cairo on 25 February and is expected to take two to three months to complete. The reprocessing of several test lines on the southern part of the block has shown that the sedimentary section could be much thicker than previously thought which would significantly enhance the exploration potential of that area. Following reprocessing, the seismic data will be re-interpreted prior to the acquisition of new seismic on the 42,291 sq km block expected to take place over the 2007/08 winter season. Groundstar will earn a 60% working interest by paying 100% of the first US$7 million of exploration expenses. Transglobe is currently drilling the first of two exploratory wells on the Nuqra block to the east of West Kom Ombo. With respect to the West Esh El Mallaha block license,

AlMansoori Specialized Engineering (MSE) has signed a multi-million dollar deal to acquire the Tubing Conveyed Perforation (TCP) division of Energy Inc as part of MSE’s ambitious plans to build and strengthen its business developments in Egypt. The acquisition marks MSE’s third venture into the Egyptian market. Last July, the oil services company acquired Cairo-based service company Gulf Petroleum Investments (GPI) in a multi-million dollar deal. Its first venture into the rapidly growing Egyptian oil and gas sector was the acquisition of production testing, drill stem testing and memory gauge equipment company Alpine Oil Services Egypt (AOSE). Nabil Alalawi, managing director of MSE said, “The acquisition of the TCP division of Energy Inc will strengthen our offering to the global oil and gas industry while extending our scope of services in Egypt, which we

Canada’s TransGlobe Energy has plugged and abandoned its Set-1 exploration well in Egypt’s Nuqra Block 1 after failing to find hydrocarbons. The company said the well had been drilled to 1,372 meters to test Cretaceous and Jurassic sands. The well was the first of two wells to be drilled on the Nuqra/Kom Ombo rift basin near Aswan, TransGlobe said. It said its drilling rig was now moving to drill the Narmer-1 exploration well about 30 kilometers to the east. TransGlobe has an active exploration and development program planned for 2007 in Yemen, Egypt and Canada.

April 2007 - Issue 4

the reprocessing of two 3D seismic surveys over the southern area of the block will take place in the second quarter of 2007. Current seismic mapping by Aminex Petroleum Egypt has identified five prospects with a resource potential ranging from 63 to 177 MMBO recoverable. In addition, 13 leads have been identified. The re-interpretation of the re-processed 3D seismic will provide the basis to prioritize the prospects for the drilling of at least two exploratory wells in the second half of 2007. Discussions are currently in progress with three drilling contractors to obtain a suitable drilling window. Groundstar will earn a 20% working interest in the block by paying 40% of the first US$7 million dollars of exploration expenses. Kam Fard, President and CEO of Groundstar, stated that the company is very pleased with the results of the reprocessing of the test lines in the Kom Ombo block. This has significantly enhanced the exploration potential of this large block. (Oil Egypt, Rigzone & Petroleum Africa)

see as a major consideration for future expansion. The acquisition is part of our overall goal to be one of the major players providing oil and gas services in the region.” Oil field service company Energy Inc is a subsidiary of Energy-Middle East. The company was established in Egypt in 1993 to manufacture high quality TCP products and services, under the name of Energex TCP System. Energy Inc managing partner Raoul Razzouk said, “Energy Inc and MSE share common vision and values to provide high quality technology and services putting safety first at all costs. The team has extensive technical expertise and engineering skills which we look forward to incorporating and developing with MSE. I am looking forward to a very bright and prosperous future for both companies and their customers.” (Zawya & AlMansoori)

The company owns working interests in more than 6.6 million acres across their operating regions. In 2006, the Company set new records for total proved reserves and annual production. Calgary-based, TransGlobe Energy’s common shares trade as “TGL” on the Toronto Stock Exchange and “TGA” on the American Stock Exchange. (Upstream Online & TransGlobe)

The Croatian INA Nafta achieved a new oil discovery, Sidi Rahman-1 located in the Western Desert, three kilometers off the Mediterranean Coast, announced the Egyptian Ministry of Petroleum. Based on the test’s results, the well is expected to produce around 3,200 barrels of crude oil per day, 49 API which is classified as one of the finest types of crude oil globally. As for proven reserves, the well is estimated to have approximately 31 million barrels. The recent available information reveals the presence of other geological formations of which reserves are estimated with about 21 million barrels of crude oil which increases the area’s total reserves to reach about 52 million barrels of crude oil. (MoP)

Eng. Sameh Fahmy, Minister of Petroleum, announced the establishment of three new companies in order to develop the mineral wealth, oil shale, and production as well as packing drinking water at Al Wadi Al Gadeed, which accounts for nearly 5,000 job opportunities in the governorate. During his visit to Al Wadi Al Gadeed, Aswan and Luxor, Fahmy said that the oil and gas exploratory wells drilling operations have been intensified in the South Valley where the first exploratory well was drilled in the area of Wadi Nakra in Aswan. In Luxor, a new factory for filling LPG cylinders started operation with a capacity of 10,000 cylinders daily. The new mineral resources projects in addition to oil and gas exploration serve the ministry’s strategy to revive the area of Upper Egypt and avail the South Valley’s requirements of LPG in the governorates of Al Wadi Al Gadeed, Aswan, and Luxor. Fahmy has also signed a joint cooperation protocol, including the cooperation between the governorate and the Egyptian Mineral Resources Authority (EMRA) to study the capability of using the available marble at Al Wadi Al Gadeed, together with licensing its exploitation to Al Wadi Al Gadeed for Mineral Resources and Oil Shale Company. The joint cooperation protocol comprises the establishment of an oil, mining, and administration academy at Al Wadi Al Gadeed governorate to maximize the optimum use of the infrastructure and the available facilities at Abu Tartour phosphate project in cooperation with mining expertise house. Fahmy witnessed the signing of three agreements during his visit. The first agreement was signed by GANOPE, EMRA, Petrojet, and Nile Oil Marketing Co. listing the establishment of Al Wadi Al Gadeed Co. for Mineral Resources and Oil Shale, S.A.E., active in exploration works, mineral resources, and oil shale exploitation. The second agreement is designed to establish Wahet Paris Co. for Natural Water. Moreover, Ganope, Petrojet, Nile Oil Marketing Company and the Egyptian Petrochemical Company are to establish the New Valley Co. for manufacturing the natural water bottles. The minister also checked the work progress in the drilling site of the first well (Set-1) at the Ganope Company’s operation location at Al Nakra area in the Eastern Desert, by the Canadian company TransGlobe, within the framework of a program to drill three wells as a first phase in Upper Egypt. The visit, also included, visiting the first LPG filling plant in the Tod area at Luxor, which is being implemented jointly by Petrogas and the Supreme Council of Luxor with a total cost of LE10 million. (Ahram, Akhbar & MoP)

Eng. Sameh Fahmy, Minister of Petroleum witnessed the inauguration of the petrochemical project to produce propylene and polypropylene at Al-Gameel industrial area in Port Said Governorate.

Fahmy said that the completion of the first phase of the Petrochemical Master Plan is under-way, comprising eight projects with total investments of nearly $6 billion, of which $3.5 billion as foreign direct investments. The project’s partners include, the Egyptian Petrochemicals Holding Company (ECHEM) and GASCO with a share of 26%, the Orientals Group with 26% as well as a group of Arab investors with 48%. The estimated capacity of the project counts for nearly 350,000 tons per year with an investment cost of $750 million. A contract has also been signed with UHDA as project’s contractor to implement the entire project’s construction works, manufacturing equipments with the participation of Egyptian petroleum companies; ENPPI and Petrojet. Operations are due to start by the end of 2009. (Ahram & MoP)

Halliburton Company announced at a regional energy conference in the Kingdom of Bahrain the opening of a corporate headquarters office in the United Arab Emirates. Halliburton Chairman, President and Chief Executive Officer Dave Lesar will move to Dubai to lead the company’s efforts in growing Halliburton’s business in the Eastern Hemisphere, an important market for the global oil and gas industry. The opening of a headquarters in Dubai is the next step in a strategic plan announced last year to focus on expanding its customer relations with national oil From left: Ahmed Lotfy, Halliburton’s Eastern Hemisphere Senior companies while concentrating more of the company’s Vice President; Dave Lesar, Chairman, President and Chief Executive investments and resources in growing its business in the Officer; and Marc Edwards, Region Vice President, Middle East Eastern Hemisphere. Based in Dubai, Lesar will work closely with Halliburton Eastern Hemisphere Senior Vice President Ahmed Lotfy to further strengthen the company’s activities in the Middle East, Africa, Asia Pacific and Europe/Eurasia regions. “As we invest more heavily in our Eastern Hemisphere presence, we will continue to build upon our leading position in the North American gas-focused market through our excellent mix of technology, reservoir knowledge and an experienced workforce,” explains Lesar. “The Eastern Hemisphere is a market that is more heavily weighted toward oil exploration and production opportunities and growing our business here will bring more balance to Halliburton’s overall portfolio. “This is already a strong market for Halliburton and we are excited to position the company in this key business area,” he adds. “Halliburton continues to introduce innovative technologies, such as the Geo-Pilot® and EZ-PilotTM rotary steerable tools and GasPerm 1000 fracturing agent, among others, which help to enable our customers to recognize even greater returns on their drilling and production operations.” Halliburton’s energy services operations have recently celebrated key contract wins, expanded service offerings across the divisions, and experienced increased utilization of integrated services and technologies throughout the Eastern Hemisphere.Ê During 2006, more than 38 percent of Halliburton’s US$13 billion oil field services revenue was generated from the Eastern Hemisphere.Ê The area encompasses four regions with more than 16,000 employees, more than 80 percent of which are localized. “I look forward to working with our exceptional employees across the Eastern Hemisphere as we move forward with the increased level of investment in this area of our business,” says Lesar. (Halliburton press release)

China and Iraq have restarted talks over the $1.3 billion contract to develop the Al Ahdab oil field that was signed between the two countries in 1997. Chinese officials arrived in Baghdad to hold talks with their Iraqi counterparts on the contract, said the China Oilnews, an industry newspaper owned by China’s leading oil firm, China National Petroleum Corp. (CNPC), citing an official from Iraq’s oil ministry. Back to 1997, China negotiated the contract for the Al Ahdab oil field with then president Saddam Hussein and in 2001 it was in talks to develop the much larger Halfayah field. But cooperation was then suspended due to continued violence and UN sanctions against Baghdad. In late February, the Iraqi cabinet endorsed a draft oil law aiming to distribute revenues from crude oil exports equitably across 18 provinces and to open the sector to foreign investors. The law is a stepping stone to securing foreign investment in Iraq’s oil reserves, the China Oilnews said. Iraq’s proven oil reserves, estimated at 115 billion barrels, are thought to be among the largest in the world behind Saudi Arabia. (Middle East Times & AFP)

April 2007 - Issue 4

The multinational oilfield services company Schlumberger and Abu Dhabi National Oil Company (Adnoc) launched a $100 million joint initiative, the Schlumberger Middle East Learning Centre, in Abu Dhabi. Yousuf Omair Bin Yousuf, Secretary-General of the Supreme Petroleum Council (SPC) and CEO of Adnoc, and Andrew Gould, Schlumberger’s Chairman and CEO, inaugurated the first phase, with an investment of $40 million, in addition to $60 million to be invested with the completion of phase two by mid-2007. Phase three will include accommodation for the trainees. Bin Yousuf said the goal behind this joint initiative is to provide essential advanced training for the oil and energy industry and is complete with state-of-the-art facilities and equipment including a custom-built training rig. Adnoc has donated the land on which the centre was built. Gould said the company expects two digit growths in 2007, especially after its record 30% growth in the Middle East and Asia in 2006. “Our revenues in 2006 were $19.3 billion, the region’s share is about $4 billion to $5 billion,” he added. (Gulf News)

Spanish-Argentine oil producer Repsol YPF seeks the permission from the Libyan authorities to develop its major oil discovery in the area of Murzuq with a capacity of 474 million barrels. Repsol said the field, situated in the central southern Murzuq basin, had 1.261 billion barrels of “oil in place” and its development would make the company the “main private oil-producing company in Libya.” The new discovery, considered a “mega-field” in the company history, will double the company’s production capacity and Libya’s reserves, said Repsol in a statement. Repsol is present in the North African state through Repsol Oil Operations, a joint venture between Repsol and the National Oil Corporation of Libya. Repsol said it was producing about 250,000 barrels of crude a day in Libya. (Middle East Times)

April 2007 - Issue 4

By Diana Elassy

THE open sea has been the wonderment of man since we first managed to navigate its expanse. It has struck fear in the hearts of those who have gotten lost within it and joy in the hearts of those who journeyed to new and uncharted territories with it. Today, while many of its secrets have been revealed to us, the open sea still presents untapped opportunities and apprehension. Historically, one of the first utilizations of the sea besides pure adventure and exploration has been trade. Trade by sea is currently one of the most important methods of export, especially in the oil and gas sector. In Egypt, maritime export is of extreme importance, but so is maritime procurement of energy sources. With technological advancements, deep sea drilling has begotten mass production of oil and natural gas. Companies who so choose to tap the sea cannot do it on their own. While maritime service companies do not specialize in exporting energy commodities, they do specialize in providing support for oil and gas operators. These companies’ in essence support offshore oil rigs and provides them with all their needs during operations. Some of the tasks these companies undertake include installation and maintenance of platforms, topside hookups, transportation of structures, subsea facilities, pipe laying, oil pollution detection and prevention, and towing support. The equipments or rather vessels of these companies vary from Platform Supply Vessels (PSV’s) Anchor Handling, Tugs and Supply Vessels (AHTS), Survey Ships and crane/Flat top barges, Construction Support Vessels, Standby Rescue Vessels to oil recovery vessels. Essentially, these companies provide services to offshore operators. These services range from the minor, for example transportation of a rig crew, to the major, for example fire fighting capabilities in case of an accident. These companies also offer other employments that include salvage, ship lifting, clearing, and surveys. The first three services consist of preparing a certain site for operation, whether through removal of simple obstacles from ports or the removal of explosives. The

last service consists of inspecting a drilling location through technological equipment such as geoseismic or geotechnical devices. The rise of subsea exploration and production has created a dire need of maritime service companies. The Egyptian Ministry of Transport’s Maritime Transport sector has put a strategic goal of involving the public sector in 10% of overall activities which includes maritime services, under which falls, towage, pilotage, and maritime services related to petroleum and gas platform and drillers. Thus far, the sector holds only 5% of activities.

A Widening Gap Since the public sector’s share in maritime services is palpably small, the burden falls on private sector companies. More recently, the rise in petroleum prices has caused a rise in demand for the commodity, mainly coming from industries and not per capita oil usage. This demand has created opportunities for investors and in effect has caused exploration to flourish in the country. Maritime service companies are used both in the production phase as well as in the exploration phase of oil and gas. With the rise of exploration appears a rise of demand for service companies. This rise of demand has produced a gap in the services sector. This gap is caused in part by a general demand for service vessels, but also in part due to technological advancements in exploration methods. With the rising sophistication of exploration methods comes the need for vessels with as much sophistication. A quick solution to this problem would be building new vessels that are technologically superior, or re-building old vessels to new standards in the market. However, legal inspection procedures render rebuilding vessels as troublesome as building new vessels, which take approximately two years to build. In terms of building new vessels another obstacle stands in the way: the cost of raw materials. In Egypt steel is an expensive matter and the bureaucracy related to the building process helps little in the building process as well.

Most companies opt for building their vessels abroad in China or India, where steel has been efficiently accumulated and human labor is quite cheap. Thus, there is a blatant gap in the maritime services sector in Egypt. This gap cannot be solved instantaneously by inserting new vessels into the sector because such an endeavor is simply easier said than done.

The Market as it Stands Currently, there are close to 15 companies in the maritime services sector in Egypt. Some of the larger companies include Maridive, Tidewater, PMS (associated with Petrojet), Ocean Marine Services, Misr Gulf, Rashied, Maersk, and Timsah. In essence this means that there are 15 companies servicing the needs of close to 70 operators. Of course not every operator is conducting their work in the sea. Currently, there are 24 offshore rigs operating in the Gulf of Suez and the Mediterranean Sea. This means that if the service companies were equally distributed among the 24 rigs, each service company would need to supply close to two vessels to accommodate for each rig. The problem however, is that each rig needs at least two service vessels and in times of towing no less than three (at least in the rig’s final location). Some companies do not even have three vessels and each operator needs a specific vessel and not a standard vessel, hence the initial uniform distribution is flawed. The most demanded vessels in the market are Anchor Handling Tug Supply vessels, vessels with Dynamic Positioning systems, and fire fighting vessels. The demand for these vessels has caused some companies to begin building newer vessels abroad, as previously mentioned, in China and India. The pricing strategy in the country is yet another problem that faces the maritime service sector. The prices of vessels in Egypt are close to 20% lower than prices in neighboring countries. However, the interesting aspect to the pricing strategy in Egypt is that there a monopolizing force does not exist, as in other sectors that determine the

price in the market. So what makes Egyptian pricing lower than neighboring countries? In short, the international market sets an initial benchmark whereupon domestic supply and demand contort it. To some, the stable nature of contracts in Egypt and assured payments conversely compensate for the lower pricing. Vessel owners are assured work for at least two years, this can also be disadvantageous when an owner is tied down to a contract while market prices are rising, but not as disadvantageous as being unemployed. However, many find that Egypt’s contracts are by no means long. Two years is the maximum term of a contract in Egypt and service companies enjoy the assurance of longer contracts. Other factors undoubtedly play a role in pricing including the age of the vessel. Unlike rigs, where age and a history of production is a sign of success, vessels are demanded based on novelty; meaning, the newer the vessel, the higher the price. In fact, in Egypt, vessels built before 1982 are not recommended or preferred.

“New building” Diving support vessel/ maintenance/ DP2 - FiFi1 - Helideck

The Tendering Process With marine service companies as with all issues regarding oil and gas in Egypt, service is allotted using a tendering process. This process which eventually leads to the contract places much of the responsibility on the vessel owner, which causes some distress to companies. One of the many argumentative points in service contracts is that the operator has the right to terminate the contract at any time just as long as a 30 day written notice is given. Another problem in the contract is that the operator can make the service company wait until they are ready for their services meanwhile the service company cannot take on any other tasks because they are contracted with the operator. The service company however is monetarily penalized if the vessel is not delivered on time to the operator. In essence, each day the vessel is not working is money lost for the company. There are beneficial aspects to the contract as well. An example of this is the clause that vessel owners are urged to hire Egyptian personnel if they are available in the local market. While not all that helpful or harmful to service companies, this is indubitably good news for the Egyptian work force. Another advantageous feature of the contract is the article for safety precautions, which set stern guidelines to sea safety. Service companies have to abide by the British Institute of petroleum’s “Code of Safe Practice for Drilling, Production and Pipeline Operations in Marine Areas.” They also have to be in accordance with international marine practice for safe operation and must comply with the environment protection Law No. 4 for the year 1994.

The Future of the Market The recent rise in exploration efforts will certainly increase the number of vessels in Egypt. This is welcomed news not just for the local market but also for the international market, where Egypt will hopefully one day be a main player. While vessel building is usually pursued aboard currently, at one point it will be more advantageous to build at home, where the abundant human labor capacity will be efficiently utilized. Maybe in the future more companies will opt for building in Egypt when bureaucracy is streamlined and materials and equipment are more accessible and less costly. The technological advancements in the field of exploration have already compelled companies to build new state of the art vessels; this essentially means that when Egypt has these vessels their chances of international competition are greater. It also means that new territories can be explored and new sources of oil and gas discovered. Also, the rise in the number of vessels rises investment opportunities; exploration companies will come and explore not only based on the existence of natural resources but also on the existence of appropriate equipment to help in their endeavors. And while there are indeed concerns regarding the tendering process and the contracts, these issues will eventually balance in the end; the facilitation of legal procedures is a natural progression that comes after weighing opportunities to sacrifices and the sacrifices on the part of the government or on the part of the operator is in reality not as bad as it seems when it is compared to the endless possibilities that come from expanding any market in the economy.

April 2007 - Issue 4

Your company was created to meet the need of marine services in Egypt, has the need been met? Yes, since its establishment in 1978, Maridive has been accomplishing great steps and now it enjoys the largest market share in Egypt, compared to the number of units providing the Anchor Handling Towing Supply Service for offshore rigs in the Mediterranean Sea and Red Sea areas. Moreover, there are two “new-building programs” for advanced units in order to meet the needs of both Egyptian and international markets by supplying technologically advanced units. The first “new-building program”: Maridive has signed an agreement with an Indian shipyard to build five Anchor Handling Towing Supply –Dynamic Positioning system class 2- Fire Fighting class1, units with a capacity of 6310 BHP; two out of which are currently operating in Saudi Arabia for “Aramco”. Also, in the same program the Indian shipyard will build a Diving Support Vessel Dynamic Positioning System class 2- Helideck - FiFi 1, unit for maintenance and a Construction. In addition to, Accommodation, Pipe laying, Construction Barge (90meter), which is due to launch during the few coming months. The second “new-building program” is with China where six vessels will be built; five units of Anchor Handling Towing Supply FiFi1 vessels with the capacity of 5150 BHP, and another unit of Diving Support / Utility vessel, which will be launched this year.

What are the main problems experienced in the marine services sector in Egypt? We do not have problems with customers; we enjoy very good relations with all clients. I do not prefer calling it problems, but rather minor obstacles. And, they can only be determined in the case of having the Egyptian market unable to cope with the increase of international vessel daily rate prices at sometimes.

April 2007 - Issue 4

How? Generally speaking, we market a product (marine unit) provided with a service. Sometimes we face increased demand for such services, especially with the increase of oil price. And hence, comes the hurdle as it takes the Egyptian market some time to respond to this demand increase, especially that cost of maintenance and equipments rise as well. Personally I believe that each customer has the full right to decrease the expenses of his company and raise his profit and that in this case we have to have a middle ground to deal with customers.

In order for the maritime sector to thrive what can be done on the part of the government and what can be done on the part of corporations? From the government’s side, to give out support setting the priority to Egyptian companies over the foreign ones which is a normal trend everywhere. From our side, it is our duty to satisfy the needs and requirements of our customers and provide advanced units conforming to the latest technology.

What are some of the hazardous conditions met by maritime service companies? Every maritime unit is prone to hazards, however, our units are uniquely characterized by their capabilities of fire and pollution fighting and salvage rescue for other units. Besides, the safety rules applied by our company and the audit carried out routinely, place us in top ranks internationally. Moreover, all our units are certified by International Safety Management (ISM) from Germanischer Lloyd, ISO 9002 and International Marine Contractors (IMCA).

What were some of the problems met in trying to strengthen your position in the domestic and global markets?

Maritime Service Companies in Egypt and their Respective Market Share

I do not call it problems but as a matter of fact, advanced unit investments for deep water drilling are very costly due to the high prices of steel and equipments. This led to an increase in the cost of units reaching more than $25 million, which requires long term contracts, not less than 10 years with customers. Unfortunately, this is not easy to get here in Egypt.

In all the areas you’ve serviced from Mexico to the Caspian Sea, which would you say was the least troublesome and why? Places do not differ despite the differences in the area of operation. We sign contracts with large firms, mostly international and multi-national. Setting deadlines and time delays are what we face most in our work.

Correction

This picture was run in last month’s issue in the feature titled “Crossing nations to the global frontier”, with the following caption: ECDC’s rigs have been used in many projects in Saudi Arabia. The correct caption is: EDC’s rigs have been used in many projects in Saudi Arabia. We apologise for this mistake and any inconvenience it caused.

April 2007 - Issue 4

Petro Environmental Services Company (PESCo) – an international joint venture company established in January 2003 – has become one of the leading companies in environmental protection and marine support. PESCo has a global presence, through its national and international partnerships with world leaders. With centers positioned throughout the Egyptian coastlines, they are able to provide swift response around the clock. Engineer Ashraf Sabet talked to Egypt Oil and Gas Newspaper about the company’s ambitions and current activities Eng. Ashraf Sabet

Why was PESCo founded? PESCo was formed to provide a dedicated Egyptian company capable of pollution prevention, protection and response to an internationally accepted level. Ratified international conventions and legislation in Egypt requires all ports, harbors and offshore installation to have emergency plans and resources available to combat marine pollution. PESCo operating in Egypt increases the national capabilities reducing reliance on international assistance whilst at the same time establishing a network of response for the protection of the Egyptian marine environment that is on call 24 hours per day 7 days per week. National, international and multi-national companies operating in Egypt have a dedicated Egyptian company operating to international standards to cover all requirements of prevention, preparedness and response.

What were your major achievements in 2006 and what are you aspiring to achieve in 2007? Major achievements during 2006 saw the firm establishment of PESCo’s extensive network of partnerships and affiliations from Egyptian and regional government and industry companies, organizations and agencies. Moreover, PESCo continued to expand operational capability throughout the Region.

Can you tell us of the most interesting offshore support procedure you undertook and what were your achievements in the situation? I understand that client confidentiality is of extreme importance to you so you do not have to mention any company names if you wish not to. Every incident or offshore support operation is interesting to us. We tailor the support or response package according to the circumstances and nature of each incident or operation. Our team of experts and command staff develop dynamic plans for each operation.

What were the motivating factors behind the creation of OSRAM? OSRAM was created to promote awareness and cooperation throughout Mediterranean region. OSRAM is achieving this by: 1. Requesting support from developed countries combined

with capacity-building in lesser developed countries, 2. Accepting that unequal levels of capacity within a region is not a handicap, 3. Assuming a collective responsibility to address the challenge, 4. Developing a clear and common vision of the region and its priorities, which will be developed on the basis of a shared concept.

Can you tell us more about the four national Oil Spill Response Centers in Egypt that you operate and manage? Have they ever been called in for an emergency, if yes when? If no, if they were ever needed what would be the situation and how would it be treated? The five oil pollution response centers in Egypt operate as an integrated network managed through a dedicated 24-hour Pollution Incident Centre “PIC” located in Cairo. EGPC centers are strategically located in Alexandria, Suez, Ras Gharib and Hurghada for the protection of the oil and gas sector companies. The fifth centre is located in Sharm El-Sheikh and is owned by EEAA for the protection of the Sinai Peninsula and the Gulf of Aqaba. PESCo manages the centers to international standards. The harmonization of centre management provides a catalyst for unified command. The staffing of the center includes personnel from various backgrounds; Captains, Engineers, Chemists, Geologists, Mariners and Mechanics. The centers have successfully responded to several incidents of different magnitudes during the past three years, some of which would have required international assistance should PESCo not exist.

As a leading advocate of environmental preservation what would you suggest to all oil and gas companies in the global endeavor to secure a cleaner, healthier environment for the future? In today’s climate of ever increasing demands on the world’s oil and gas reserves and the urgency to meet such demands, we must all remain vigilant and focused on our collective efforts to safeguard the environment for future generations. A global endeavor must focus on each region, the countries within each region together with the governments and industry in each country. This is especially prevalent in the Mediterranean region, as one of the main transit areas in the world. Oil and gas companies cannot do it alone and should not be expected to do so, therefore we all need to continue to: 1. Promote regional cooperation within the oil and gas industry and between governments and the oil and gas industry on an international, national and regional basis by continually cooperating on all issues of environmental protection to secure a cleaner, healthier environment. 2. Enhance awareness by actively participating in regional forums for information exchange and discussion on environmental matters and facilitating provision of available resources, equipment and expertise for education and training purposes.

Have you conducted any environmental impact assessments in Egypt? PESCo does not conduct Environmental Impact Assessments. This is for an obvious reason. EIA’s should identify the risks associated with the project/activity then present the mitigation factors to be implemented; this is where PESCo’s role comes. This is very similar to the process of legislation and law enforcement; can they be both undertaken by the same body? Transparency and technical integrity are core values of PESCo. However, we conduct Risk Reduction Reviews and prepare Contingency Plans. We started these activities recently and have achieved a remarkable success in that arena. Major oil and gas operators are currently relying on us for the development of their contingency plans. Our consultancy services have been audited by leading multinational oil and gas operators on a corporate scale and have been accepted for compliance with international standards.

What necessitates the presence of your training centers in Egypt? Seasoned manpower is the backbone of any response system therefore our training centers are of a paramount importance to maintain the integrity of the national response system of Egypt. Those responsible for the response to and management of incidents are required by law to train their response personnel. This is reflected through the OPRC 90 requirements which are transposed to the Egyptian Environmental Law (4/94) and the National Oil Spill Contingency Plan of Egypt. PESCo has developed a team of training experts and professionals capable of delivering certified training courses in both English and Arabic. International Maritime Organization (IMO) model courses are conducted in conjunction with other tailor made training packages.

How do you see the future of the Egyptian oil and gas industry? The future of the Egyptian oil and gas is purely dependant on all those involved, from exploration, production and shipment.

April 2007 - Issue 4

Sharing the oil cake ? By Mohamed El-Sayed THE Iraqi cabinet approved last month a draft oil law that aims to equitably share profits from its oil revenues among the country’s ethnic groups. The new law, which was prepared by a three-member Iraqi cabinet committee dominated by the Kurds and the Shiites, allocates oil revenues between Iraq’s 18 provinces based on their population numbers. It was approved by the cabinet after Kurdish cabinet members had given up their insistence on Kurdish autonomy in oil exploration and production. Expected to be ratified soon by the Iraqi parliament as main factions leaders in the government have approved it, the draft law specifies that up to two-thirds of Iraq’s known reserves would be developed by multinational companies, under contracts lasting for 15 to 20 years. This policy would represent a turning point for Iraq’s oil industry, which has been dominated by the public sector for more than three decades. Also, it would be a departure from normal practice in the Middle East. As a matter of fact, the bill sparked a wide-scale controversy inside and outside Iraq. The new law is set to grant foreign oil companies long-term contracts for which they have been awaiting for decades. For the Iraqi government officials, the law is “a gift to all the Iraqi people”, as Prime Minister Nouri Al-Maliki described it. He stressed that it would encourage the bringing together of all component parts of the Iraqi people. “This law has been based on our national interest,” he added. Also, Dalmay Khalilzad, American Ambassador in Iraq, lavished praise on the new law. “Under the national hydrocarbon law approved last week by Iraq’s Council of Ministers, oil will serve as a vehicle to unify Iraq and will give all Iraqis a shared stake in their country’s future,” Khalilzad said. “This is a significant achievement for Iraqis’ national reconciliation. It demonstrates that the leaders of Iraq’s principal communities can pull together to peacefully resolve difficult issues of national importance,” he added. The effective and equitable management of oil resources is critical to economic growth as well as to developing a greater sense of shared purpose among Iraqi communities, according to Khalilzad. International analysts also expressed their hope that the new law would pave the way for a sustainable unity in the war-torn country that is on the verge of civil war. They argue that the draft law will help foreign companies worm their way into the Iraqi oil industry, from which they have been away during the past four years of violence. On the other hand, however, Iraqi oil experts, labour unions and international campaigners were rattled by the new law. They argue that oil production should remain in the hands of Iraqis. In their view, it financially legalizes “unfair” types of contracts that will put Iraq in long-term contracts that can go up to thirty-five years and cause the loss of hundreds of billions of dollars. According to local labour leaders, transferring ownership to foreign companies, as the new law stipulates, would furnish the American administration with a pretext to continue occupation on the grounds that those companies will need protection. “The new law will annul Law No. 80 issued by [late President] Abdel-Kareem Qassem in 1961 by virtue of which 95% of fields that were under the control of foreign companies were withdrawn and then nationalized in 1972,” said former general manager of Iraqi Oil Marketing Company Diaa Al-Bakkaa. “Therefore, approving this dubious law under these turbulent circumstances will negatively affect the future of Iraqi economy and people,” he added. Al-Bakkaa added that the law would help foreign companies to control the country’s oil reserves. “There is an article in the law that gives foreign companies the right to compete with their local counterparts to attain exploration and production contracts, which of course will be in the favour of the former which have the

An oil worker outside Kirkuk in northern Iraq grappling with pipe equipment early this year expertise and the technology to win most of the contracts,” he stressed. Other Iraqi pundits argued that the new law entitles American and British companies to 20% profit rate by virtue of 30-year contracts, a case that is unprecedented in the history of all oil-rich countries. In many seminars held in Baghdad and Amman, Iraqi oil experts voiced their fears concerning the new law. They revealed that an American consultant company, Bearing Point, put the draft of this law under the instruction of the American administration. They also accused Khalilzad of pressuring the Iraqi government to approve this “dubious” law, and would exert more pressures on parliamentarian blocs to pass it. On their part, Iraqi labour unions sent a letter in Arabic to Iraqi President Jalal Talbani on 8 February urging him to reconsider this kind of agreement. “Production-sharing agreements are a relic of the 1960s,” said the letter. “They will re-imprison the Iraqi economy and impinge on Iraq’s sovereignty since they only preserve the interests of foreign companies. We warn against falling into this trap.” Labour groups have also criticised the process of drafting the law and warned that the bill is designed in favour of American and British multinationals that it could end up increasing political tensions in the war-ravaged nation. In a recent speech given by Hassan Juma, head of the Iraqi Oil Labour Union, which was published on the union’s website, he called on the Iraqi government to consult with Iraqi oil experts and to “get their opinion before indulging Iraq into an ocean of dark injustice.”

With an estimated 115 billion barrels of accessible reserves, Iraq has the third largest oil reserves after Saudi Arabia and Iran. Therefore, the sharing of oil has been a major cause of strife between Iraq’s Shiite majority and Kurds and Sunni Arabs. Most of the oil fields are located in the Shiitedominated south, while most of the reserves are in the Kurdish north. And since the US-led invasion in 2003, production has decreased from 3.5 million barrels per day to approximately two million.

April 2007 - Issue 4

By Dr. Abdallah Shehata Khattab, Assistant Professor of Economics at Cairo University and Senior Economist at the Egyptian Centre for Economic Studies (ECES) Table (1): Subsidies Allocation in the Egyptian State Budget (2002-2007) (Billions L.E)

Introduction IN Egypt, subsidies continue to be one of the major items of government expenditures. The latest figures indicate that government subsidies exceed 23% of 2005/2006 total budget spending (exceed LE50 billion) and around 74% of such subsidies are allocated to energy products (excluding electricity). Due to the rapid increase in oil prices over the last two years, the subsidy bill of energy products has quadrupled. Such an increase has presented a critical challenge for the Egyptian fiscal authority. Starting the fiscal year 2005/2006, fiscal authority has recorded such subsidies, explicitly, in order to reveal the true burden of subsidizing petroleum products and natural gas. This paper investigates the potential impact of removing energy subsidies in Egypt on energy intensive industries. Partial equilibrium approach is applied to assess such policy. Specifically, it examines the effect of subsidy removal on energy driven sectors, under different scenarios of increasing prices of energy products. The effects are assessed through selecting a sample of sectors and industries that depend heavily on energy products, and then measuring the impact on profitability per ton of production in selected industries, holding other factors constant.

Energy Subsidies in Egypt: Characteristics and Challenges In Egypt, the government considers the subsidy system as a primary mechanism to reach a sensible level of equitable distribution of income. Therefore, the rationale for subsidy systems in Egypt is justified, primarily, by equity concerns as in most developing countries. Egypt is a leading country in subsidizing fuel products (excluding natural gas) compared to other developing countries. In Egypt, per capita consumption of energy products (fuel and electricity) is lower compared to many Arab countries and other developing countries (figure 1). 4000

Electric power consumption (kwh per capita)

Energy use (kg of oil equivalent per capita)

3500 3000 2500 2000 1500

Year

2002/2003 2003/2004 2004/2005 2005/2006 2006/2007

Figures of the State budget Petroleum products Total and natural gas Subsidies subsidies as recorded (1) 6.9* 0 10.3* 0 13.8* 0 52.6 40.0 53.7 40.0

500

The fiscal cost of subsidies on energy products (petroleum products and natural gas) was estimated at 20.2 (billion, L.E) in FY 2004/2005, and 40 (billion, L.E) in 2005/2006 (5.6% of GDP) and the same figure reported in the budget statement for the FY 2006/2007. Such significant increase in subsidies’ figures is due to rapid increase in oil prices. Despite this significant share, figures do not include subsidies on the share of the Egyptian General Petroleum Corporation (EGPC). Adding subsidies on the share of EGPC doubles the volume of such subsidies. Despite this significant burden of energy subsidies in Egypt, the problem with the existing system is not only its fiscal cost but also the extent of distortion resulting from changing the market incentives. As argued, opportunity cost of energy subsidies seems more appropriate than the fiscal cost in evaluating the economic cost of such a system. Moreover, reaching the poor households or targeting groups of society has been also a challenging task for the effectiveness of such a system. It has been argued that the energy-subsidy system is costly both fiscally and economically and even fails to reach and benefit the poor. Figures of energy subsidies compared to other fiscal operations in the state budget reveals such inefficient use of resources. As shown in table (2), spending on energy subsidies reach about 15 % of total government spending and exceeds 6% of GDP. Compared to other fiscal operations in the state budget, allocations for energy subsidies equal twice the sum spent on defense, 3 to 4 times spending on health and exceed that on education (see table (2)). Year

0 Algeria

Egypt

Iran

Jordan Lebanon Morocco

Syria

Tunisia

Yemen

Sudan

MENA

LDC

L-MIncome

UP-MIncome

World

Figure (1): Per Capita Use of Energy

Per capita energy use in Egypt is lower than in Algeria, Jordan, Lebanon, Syria, lower and upper middle income countries and is even lower than the MENA region. Levels of per capita energy consumption in Egypt are only higher than in Yemen, Sudan, Morocco and LDC (see figure 1). In the Egyptian context, subsidies on energy products (excluding electricity) are defined as “subsidies given to the Egyptian General Petroleum Corporation (EGPC) that keep prices of energy products below international prices (prices paid to foreign partners), i.e. it is the difference between price paid to the foreign partner and price paid by consumers either households, business or government sector, in addition to other form of cost.” Specifically, subsidies on energy products include subsidies allocated to LPG, gasoline (80 and 90), kerosene, diesel, fuel oil and natural gas. The Egyptian government subsidizes energy products through a mix of explicit and implicit subsidies. Till the fiscal year 2004/2005 energy subsidies have never been recorded in the state budget and so they were considered an implicit form of subsidies. Starting the fiscal year 2005/2006, subsidies on energy products (excluding electricity) are no longer implicit as they have been recorded in the budget (see table 1).

(3)= (1+2)[(2002-2005)] (3)=(1) [(2005-2007)]

**16.1 **21.7 **20.2 40.0 40.0

23.0 32.0 34.0 52.6 53.7

Sources: The End-year Report of Budgeting and Plan Committee 2002/2003 and 2003/2004. The state Budget Statements various issues. * Actual figures. ** Figures for energy subsidies which are not recorded in the state budget are obtained from the end-year report of budgeting and Plan committee.

Table (2): Energy Subsidies (excluding electricity) as a Percentage of Budget Fiscal Operations (2002-2007)

1000

Total Subsidies

Petroleum products and natural gas subsidies (2)

Energy Subsidies

% of Total Expenditures

% of GDP

10.8 13.2 11.2 16.8 14.6

4.1 4.8 4.0 7.2 6.4

(Billion L.E)

2002/2003 2003/2004 2004/2005 2005/2006 2006/2007

16.1 21.7 20.2 40 40

% of Social Protection spending 84.7 94.8 71.6 84.7 73.7

% of Defense spending 121.1 148.6 136.5 256.4 231.2

% of Education spending 78.2 95.6 78.3 161.9 146.0

% of Health spending 211.84 267.90 276.71 487.80 439.56

Sources: Author's calculation based on the fiscal end-year reports and the state budget statements.

Energy Subsidies Elimination in Egypt and its Impact on Energy Intensive Industries In Egypt, the manufacturing sector, particularly, energy intensive industries benefit from all subsidies on energy products, namely, fuel oil, diesel, natural gas and electricity. Moreover, it benefits, indirectly, from subsidies given to the transportation sector in a form of lower cost of transportation fees. Subsidies granted to the manufacturing sector can be, roughly, estimated based on the sector’s total consumption of different energy products. This includes petroleum products, natural gas, as well as electricity. The manufacturing sector consumes around 29.82% of petroleum products consumption in Egypt. This implies that the manufacturing sector is receiving around L.E 5514 million, as subsidized diesel, fuel oil (mazout) and others. Estimation of subsidies is calculated based on the figures of subsidies allocated to such items in the state budget for the fiscal year 2005/2006. Similarly, the manufacturing

sector’s share of total natural gas subsidies exceeds L.E 2.3 billion, as the sector consumes 26.2% of total natural gas consumption. In addition, the manufacturing sector’s share of subsidies to electricity is estimated at L.E 1406 million. In brief, the manufacturing sector in Egypt receives around L.E 5.9 billion as subsidized energy products that constitute about 20 to 25% of total energy subsidies. Assessment Methodology for Energy Subsidy Removal The impact of subsidy removal on production sectors is assessed through two steps. Firstly, samples of sectors that heavily consume energy (fuel and electricity) are selected. Secondly, the study considers increasing the cost of energy inputs by 10 %, 20%, 40%, 60 % and 100%. As a first step, the selection of sectors is based on the data provided by the Annual Industrial Production Statistics in 2006, which shows that the cement, fertilizers, steel and aluminum production sectors depend, significantly, on fuel and electricity. For instance, fuel and electricity constitute about 30% of total production requirements and 21% of the value of production at factor cost for the manufacture of cement, lime and plaster. Adjustments for electricity prices (cost) are made to match the removal of subsidies on petroleum products and natural gas. This is due to the fact that petroleum products (natural gas, diesel and mazout) constitute 25% in per unit cost of electricity (kw/h). Thus, adjustments are made assuming that the maximum increase in per unit cost of electricity (kw/h) does not exceed 25%, under the scenario of removing, totally, subsidies on petroleum products (including natural gas). Thus, scenarios of subsidy elimination assume that the expected increase in price of electricity match the increase in prices of petroleum products and natural gas. These hypothetical increases in the cost of fuel and electricity due to increase in their prices affect the cost of total production. Under the scenario of increasing prices of fuel by 100% and electricity by 25%, as noted, the top increase in cost appears in manufacture of cement (10.92%), manufacturing of basic iron and steel (manufacture of basic iron (4.52) and for casting steel 3.48) and 4.10% for fertilizers, glass and glass products (3.3), aluminum (2.91%) and manufacture of paper and paper products (2.2%). The lowest effect of increasing fuel and electricity costs appears in the manufacture of articles of concrete, cement and plaster (0.89%), and in chemical and chemical products (1.53). Moving a step forward, the study has selected some specific industries in order to reach solid conclusion regarding the effect of subsidy removal upon cost of production and profitability. Table (3) shows the effects of increasing prices of energy products on cost of production and then the profitability per ton produced for a sample of selected industries. For the nitrogen fertilizer industry two companies that produce about 75% of total domestic production were selected for measuring the effects of energy subsidy elimination. As noted in table (14), the profit ratio per ton decreases from 22.65% to 7.8% as prices of energy inputs increase up to 60% and it turns to be negative (-2.2%), if prices of petroleum products (including natural gas) and electricity increased by 100%.

April 2007 - Issue 4

Table (3): Profit Ratio under Scenarios of Energy Subsidy Removal for Selected Energy Intensive Industries

Original

20% inc

30% inc

40% inc

60% inc

100% inc

Profit ratio based on domestic prices

22.65%

19.9%

17.49%

12.7%

7.8%

-2.24%

Profit ratio based on export price***

40.62%

38.5%

36.6%

33%

29.22%

21.5%

118

114.58

111.51

106.05

100.08

87.71

39.33%

38.2%

36.2%

35.4%

33.4%

29.23%

Profit per ton (L.E/ton)

3437

3358.271

3318.907

3295.288

3224.432

3043.355

Profit ratio per ton

29.42%

28.74%

28.41%

28.20%

27.60%

26.05%

380

372.7

369.05

366.86

360.29

343.5

13.91%

13.77%

13.69%

13.44%

12.82%

Fertilizer (Nitrogen Fertilizer)*

Cement Industry* Profit per ton (L.E/ton) Profit ratio per ton Aluminum**

Steel Industry** Profit per ton(L.E/ton) Profit ratio per ton

14.18%

Sources: Author's Calculation based on information available in Appendix A. * Calculations are based on 2004 figures. ** Only electricity components of inputs have been increased. *** Figures based on export prices are calculated only for fertilizer since there is a significant gap between domestic and export prices.

Nevertheless, profit ratio per ton is higher in case those ratios are calculated based upon export prices due to the significant gap between domestic and export prices. Under the 100% scenario, the profit ratio per ton exceeds 21%. Therefore, for companies that export most of its production, increasing energy cost will not affect, profoundly, its competitiveness and profit. However, for domestic oriented companies, increasing the cost of energy products causes a significant decrease in their per ton profitability. For the cement and aluminum industries the situation is quite different. For the cement industry, with an average price L.E 250 per ton that is below market price in 2005 /2006, the profit ratio falls to 15.4% as energy prices increase by 60%. While, if an average price of 300L.E per ton is applied, profit ratio exceeds 33% and becomes 29.2% when prices increase by 100%, holding other things constant. This indicates that the cement industry compared to other energy driven industries will not face a critical challenge either domestically or in the international markets if prices of energy products increase. The same conclusion can be reached for the aluminum industry where profit ratios per ton exceed 27 % and 26% when electricity inputs increases by 60% and 100% respectively. Thus, the removal of subsidies on electricity does not seem like a critical challenge to adjust to, since the cost of electricity constitutes about 20 % of total cost per ton and the removal of subsidies on petroleum products affects partially the cost of electricity as previously mentioned. However, this is not the case for the steel industry since profit ratios per ton are low as they fall to less than 14% and 13% when prices of electricity increase by 60% and 100% respectively. Obviously, figures of profitability ratios under the scenario of subsidy removal indicate that energy intensive industries shall not be, severely, affected. Main Findings and Conclusion In brief, the results of this analysis are that: • Energy intensive industries in the Egyptian economy benefit significantly from subsidized energy products either directly or indirectly. • Higher profit ratios of energy intensive industries indicate monopolistic power of such industries. Markets of energy intensive industries in Egypt are characterized by high market concentration on the supply side. The cement and steel industry present an example of market concentration. In both industries few firms are dominating the market. In the cement market, although there are 11 firms in the industry, three firms only account for about

70% of total production. The steel industry is an example that could be more striking since there are about 20 producers in the market, however, the market share of two producers amount to 2/3 of the whole market. This phenomenon of supply side market concentration does exist also in aluminum and fertilizer markets, where Misr Aluminum Company is an ideal example of a perfect monopoly. Similarly, the market share of three fertilizer companies exceeds 92 % of the market (IDSC 2005). • Increasing prices of energy inputs does not constitute a severe challenge for energy driven industries. Therefore, government intervention through increasing prices of petroleum products and the subsequent rise in electricity prices can be absorbed by such companies without raising prices by the same level of increase. Such intervention will match with the enforcement of consumer protection law which enables consumers to stand against exploitation of such companies. Protection against exploitation must be extended to include not only the final consumers, as the law stated, but also intermediate industries. This is crucial for consumers since the elasticity of demand for such industries is low and this increases the power of such companies and industries to raise prices in a way that does not reflect the true increase in cost because of energy subsidy removal. • Since the analysis argues that subsidy removal will not severely affect the profitability of energy intensive industries, it provides a sort of strength for the government negotiation power with such companies. Finally, it is important to stress that the decision of subsidy removal either partially or totally requires compensatory measures in order to reduce its negative impact, particularly, on poor households. These measures should be targeted and temporary till adjustment is made by both producers and consumers. Nevertheless, Egyptian government can reduce such negative impact through intervention to correct market failure in the energy intensive market. This lowers, also, the cost of compensatory measures that might apply. Therefore, options for Egyptian government to reform the energy subsidy system require correcting failure of markets and targeting poor households to lessen negative impact of reform.

April 2007 - Issue 4

Engineer Said Zaki Elzeghaty, Weatherford Middle East Cairo-Egypt, (ISO/API &SPE Member) This paper was presented in the 15th Middle East Oil & Gas Show and Conference (MEOS 2007) on March 14th in Manama, Kingdom of Bahrain

INTRODUCTION 1) PURPOSE OF CEMENT SEAL UNITS: SEAL UNITS prevent fluid movement at the interface between the outer surface of the casing and the inside of the cement sheath. In spite of the improved practice of releasing pressure on the casing after the top plug bumps, investigations by different research and development groups confirm that leakage at this interface is not only possible, but probable, when subjected differential pressures often encountered in completing or producing a well. Inter-zonal communication at this point, like “channeling” in the remainder of the annulus, will prevent efficient depletion of the producing zone, or cause stimulation work (fracturing, acdizing, etc) to be ineffective due to uncontrolled fluid migration in the annulus.

2) Cement Seal Units - General Comments The Cement Seal unit is designed to block off possible gas or fluid migration along the casing-cement interface, commonly referred to as “micro-annulus” 1) Micro-Annulus Evidence and Consequences: The presence of a “micro-annulus” between the outer casing surface and the cement sheet is very common and can lead to: A) Inter zonal Communications: B) Gas Pressure On The Annulus C) Leakage of Stimulation Medial Up the Annulus: D) Gas Storage Well Leakage: 2) Causes of Micro-Annulus: The creation of a micro-annuls during or after the cementation is aided by: A) Chemical reaction of the cement: During the setting or hardening process of the cement the chemical reaction generates heat, causing the casing body to slightly expand. Upon completion of the setting process the cement cools which causes the casing to contract again. This leaves a possible micro-annulus since the cement is incapable of “flow back” to the casing body. B) Hydrostatic Pressure Reduction inside the Casing: Drilling mud used to displace the cement is usually replaced with a lighter production fluid. In production strings this causes a reduction of the hydrostatic pressure inside the casing resulting in slight contraction of the casing body away from the cement sheet. C) Exterior Casing body contamination: The exterior casing surface may be covered with mill scale, corrosion inhibitor or an oil film (when oil based muds are used), all of which negatively effect the cement bonding to the casing. D) Cement Shrinkage: When cement goes through the hardening process there is a reaction which leads to an overall shrinkage of the total volume. This chemical contraction is split between a less than 1% external volumetric shrinkage and a 4 to 6% internal contraction. The reduction in cement volume can break the cement bond creating a micro annulus. The effect of shrinkage is more pronounced in large casing and open hole sizes.

C) Extensive laboratory tests as well as field applications have proven the effectiveness of the units. Even though in well applications its effectiveness becomes apparent only after a period of time. For example, delayed and low oil-water ratio’s, no annular gas pressure build-up and measurable decreases in stored gas losses.

4) SPECIAL DESIGN FEATURES In that each “seal unit” contains opposing “Sealing elements”, it stops fluid movement from both above and below. The “Seal Unit” O.D is approximately casing coupling size to permit their use in both conventional and close tolerance annuli. Seal Unit with hinged “back-up rings” are available for use on upset tubing and casing. The pipe on which it is to be installed requires special surface preparation (mill varnish removal, sandblasting, etc.) to improve its effectiveness. The “sealing elements” used both the “Standard” and the “Extreme Temperature” units are produced in special-shaped molds using custom elastomer compounds developed for this application (possessing the essential properties of strength, abrasion and chemical resistance, not hardening with age or environment, etc.).

5) SEAL UNITS ARE RECOMMENDED FOR: Depletion type producing zones. Wells which must be fractured or acidized. Multiple completion wells (one multiple casing strings). Producing zones with water or gas levels, or permeable zones. Injection Wells. Gas storage wells. Wells to be stimulated by steam or other thermal process.

3) Cement Seal Unit Features:

SOLUTION TO CEMENT-CASING MICRO-ANNULUS

A) The Cement Seal Unit is a simple and inexpensive tool which has been developed from the philosophy that micro-annulus occurrence often cannot be prevented but can be sealed off. B) The unit functions somewhat as a “micro-annulus packer” through pressure sealing against the casing and the existing cement. Gas and/or fluid migration is blocked off in both directions.

Suppose, after cementing a micro-annulus 0.01 inch wide is left between the cement and 7 casing. If this microannulus extends from the producing formation through an impermeable shale 20 feet thick to an underlying water sand, how much water will channel from the water sand to the production formation if there is a differential pressure of 100 psi resulting from the production interval? To calculate the permeability of fracture, the following

relationship is used:

k = 54 x 106W2 (1) Where k = Permeability (Darcys) w = Fracture width (Inches) Solving in our case k = 54 x 106 x .012 k = 5400 Darcys Note that a micro-annulus 0.01 inches wide has a permeability of 5400 darcys or 5,400,000 milli-darcys. Therefore to calculate the flow, Darcy's equation for flow through a porous medium be used. q = 1.127 KA (P1 - P2) uL Where q = Flowrate (Bbls/Day) K = Permeability (Darcys) A = Micro-annulus area (Square Feet) P1 = Pressure of water sand (PSI) P2 = Pressure of producing interval (PSI) u = Viscosity of salt water (Centipoises) L = Length of micro-annulus (Feet) Assume the micro-annulus is completely around the casing. Also, let's use a viscosity of .49 centipoises for the salt water q = 1.127 x (5400) x 7 x 77 x .01) (100) .49 x 20 x 12 x 12 q = 83 bbls. of water per day Since the flow rate is directly proportional to the width of the micro-annulus and the differential pressure, an increase in either of these variables would result in an increased flow rate. The magniture of 83 bbls per day channeling with differential pressure of only 100 psi and micro-annulus width of 0.01 inch is alarming. Remedial action is a necessity.

6) HOW SEAL UNITS WORK: Each seal unit consists of two opposing cup-type “sealing elements” held in place and reinforced by two steel “back-up rings and a center “spacer band”. The inner and outer “lips” of each “sealing element” provide a mechanical seal between the pipe surface and the hardened cement surrounding it. As a pressure differential develops at the casing cement interface it causes the “cupped” inner section of the opposing “sealing element” to expand and seal.

April 2007 - Issue 4

& Present PVSS II - Best fit SCADA system for the Oil and Gas industry There are a wide variety of SCADA systems in the market but only a few are able to handle widely distributed, redundant and complex systems with hundred of thousands of data points. ETM professional control, an Austrian software house, is offering a state-of-the-art SCADA system for the Oil and Gas industry

7) Seal Unit Operating Instructions: The rubber rings for seal-units area available for two temperature ranges: 1) Up to 275°F 2) Up to 400°F. When the unit will be used in relatively deep applications where the bottom hole temperature may not be exactly known, it is advisable to use the high temperature version. The placement of the seal-units on the string is based on zone spacing, pressure and formation types. For positive zone separation one unit is placed above and below each zone, with a centralizer or turbolizer installed 3 to 5 foot below each unit. In case of critical zone separations two units are installed on each side of the zone with a centralizer or turbolizer between the seal-units. In liner applications where liner top leakage is likely to occur, one or two seal units are placed in the liner overlap area. Important Note: Although the Cement Seal Unit resembles a stop collar in many ways, it should NOT be used as a stop device.

A photograph of a gas storage application in RAG, Austria

PVSS II is a process control system for the visualization, monitoring and control of complex industrial processes often seen in the Oil and Gas industry. Its state-of-the-art architecture and modular design perfectly covers the needs of the industry. PVSS II is a flexible tool, able to manage hundreds of connected systems in a widely distributed network. The huge number of data points in such systems is handled precisely and very quickly thanks to the event driven communication. The flexibility and openness of the tool is proofed by the fact that it can run on Windows, Linux and Sun Solaris operating systems. To secure the highest overall efficiency for customer applications, PVSS II is offering a hot stand-by redundant set-up. And to meet today’s security needs, it utilizes the Kerberos authentication protocol developed by the MIT (Massachusetts Institute of Technology).

Customers in the Oil and Gas industry are using PVSS II, as a reliable, stable and convenient tool meeting all the requirements of their complex applications such as: Europe’s largest underground gas storage, an extended Accounting Tankfarm Organisation System for an OMV refinery, the East-West pipeline in China and as the latest success, the choice of N.V. Nederlandse Gasunie to use PVSS II as the standard SCADA system for their entire gas distribution network. N.V. Nederlandse Gasunie owes one of the largest high pressure gas pipeline grids in Europe, consisting of 12,000 kilometres of pipeline and approximately 1,100 gas receiving stations. PVSS II from ETM professional control is always the right choice if you are looking for a reliable and flexible tool for complex and large applications.

A screenshot of PVSS II/ Tankfarm Management System

Screenshot PVSS II/ Gas storage application

8) Case History More than 700 cement seal units of different sizes (171 pc of 9 5/8”, 542 pc of 7”, and 18 pc of 4•”) were used and installed in the casing of 72 wells (gas and oil producers wells) in one major off shore operating company in the Arabian gulf since 1999. Nineteen (19) wells had been tested for zonal isolation after primary cement operations, the results proved no communications between zones in 18 wells. Sixty three (63) wells are producing gas or oil without any indication of annulus pressure or zonal communication since year 2000. Well 8 62 2

Number of SCU 171 542 18

Casing Size 9-5/8” 7” liner 4-1/2” liner

April 2007 - Issue 4

By Fantoft Process Technologies represented in Egypt by Drexel Oilfield Equipment This write-up gives an overall description of Kongsberg’s involvement (project performed by Fantoft Process Technologies, which now is a part of Kongsberg Maritime) in the West Delta Gas Development Project. As a world-leading supplier of simulators and services, Kongsberg was selected to deliver a Production System Simulator for the Scarab/Saffron project. Through the real time production management solutions, Kongsberg was involved in the project during the engineering phase leading to the extension of the same solutions through D-SPICE for Simian/Sienna/Sapphire fields. The integrated D-SPICE/OLGA 2000 dynamic simulator has subsequently been used for real time monitoring, look-ahead applications, offline planning and training simulation, for well operations, sub-sea equipment and infield flow lines, onshore processing/storage/offloading plant, and MEG pipelines to offshore. This write-up describes the Scarab/Saffron Production System Simulator project, challenges faced by the client and Kongsberg, and how the simulator has been used in the ongoing operations of these subsea fields.

The Scarab/Saffron gas fields represent the first deepwater development to be undertaken in the Eastern Mediterranean. It lies in the in the West Delta Deep Marine concession and is the largest gas field development in Egypt. The field is owned by the Burullus Gas Company consortium, which consists of: • BG Group (Operator) • Petronas • Egyptian General Petroleum Corporation (EGPC) The initial Scarab/Saffron facilities consist of eight subsea wells connected to a sub-sea manifold, in turn connected by 24-inch diameter and 36-inch diameter pipelines to an onshore processing terminal. Electrical and hydraulic lines connect the wells to the onshore control room. The fields are located approximately 90 km from the shore and in water depths of more than 700 meters. The development of the Scarab/Saffron fields provides an example of world-class project delivery, producing first gas in March 2003, following discovery in May 1998. The Scarab/Saffron development is one of the longest subsea tiebacks in the world and the first deep water development in Egypt. Like Rosetta, Scarab/Saffron has proved to be highly reliable and able to produce above its Daily Contracted Quantity (DCQ). The fields supply the domestic market (626 mmscfd rising to 726 mmscfd DCQ since October 2005). From the first quarter 2005, BG Group and partners began tolling 225 mmscfd of gas from Scarab/Saffron through the SEGAS LNG plant located at Damietta. Since delivering first gas in March 2003, Scarab/Saffron has also proved a reliable supplier to the domestic market. On 1 January 2005, the DCQ rose to 626 mmscfd. Up to 1,000 mmscfd has been processed through the Scarab Saffron facilities into the national grid, supplying both the domestic market and tolling through Damietta LNG.

Production simulators are invaluable tools for operators and plant engineers. Kongsberg offers a complete portfolio of simulation-based systems and services to the oil & gas and pipeline industry. Using these systems and services, operators can obtain minimum energy usage, maximum safety and security of supply. Kongsberg’s D-SPICE Production Management Systems are accurate, robust, flexible and easy to maintain. They communicate efficiently with all SCADA/DCS systems and run under common operating systems including Windows. Kongsberg’s solutions offer low technical risk and are designed to accommodate future needs. The D-SPICE Production Management System (PMS) is a unique simulation tool for pipelines used in engineering, operation and supervision. D-SPICE Production Management System (PMS) is the fit-for-purpose tool for most types of transportation

pipelines, including single-phase gas and liquid as well as multi-phase systems. High fidelity single-phase pipeline models are configured in D-SPICE while multiphase pipelines are modeled using OLGA. Process and control equipment are all modeled in D-SPICE. The D-SPICE PMS has advanced, automated model tuning capability which is used to tune the model to closely match real plant performance. The D-SPICE Production Management System (PMS) is an invaluable tool, which can be either utilized online, connected to the pipeline and process facilities or offline in planning or training modes. The D-SPICE PMS includes a user-friendly HMI (Human Machine Interface) that can be tailor-made to match your requirements. Our D-SPICE Production Management System includes the most powerful and well proven plug-in to OLGA multiphase pipeline simulator in the market, with more than 50 reference projects worldwide. This ensures robust, accurate and fast performance of the integrated pipeline and process plant models.

The PSS is developed based on the Kongsberg dynamic simulator D-SPICE and the multi-phase pipeline simulator OLGA 2000. The PSS covers the process from reservoir inflow to the wells, through the sub-sea pipeline transport system and on-shore processing to liquid storage. Further, the glycol and methanol injection system is included within the scope of the PSS. Three PSS applications are installed: • The real time system functioning as a window in the pipelines for user monitoring of the conditions • The look-ahead application for fast predictions of the process state into the near future (hours/days/weeks) • It is also configured as Off-line tool for detailed planning and training The production of the plant has been ramped up from the initial low production level to the maximum of the eight producing wells. The PSS has proven to be a very useful tool during this early phase of the plant operation. Typically, the main benefits experienced have been: • Focus on the operability/flow assurance of the transport system from all levels of the organization, from Field General Manager to Operator • Benefit from rapid increase in the understanding of the complexity and the phenomena in the sub-sea pipeline system • Benefit from on-line presentation of key condition data for the pipeline system, which cannot be measured nor found elsewhere

• Benefit from guiding the operators in liquid surge management, i.e. control of offshore/onshore gas flow taking liquid hold-up into account • Benefit from being able to plan operations through simulations before implementation on the plant, and hereby tailor/improve the actions • Tool for easy correlation and presentation of data from the whole plant, e.g. offshore gas production vs. onshore gas export utilizing the flexibility of the D-SPICE user interface • Slugging/surge risks due to elevation more than 525 meters over a 20 km distance • Production rates varying from 1/12 to 1/3 of total system capacity. Nomination can change rapidly. • >20.000 BBL difference in liquid hold-up between low and high production rate • The design holds a variety of flow paths requiring the operators to understand the dynamics of the transport process • Complex operational procedures requiring days to avoid uncontrolled surges when ramping up from 150-600 MMSCFD • Instrumentation sub-sea limited to well area and at manifolds • Focus on the operability/flow assurance of the transport system from all levels of the organisation, from Field General Manager to Operator • Benefit from rapid increase in the understanding of the complexity and the phenomena in the sub-sea pipeline system • Benefit from on-line presentation of key condition data for the pipeline system, which cannot be measured nor found elsewhere • Benefit from guiding the operators in liquid surge management, i.e. control of offshore/onshore gas flow taking liquid hold-up into account • Benefit from being able to plan operations through simulations before implementation on the plant, and hereby tailor/improve the actions • Tool for easy correlation and presentation of data from the whole plant, e.g. offshore gas production vs. onshore gas export utilizing the flexibility of the D-SPICE HMI Ian Howard, Technical General Manager, Burullus Gas Company, Egypt: “ The online production system simulator has added a significant value to the operation of the Scarab/Saffron field during the first year of field operation ”

April 2007 - Issue 4

Standings Team

Al-Ahli

23 12 11 20 1

2 55 12 62

Ismaili

22 12 10 14 2

6 46 15 48

president Joan Laporta will arrive in Cairo soon to agree with Al-Ahli’s officials on a friendly game between both sides to commemorate the anniversary of one of Africa’s oldest clubs. In fact, the team is taking confident steps towards achieving its third consecutive title as it leads the standings since the beginning of the second half of the competition. After playing 23 games, the Red Devils are on top of the league with 62 points. Having achieved 20 wins and two draws, the team has scored 55 goals. It outdid its challenger Ismaili with 14 points, though the coastal city team still has one game in hand. And despite the red team still has to go through two hard-fought encounters with Ismaili and Zamalek, it’s highly unlikely that the red jerseys will let the most prestigious local title to slip from their hands. Although the team lost the services of its outstanding midfielder Mohamed Abu Treika and Mohamed Barakat during the last period, it managed to get the better of Tersana, the Coastal Guards, and Misri of Port Said. Thanks to its talented Angolan import Flavio, who comes on top of the league’s goal-scorers with 17 goals, the team managed to edge closer to their favourite trophy. Ismaili and Zamalek are going to fight for the runnersup position to book a ticket for the African Champions League next year. With only seven games left, Ismaili is perhaps closer to snatch the second position as it lies ahead of the Cairene team with five points. Except for the sudden revival of the oil club team Enppi, the rest of the teams are still relatively in their same positions. Enppi, under the leadership of former Egyptian international Hani Ramzi, succeeded to escape the “danger area” in which it lied since the beginning of the competition. It rose to occupy seventh place with 30 points. Meanwhile, Petrojet came in eighth place with the same number of points. Petrol Assiut, which lags behind in 14th place with 19 points only, has to exert its utmost efforts if it wants to continue in the premier league next season.

Zamalek

21 10 11 13 4

4 34 15 43

Ghazl Mahalla 23 12 11 10 9

4 25 19 34

Al-Gaish

23 11 12

6 10 24 24 31

Harras Al Hodoud

23 12 11

ENPPI

23 12 11 7 7 9 20 20 30

Petrojet

23 11 12

9 29 31 30

Arab Contractors

23 11 12

9 12 17 30

10 Ittihad

23 12 11

7 23 32 28

11 Suez Cement

23 12 11 7 11 5 15 25 26

12 Masri

23 12 11

6 10 7 15 26 25

13 Tersana

23 11 12

14 Assiut Petrol

23 12 11

4 12 7 16 32 19

15 Olympic

23 11 12

4 13 6 16 36 18

16 Tanta

22 9 13 2 12 8 10 28 14

and environment at AUC. El-Haggar highlighted that removing subsidized energy allocated for industries will result in developing an efficient energy system better than the traditional one, and therefore promote the concept of energy conservation. For instance, encouraging taxies and microbus drivers to use natural gas instead of fuel by providing them with subsidized prices will definitely help in decreasing the rate of energy loss and achieving more economic profit. Sharing the same vision of promoting energy conservation through subsidies removal, SUCO former chairman Hamed Mohamed Al-Ahmady told Business Monthly Magazine that citizens “are abusing our resources… If gas stations charged LE 3 per liter rather than LE 1, everybody would cut their consumption –even if it means walking to buy a pack of cigarettes rather than driving.” Energy subsidies create a culture of mass-consumption; citizens use fuel carelessly as long as it is available at cheap prices. Finding middle grounds Representing the intermediate perspective, some have recommended to differentiate between the quantities and prices of subsidized energy directed at lower-income citizens and the one allocated for factories, and to maintain a balance between the needs of both sides. Last December, Fahmy proposed to the Shura Council’s Industrial Production and Energy Committee lobbying the High Constitution Court to reverse its 1997 decision prohibiting multi-pricing of gasoline and . Fahmy argued that since demand for investment in Egypt has increased, especially in the cement and steel manufacturing sectors, the ministry could afford selling energy at higher prices to factories, while maintaining the subsidized price for the public. Fahmy’s suggestion has not been approved yet; however some experts believe that it will solve the problem of subsidies. Commenting on Fahmy’s suggestion, Selim declared that pricing in general has been a major problem in Egypt’s energy sector. “There is no economic incentive to expand investments and achieve economies of scale because prices are fixed, not market based.” He added that due to this pricing issue, the government is acting as a monopsonist (the only buyer), which is another symbol of inefficiency because being the only buyer of oil means that it is fixing the prices for oil companies to sell their products to the public and expand their activities. Based on the idea of establishing a middle ground, some suggested setting energy prices based on the international ones only for factories, while maintaining subsidized energy for citizens. Yosry Kotb, Board Member of the Administrative Committee of the Engineering Industries Chamber said that international prices should be used only with factories that sell their products in the international markets. However, this suggestion has been criticized by some experts. Nabil Farid Hassanein, head of the Chamber of Engineering Industries pointed out that low prices of energy, personnel and

infrastructure are factors to attract more foreign investors, thus selling energy at high prices will decrease the level of both local and foreign investments in Egypt. On the contrary, some foreign investors criticize the system of subsidies, stating that it limits the expansions of investments in Egypt. In an article published in Business Monthly, Michael Barron, former policy and corporate affairs manager at British Gas (BG) Egypt, said that the subsidies system “distorts the market, is unattractive to investors and provides people with no incentive to buy more fuel-efficient cars or switch to cleaner fuels.” Barron emphasized that BG conducts studies on energy subsidies as an attempt to assist the government in forming a more effective policy. However, lifting subsidies is a double edged sword. It can be the solution to a possible energy and economic crisis in the oil and gas sector, yet it can create negative effects if the impacts of such a decision on the market are not studied well. Thinking positive Focusing on the bright positive side, Shehata confirmed that lifting subsidies will strengthen the sense of competition in the market. Most of the factories enjoying subsidized energy are in control of a large share of the local market. For instance, an aluminum company and two iron and steel companies hold around 60% of the market. As for fertilizer factories, three companies control 92% of the market, while in the cement industry, three companies control 70%. This wipes out the competition factor in the Egyptian market. Concepts of energy conservation can be easily achieved when citizens realize the value of fuels when subsidies are removed, which diminish the sense of careless mass-consumption and save energy reserves for future generations, said El-Haggar. On the other hand, Selim warned of two main social and economic losses that might accompany the implementation of this decision. First, there will be an increase of required expenditures from households; the estimated amount of expenditure needed to break-even these subsidies is almost LE 100 per month for every household incorporating four people. This represents an additional economic burden on the government. To tackle this negative consequence of removing subsidies, we need to enforce a minimum wage law. In order to set this law, we have to formalize the informal sector that represents 40-50% of the economy and find out the incentives for this objective. Egypt signed the UN Millennium Development Goals, which sets a minimum wage standard for work contracts, equivalent to LE 342 per month in the case of the Egyptian status. The second loss lies in inflation. Lifting energy subsidies will create from 5-7% additional inflation repression on the economy because energy is input in almost everything in our daily life.

Al-Ahli is edging closer to snatch its 100th title as it is marking its centenary anniversary By Mohamed El-Sayed PERHAPS this season is the most illustrious in Al-Ahli’s 100-year history. Having won the African Champions League title for the fifth time, ended third in the Club World Cup in Japan, won the Super African Cup, snatching the National Football League title this season would be the perfect celebration the Red Devils could have while it marks its 100th anniversary this year. The list of achievements is becoming weightier month after month. Earlier this month, the team occupied the 22nd place among world clubs in the International Federation of Football History and Statistics’ (IFFHS) monthly club rankings. It came ahead of all Arab and African clubs by far, thanks to its outstanding performance during the past month locally and continentally. It also came ahead of internationally renown, well-established teams like River Plate of Argentine, Bayern Munchen, Verder Bremen, Schalke of Germany, Tottenham of England, Real Madrid and Valencia of Spain, Santos of Brazil, Porto and Benefica of Portugal, Eindhoven of the Netherlands and Parma of Italy. The list of achievements also became weightier when the club dominated the CAF awards for the year 2006, having claimed three prizes in different categories. In a gala that took place in the Ghanaian capital Accra last month, the Red Devils have been named club of the year. Its manager Manuel Jose was elected the best coach after outdoing Egypt’s national coach Hassan Shehata and Asec Abidjan’s Patrick Liewig. Up till now, Jose has clinched 11 championships for the Devils during his two separate tenures at the helm of the team. In addition, Mohamed Abu Treika has claimed the best player award in the Inter-Club player of the year category, having surpassed Tunisian Sfaxien’s Abdel-Karim Nafti, who has already signed for the team to wear its jersey starting from next season. To celebrate the centenary anniversary and the great achievements of the football team, Al-Ahli is scheduled to meet Barcelona, the European Champions League title holder, within the coming few weeks in Cairo. The Spanish team’s

Continued from page 1 To solve this deficit, the government has to ask for either more loans from local or foreign banks or to modify its current subsidies’ policy. The first solution can be considered as an easy way out in the short term “but in the long run it will be disastrous, since it also means a big rise in public debts.” Thus, many may favor the latter choice, which creates a critical debate; to leave subsidies as they are, to lift them or to have a middle ground. Lift them or leave them? The suggestion to remove subsidies has been supported by different scenarios. Tarek Selim, assistant professor of economics at the American University in Cairo (AUC) said that the removal of subsidies should be implemented gradually and in specific conditions. The amount of subsidies allocated for the oil and gas sector are excessive, which makes prices artificially low. Subsidies encourage under production, as economies of scale cannot be achieved with subsidized prices, clarified Selim. Asked about public reaction to such a decision, he declared that when fuel prices were raised last summer, people complained for a while and then they got used to this increase. In an interview with Abdallah Shehata, professor of economics and political science at Cairo University, he tackled this issue from another perspective; the loss of massive amount of subsidized energy utilized in heavy industries. Shehata said that industries which depend on crude energy to produce final products, such as cement, fertilizers, iron and steel enjoy double privileges. They receive oil, natural gas and electricity at low prices, while they sell their final products in international markets at high prices. Shehata added that, “the subsidization policy, as it exists, does not achieve its purposes. It does not increase the competitiveness of locally produced products and it does not give the consumer affordable products.” He recommended the gradual removal of subsidies, while making a reform strategy in the way dealing with heavy industries. Agreeing with the same argument, Salah Hafez, former vice president of Egyptian General Petroleum Corporation (EGPC) confirmed the necessity to lift energy subsidies allocated for factories, such as cement and fertilizers. In an interview with Al-Masry Al-Yom Newspaper, Hafez recommended to suspend authorization for new similar factories in regard to the limited source of energy and to direct this energy towards more beneficial use especially that factories export their products to international markets and do not sell them in local markets. “In general, I am against the concept of subsidies, except for natural gas used in the transportation sector. I believe this is the only subsidy that should remain in the energy sector in order to promote the concept of natural gas usage in public transportation to minimize both fuel and economic losses,” commented Salah El-Haggar, professor of energy

H A W L D GF GA P

7 25 29 31

9 10 21 25 22

April 2007 - Issue 4

Egypt Gabon

RIG COUNT Area

Gulf of Suez Offshore

Total

Percentage of Total Area

13%

Land

World Crude Oil Production (Including Lease Condensate) (Thousand Barrels per Day)

Table 2

Egypt Rig Count per Area March 2007

Table 1

Former India Malaysia Mexico Oman Russia U.S.S.R. Syria

United States

Other1

World

2006 January

654

254

669

760

3,372

771

9,030

---

418

5,047

6,012

73,593

February

657

245

679

760

3,311

765

9,040

---

415

5,048

6,077

73,496

March

651

242

686

700

3,350

754

9,150

---

412

5,016

6,063

73,285

April

663

239

685

680

3,370

744

9,170

---

408

5,067

6,115

73,333

May

655

249

689

700

3,329

734

9,190

---

407

5,100

6,278

73,113

June

607

240

704

695

3,287

739

9,260

---

416

5,219

6,211

73,052

July

620

227

691

690

3,232

726

9,240

---

412

5,171

6,222

73,943

August

630

237

650

685

3,252

727

9,330

---

400

5,155

6,289

73,731

September

640

241

701

685

3,258

720

9,350

---

400

5,188

6,284

73,655

October

660

230

706

635

3,173

730

9,450

---

400

5,195

6,306

73,622

November

615

223

701

614

3,163

724

9,320

---

395

5,149

6,469

73,301

December

619

220

705

609

2,978

724

9,400

---

395

5,360

6,448

73,382

2006 Average

639

237

689

684

3,256

738

9,246

---

406

5,144

6,232

73,460

Mediterranean Sea Offshore Land

12%

50%

10%

12 0

Western Desert 0

Offshore Land

Sinai 0

Offshore

Land Eastern Desert

104

100%

Offshore Land

Delta Offshore Land

0 7

Total

1 Other is a calculated total derived from the difference between “World” and the sum of production in “Total OPEC” (Table 4)

and all other countries listed ( Tables 3 and 2 ). -- = Not applicable. E=Estimated. PE=Preliminary estimate. RE=Revised estimate. The total "North Sea" is not subtracted from the world total, though Norway and the United Kingdom have been subtracted. Revised data are in bold italic font. -- = Not applicable. E=Estimated. PE=Preliminary estimate. RE=Revised estimate. Source : EIA

World Crude Oil Production (Including Lease Condensate) (Thousand Barrels per Day)

Table 4

Algeria Indonesia Iran

Iraq

Kuwait1

Libya Nigeria

United Saudi Arab Qatar Arabia1 Emirates Venezuela

Total OPEC

2006 January

1,825

1,045

4,100 1,603

2,600

1,650

2,560

835

9,400

2,602

2,540

30,760

February

1,825

1,050

4,050 1,803

2,550

1,650

2,410

835

9,500

2,602

2,540

30,815

March

1,825

1,043

4,000 1,903

2,525

1,680

2,370

835

9,350

2,602

2,540

30,673

April

1,825

1,035

4,000 1,903

2,525

1,690

2,370

835

9,350

2,602

2,540

30,675

May

1,785

1,038

3,950 1,903

2,525

1,700

2,370

835

9,200

2,602

2,540

30,448

June

1,795

1,027

4,030 2,153

2,550

1,700

2,465

835

9,100

2,602

2,540

30,797

July

1,805

1,020

4,035 2,203

2,550

1,700

2,380

855

9,300

2,702

2,440

30,990

August

1,805

1,015

4,035 2,203

2,550

1,700

2,430

885

9,300

2,702

2,490

31,115

September

1,835

1,005

4,035 2,153

2,550

1,700

2,430

885

9,000

2,702

2,490

30,785

October

1,835

985

4,060 2,103

2,550

1,700

2,530

885

8,800

2,702

2,490

30,640

November

1,805

985

4,020 2,003

2,500

1,650

2,480

845

8,800

2,602

2,490

30,180

December

1,805

985

4,020 2,003

2,450

1,650

2,480

835

8,750

2,602

2,490

30,070

2006 Average

1,814

1,019

4,028 1,996

2,535

1,681

2,440

850

9,152

2,636

2,511

30,662

Source : Egypt Oil & Gas

World Oil Supply1 (Thousand Barrels per Day)

Table 3

United States2

Persian Gulf

OAPEC

OPEC

World

2006 January

8,225

23,554

24,434

33,905

84,406

February

8,232

23,759

24,693

33,975

84,430

March

8,096

23,634

24,639

33,833

83,937

April

8,239

23,658

24,679

33,859

84,244

May

8,348

23,458

24,489

33,632

84,184

June

8,463

23,713

24,655

34,001

84,074

July

8,456

24,098

25,072

34,224

85,450

August

8,486

24,128

25,100

34,349

85,249

September

8,499

23,778

24,795

33,994

84,839

October

8,455

23,553

24,565

33,849

84,926

November

8,378

23,223

24,155

33,399

84,563

December

8,841

23,113

24,052

33,287

84,716

2006 Average

8,394

23,639

24,610

33,859

84,588

1 Except for the period from August 1990 through May 1991, includes about one-half of the production in the Kuwait-Saudi Arabia Neutral Zone. Kuwaiti Neutral Zone output was discontinued following Iraq's invasion of Kuwait on August 2, 1990, but was resumed in June 1991. From August 1990 through May 1991 all production in the Neutral Zone was included in the data for Saudi Arabia. In November 2006, Neutral Zone production by both Kuwait and Saudi Arabia totaled about 550 thousand barrels per day. Data for Saudi Arabia include approximately 150 thousand barrels per day from the Abu Safah field produced on behalf of Bahrain. Notes: OPEC=Organization of Petroleum Exporting Countries. Source : EIA

1 "Oil Supply" is defined as the production of crude oil (including lease condensate), natural gas plant liquids, and other liquids, and refinery processing gain (loss). 2 U.S. geographic coverage is the 50 States and the District of Columbia. Beginning in 1993, includes fuel ethanol blended into finished motor gasoline and oxygenate production from merchant MTBE plants. E=Estimated. RE=Revised estimate. PE=Preliminary estimate. Revised data are in bold italic font.

US Dollars per Barrel

Fig 1

Source : EIA

Source : Egypt Oil& Gas

56 55 54 53 52 51 50 49 48 47 16/2/2007

Weekly Egyptian Suez Price

23/2/2007

2/3/2007

Weekly

9/3/2007

Saudi Former Algeria Canada Mexico Arabia Russia U.S.S.R.

United States1

Persian Gulf OAPEC2 OPEC2

World

2006 January

295

685

438

1,460

410

---

1,684

2,281

2,647

2,948

7,845

February

295

727

436

1,460

410

---

1,677

2,286

2,655

2,963

7,954

March

295

705

432

1,460

410

---

1,688

2,286

2,655

2,963

7,871

April

295

688

441

1,480

415

---

1,729

2,310

2,677

2,987

7,958

May

295

697

441

1,480

415

---

1,753

2,310

2,676

2,987

7,813

June

315

644

436

1,480

410

---

1,753

2,310

2,696

3,007

7,740

July

315

659

449

1,490

420

---

1,755

2,320

2,724

3,037

8,033

August

315

691

445

1,490

420

---

1,726

2,320

2,724

3,037

7,974

September

320

706

427

1,490

390

---

1,781

2,320

2,729

3,042

7,804

October

320

673

405

1,490

410

---

1,773

2,320

2,729

2,042

8,006

November

330

683

383

1,490

420

---

1,769

2,320

2,739

3,052

8,088

December

328

734

396

1,490

410

---

1,779

2,320

2,742

3,050

8,172

2006 Average

310

691

427

1,480

412

---

1,739

2,309

2,700

3,010

7,938

1 U.S. geographic coverage is the 50 states and the District of Columbia. Excludes fuel ethanol blended into finished motor gasoline. 2 OAPEC=Organization of Arab Petroleum Exporting Countries. 2 OPEC=Organization of Petroleum Exporting Countries. -- = Not applicable. E=Estimated. PE=Preliminary Estimate. Revised data are in bold italic font.

April 2007 - Issue 4

Table 6

World Natural Gas Liquids Production (Thousand Barrels per Day)

Table 5

International Stock Prices Mid-February-Mid-March

International Stock Schlumberger (SLB) NYSE (US Dollars) Halliburton (HAL) NYSE (US Dollars) Exxon Mobil (XOM) NYSE (US Dollars) Atwood Oceanics (ATW) NYSE (US Dollars) Weatherford (WFT) NYSE (US Dollars) Shell (RDS.A)NYSE (US Dollars) Apache (APA) NYSE (US Dollars) Baker Hughes (BHI) NYSE (US Dollars) BJ (BJS) NYSE (US Dollars) Lufkin (LUFK) NYSE (US Dollars) Transocean (RIG) NYSE (US Dollars) Transglobe (TGA) NYSE (US Dollars) GlobalSantafe (GSF) NYSE (US Dollars) BP (BP.) LSE Pence Sterling BG (BG.) LSE Pence Sterling Dana Gas (DANA) ADSM US Dollars Caltex (CTX) ASX Australian Dollars RWE DWA (RWE AG ST) Deutsche-Borse Euros Lukoil (LKOH) RTS (US Dollars)

High

Low

65.20

61.67

32.19

30.04

75.40

69.91

52.45

48.24

43.89

39.73

67.17

63.08

70.80

67.06

65.59

63.34

28.14

25.88

56.27

50.99

79.70

74.05

4.58

4.08

60.49

55.76

539.50

506.50

722.50

670

1.68

1.32

25.18

21.12

82.65

75.20

83.60

Source : Egypt Oil & Gas Average Currency Exchange Rate against the Egyptian Pound (February / March)

Source : EIA

US Dollar 5.6906

Fig 2

y Fe b

D ec

r em be

N ov

ct ob O

Se p

m be

ly Ju

ne Ju

A pr

US Dollars per Barrel

9 8 7 6 5 4 3 2 1 0

Monthly Source : Egypt Oil & Gas

OPEC Daily Price February/March

07 /3 / 15

/3 /

07 20

00 7/ 3

9/ 3/

7 00 /2 5/ 3

27 /

1/ 3/

2/ 2

3/ 20

7 00

07 /2 /

2/ 2

23 /

07 21

/2 /

20 /2 / 19

/2 15

17 /

2/ 2

US Dollars per Barrel

60 59 58 57 56 55 54 53 52 51 50 49

Daily Source : Egypt Oil & Gas

Daily IPE Brent Price February/March

63 62 61 60 59 58 57 56

00 /2 /3 16

/2 /3 14

00 /2 /3 12

7 00 /2 /3

07 10

3/ 8/

07 20 3/

20 3/ 4/

07 20 3/ 2/

00 /2 /2 28

7 26

/2 /2 24

00 /2 /2 22

/2 /2 20

7 00

00 /2 /2 18

US Dollars per Barrel

Yen 4.78

(February / March) Company Alexandria Mineral Oils (AMOC.CA) Sidi Kerir Petrochemicals (SKPC.CA)

Fig 4

Sterling 11.0503

Stock Market Prices

Monthly Natural Gas Price

Fig 3

Euro 7.4819

Daily

Source : Egypt Oil & Gas

High

Low

79.64

75.26

21.70

19.28

April 2007 - Issue 4

IT could be seen as surprising that 2006 being the 20 th anniversary of the Chernobyl nuclear disaster, is also the year in which Egypt has deemed to see the foreseeable future of nuclear energy for power generation. Have you ever wondered how much potential wind resources the Gulf of Suez possesses? From this perspective let’s consider some aspects in regards of nuclear energy versus wind energy. Some argue that wind turbines are “unsightly”, but these anti-wind groups, often supported by the nuclear industry, should consider how aesthetically pleasing deformed babies and cancer victims are. Compare this to the financial costs of nuclear energy. Based on several recently commissioned thirdgeneration reactors in Japan and South Korea, these reactors would cost between $1500 and $2000 per kilowatt to commission, and therefore a plant would almost cost $1.5 billion. Clearly, nuclear power is more expensive. Once built, the plants require fuel rods, an additional cost, and these must be enriched at a separate facility, which would cost over $500 million. Nuclear power has higher operational and maintenance costs compared to wind power, and nuclear power stations take longer to commission (seven to ten years) than wind turbines (three to six months once delivered). More carbon dioxide

is emitted in the construction of a nuclear power plant, and in the enrichment of fuel rods, than in the construction of wind towers. Once a wind turbine is up and running it will have generated as much clean energy after six months as “dirty” energy used in its manufacture. It takes about seven years for a nuclear power station to generate more carbon dioxide-free electricity than was spent building the plant and getting it operational. Over the lifetime of a wind turbine, it will generate 17-39 times the amount of energy as was used to build it. Nuclear power plants produce only about 16 times the energy used to build them. Each 1000 MW nuclear power generator would produce about 33 tonnes of highly radioactive waste per year, which would then need to be stored at additional cost, reprocessed at an even greater cost, or dumped — the cheapest and most likely option for dollar-saving corporations. Unlike wind turbines, nuclear power plants cannot be disassembled once their operational life is over. Standard (non-breeder) reactors have a lifetime of about 30 years after which they have to be decommissioned. Since so much of the power plant is radioactive by this time, decommissioning is a serious problem. Contaminated machinery must be disposed of or stored so that environmental

damage will not occur. Decommissioning or refitting will be very expensive (perhaps $200 million to $500 million) and is an important aspect of planning for the use of nuclear power. It is possible that dismantling of old decommissioned reactors may become one of the highest costs for the nuclear industry. The resulting radioactive wastes await a place to store them for many years. Wind on the other hand is a clean fuel; wind farms produce no air or water pollution because no fuel is burned. The most serious environmental drawbacks to wind machines may be their negative effect on wild bird populations and the visual impact on the landscape. At an equal investment, wind power generates five times more jobs and 2.3 times more electricity than nuclear. In electricity terms: 24 TWh/year for wind instead of 10 TWh/year for Energy Power Reactor. In the wind option, construction is more evenly spread over time and employment takes the lead over nuclear. As a matter of fact, the Gulf of Suez’s wind resource potential is estimated to be 20,000 MW according to the New & Renewable Energy Authority (NREA). Only 235 MW have been installed by the end of 2006. The current target is 850 MW by 2010. Unfortunately, wind energy in Egypt only represents 0.08% of its energy mix; a dilemma that is worth considering.

EGAS 2006 Bid Round is considered to be more successful than its predecessor where eight blocks were awarded out of the 12 offered blocks. Also 2006 bid round witnessed new comers to the Egyptian market like Gujarat State Petroleum Corporation which is an Indian oil and gas producing company in Gujarat that was incorporated in 1979 as a petrochemical company, but later GSPC became a large-scale energy organization. EGAS 2004 bid Round included nine Exploration blocks in the Mediterranean Sea & Onshore North Sinai basins of Egypt. The blocks are N. Sidi Kerir Deep, N. Ras El Hekma, N. El Amyria, N. El Bougaz, El Bougaz, Rommana, West El Maghara, N. El Temsah Deep and N. Sinai Deep. From the nine blocks offered only four were awarded. IEOC was awarded El-Bougaz block, RWE was awarded North El Amyria, North Sidi Kerir block went to BG while Sipetrol was awarded Rommana block EGAS believes the poor response to the bid round was due to a lack of seismic data about the blocks.

April 2007 - Issue 4

CIOGE – 1st China International Oil & Gas Conference Beijing, China www.cioge.com The main theme of this conference revolves around "Role of state of the art technology in the development of China's oil and gas industry." The main discussion topics include: investing in China's oil and gas industry, developing renewable energy sources, processing China's crude oil and natural gas supplies: refining, petrochemicals & LNG, onshore oil and gas reserve development and investment in China's oil and gas transportation infrastructure. 3-4

BG Egypt is sponsoring the first Egyptian hopeful attempting to reach the summit of Mount Everest, Omar Samra. BG Egypt donated money for both the team and Omar himself. Samra graduated from the American University in Cairo with a degree in economics and is currently pursuing his MBA in the London School of Economics. He will be undertaking his expedition with four other teammates (two from Wales and one from England, and one from South Africa) in April. One teammate will be attempting to break a record of her own, being the first Welch woman to scale the arduous mountain. In preparation for the climb, Samra and his team ascended the French Alps and Mount Cho Oyu, the sixth highest mountain in the world, reaching an astonishing 8,000 plus meters to acclimatize their bodies to heights above 7,000. Cho Oyu lies 28 km west of Mt. Everest on the Tibetan plateau. Mount Everest is 8,840 meters high and is part of the Himalaya range in High Asia, located on the border between Nepal and Tibet. Samra gave a presentation at the BG Egypt premises where he described his motivation for the expedition, the composition of his team, and the hazards and requirements of the trip. His love for climbing grew over the years with his many trips around the world. His team includes two guides, a logistics member, and a sherpa accompanying each individual on his team. The team trains on a daily basis from an hour to an hour and a half, due to the fact that the date of the voyage is close. The most hazardous aspect of the journey is undoubtedly the loss of oxygen as the group nears the summit; it is also Samra’s main personal fear. In response to why he choose BG Egypt to sponsor his expedition Samra answered, “I am a bi-national, EgyptianBritish citizen, and I wanted something similar to sponsor me, it is more meaningful for me.” We, at Egypt Oil & Gas Newspaper, wish Samra all the best in his expedition.

CIPPE – 7th China Petroleum & Petrochemicals Technology & Equipment Exhibition Beijing, China www.cippe.com.cn Cippe is known as the premier exhibition in the petroleum and petrochemical industries in China. Cippe is held every April in Beijing and has been past six successful events. Cippe has the most important industrial show in Asia with largest exhibit space, highest quality and most international exhibitors.

3-5

11-13 ATYRAU Oil & Gas – 6th Regional Oil & Gas Exhibition Atyrau, Kazakhstan www.oil-gas.kz/en/2007/ Oil and Gas Production and Processing Oil and Gas Equipment Oil and Gas Transportation Engineering and Consulting Geophysics Services Environmental Protection Services for Oil and Gas Fields Ecological Safety Individual and Industrial Protection

Under the title of “Formation Testing in the Dynamic Drilling Environment”, Mark A. Proett, a Senior Scientific Advisor for Halliburton Energy Services gave a presentation during the Society of Petroleum Engineers (SPE) monthly seminar. The presentation tackled the objectives of formation testing, Wireline formation testers (WFT), drill stem testing (DST) and formation testing while drilling (FTWD). Also, it discussed challenges for drilling resulted from drilling environment because mud column pressures are indeed dynamic and invasion while drilling is in its early stages of progression. Dynamic changes typically introduce pressure transients that are not detected in other forms of testing. New pressure-transient analysis techniques have therefore been developed and introduced to analyze these changes. The advantages in analyzing pressure transients are that they can determine properties of interest to drilling, such as filtrate loss rate and depth of invasion. Traditionally, it had been assumed that measured pressures only reflect formation pressures, an assumption that is not always valid. Proett received a BSME degree from the University of Maryland and a MS degree from Johns Hopkins. He has been involved with the development of formation testing systems since the early 1980’s, and has published extensively. Proett holds 27 patents, 23 of which deal with well testing and fluid flow analysis methods. He has served on the SPWLA and SPE technical committees and served as the Chairman for the SPE Pressure Transient Testing Committee. Proett was recently elected to the position of Vice President (Northside) of the Houston Chapter of SPWLA.

April 2007 - Issue 4