10 october 2014

Egypt Awards Licenses for Seven Exploration Areas

page 7

In Review

P. 14

Can Subsidy Cuts Curb the Energy Black Market?

EGYPT’S LEADING OIL AND GAS MONTHLY PUBLICATION - October 2014 - 36 PAGES - ISSUE 94

Militant Violence Spillover from Libya: The Threat to Egypt’s Oil and Gas Sector P.22

In Focus

P.16 Enhanced Oil Recovery: A Cornerstone In Egypt’s Future Energy Development

Opinion

P.18 An Argument for Direct Marketing: Need More Power? Free up the Gas

Economic Review

P.20

Raising the Gas Price: Short Term Pain, Long Term Benefits

Editor’s Note We here at Egypt Oil and Gas are determined to bring our reader’s the latest news and facts related to Egypt’s petroleum industry. In this month’s issue we also have a guest column under the “Opinion” heading written by Mr. Walid Hebeika, General Manager of United Eastern Group. Also, we have an “Academic Focus” by Mr. R. Perfetto that focuses on the critical analysis of the relationship and strategic tensions between NOCs and IOCs. I would like to personally thank both Mr. Hebeika and Mr. Perfetto for their valued contribution to our newspaper. Your time and effort is much appreciated. Additionally, there have been conferences taking place this month by both GE and Petrojet which have been added to our “Events” section. There has been much emphasis recently on the subject of renewables and how Egypt must come to realize its

importance and make the switch to renewable energy. One big hit was Cairo Energy 2014 which was a great success, and according to Petrojet, “discussed the challenges and solutions of addressing the problem of power in Egypt and the government’s future vision for secure energy sources in Egypt. It also highlighted the challenges facing the energy system in Egypt and how realistic the government’s plan from the perspective of the private sector.”

We would very much appreciate any feedback or insight into the planning of future events or editorial content.

Editor in Chief Mai Marei Oil Prices

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Publisher Mohamed Fouad This publication was founded by Mohamed Fouad and Omar Donia All rights to editorial matters in the newspaper are reserved by Egypt Oil and Gas and no article may be reproduced or transmitted in whole or in part by any means without prior written permission from the publisher.

Contact Information: Tel: +202 25164776 +202 25172052 Fax: +202 25172053 E-mail: info@egyptoil-gas.com www.egyptoil-gas.com

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Editor in Chief Mai Marei Managing Editor Lily Leach Senior Staff Writer Curt Champeon Chief Reporter Wael El-Serag Contributors Patrick Keddie English News Editor Passante Adel Marketing Manager Ayman Rady Business Development Officers Ayman Hussien Project Development Consultant Arwa Atef Art Director Omar Ghazal Cartoonist Mai Gamal Managing Director Assistant Basma Naguib IT Specialist Sameh Fattouh Production Advisor Mohamed Tantawy Administration & Legal Advisor Mohamed Ibrahim Operations & Financial Manager Abdallh Elgohary Accountant Mahmoud Khalil

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EGYPT OIL & GAS NEWSPAPER

OCTOBER 2014 - ISSUE 94

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Egypt News Egypt’s Cities Black-Out for Second Time in Former Electricity Minister: Nation’s Energy Consumption InModern History Cairo and reportedly other cities were caused by the power outag- creases by 8% Annually across the country have been hit by a major blackout on September 4.

The blackout lasted a few hours with the outage affecting Cairo’s three Metro lines leading to traffic congestion. The outage hit during the morning rush hour. According to a statement by Egypt’s electricity holding company, at 6:15am a technical malfunction took place at Cairo’s “500-kilowatt” electricity transformer substation, leading to an electricity blackout in various parts of the city.

Ministry spokesperson Mohamed El-Yamani, said that the problem was caused by maintenance works and efforts to shift power loads in some areas of Cairo. Al-Hayat, ONTV and some CBC channels were affected by the outage that started at around 7am. People in various parts of Giza and Cairo also suffered cuts to their water supply. Water company spokesperson Mohi El-Serafy told ONTV channel that the water cuts

es and the company was working on the problem using additional fuel-powered generators. Power supply was affected for several hours in Minya, Assiut , Beni Suef , Fayoum and Wadi-El-Gadid. Steel factories and ports in Suez City, located at the southern tip of the Suez Canal, lost at least EGP 100 million ($14 million) largely because work was halted according to AP. President Sisi addressed the nation following the blackout and stated that upgrading the grid will consume both time and money. Egypt needs to add 12,000 megawatts to its grid over the next five years at a capital cost of about $12 billion, the President said. Each new power station would need fuel worth $700 million a year, Sisi added, saying that Egypt would struggle to find that cash while keeping its deficit under control.

EGAS Halts Gas Supply to Idku EGAS has halted its gas supply to the Idku liquefaction plant operated by BG and GDF Suez, the Daily News Egypt quoted an official at the company. The plant has received only 4 million cf/d of the contracted 1.13 million cf/d in August leading to its shutdown while during the last year it has been receiving one million cf/d, the official stated. He also added that the move might lead to international lawsuits and arbitration like its counterpart, Damietta LNG.

The Egyptian government has failed to negotiate with SEGAS and Union Fenosa on the Damietta LNG plant and was unable to persuade them to waive arbitration, which would require $6 billion in compensation.

As a result, these partners will not provide gas to Egypt until 2018. The contracted quantities in question stand at about 750m cubic feet of gas per day, according to the EGAS official.

South Sinai Roads Light-Up With Solar Energy

StoryBoard

According to Al-Masry Al-Youm, Local Development Minister Adel Labib stated that the government is starting a process to rely on solar energy nation wide. In South Sinai’s resort city Sharm El-Sheikh, at least three roads, stretched out for 10 km, have been lit by solar energy. The project has a cost of EGP 15 million, of which EGP 12 million were paid by the Tourism Ministry while the government covered the rest, the Minister added. Egypt’s government is resolving to solar and renewable energy sources as part of its efforts to curb the power crisis the country has been facing.

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EGYPT OIL & GAS NEWSPAPER

Former Electricity Minister, Ahmed Emam, told the Daily News Egypt that energy consumption is increasing by 8% every year while fuel supplies to power station is decreasing by 6% per year, in addition to an increase in maintenance malfunctions in stations. The electricity sector always needs plans to access fund and increase investments, Imam said, stressing that the current government could solve the crisis as long it is working towards that end. “New power stations should be established to increase the capacity of the national grid, but this is not easy,” Imam added, attributing the problem to

a lack of funds. He stressed the importance of a balance between the purchasing price and selling price, which is defined by the cabinet.

He commented on the recent electricity prices change saying, “It would make no big difference, the additional amount of money expected to be collected after the increases is not too much.”

He also pointed out that there must be financial losses for the entities that deliver services such as hospitals, fuel stations, and restaurants and others, expecting offering appropriate compensations to them.

LNG Terminal to be Delayed Until December Petroleum Minister Sherif Ismail stated that the import of the LNG terminal from the Norwegian Hoegh is to be further delayed until December, reported Reuters. Earlier this year reports have stated that the terminal’s arrival would be delayed until September, however an official in EGAS said in July that its arrival is more likely to be expected by October or November. Although Egypt can export LNG, it can not import it without the terminal being installed. The government starting negotiations with the USbased Excelerate Energy earlier this year for an LNG terminal as well. LNG imports are expected to assist in solving the country’s current

power crisis.

Egypt to Remove Electricity Subsidies Over Five Years Instead of Three During the “Egypt… Future Path” conference in September, Electricity Minister Mohamed Shaker stated that the government will remove the electricity subsidies over five years instead of the previously announced three years in order to ease the burden off the citizens. Electricity subsidies have been eased earlier this year sparking outrage between Egyptians especially

with the continuing power crisis leading to regular outages across the country, with some areas reporting outages up to six times per day. A possibility raised during the conference was the Ministry of Finance acting as a guarantor between investors and the Ministry of Electricity to ensure continuous power supply.

Petroleum Minister Signs New Agreements With Apache and Tharwa Petroleum Minister Eng. Sherif Ismail signed on September 10 two petroleum agreements on prospecting for oil and gas in the Western Desert in the two regions of Gharb El-Kanayes and Siwa. The agreements have total investments of about $44 million and signature bonus of $25 million, it includes the digging of 11 new wells. The agreements were signed by the Petroleum Minister and Apache’s Head Tom Maher and Tharwa

Petroleum Company’s Head Raafat El-Beltagy in the presence of EGPC Chairman Tarek El-Molla. The first is with Apache in West Kanayes area with investments of $28 million and drilling 7 wells along with signature bonus of $15 million, while the second agreement was signed between Apache and Tharwa Company in Siwa area with investments of $16 million and a signature bonus of $10 million. The companies will drill 4 wells.

Egypt Awards Licenses for Seven Exploration Areas A statement issued by the Ministry of Petroleum stated that Egypt has signed oil and gas exploration deals worth $187 million with several Western companies and a Tunisian firm.

The agreements cover seven exploration areas. Two exploration blocks in the Gulf of Suez were awarded to RWE – East Ras Fanar Offshore and Northwest El Amal concession – while the Tunisian HSBI, Canada’s TransGlobe, and a joint venture between Edison and Petroceltic secured five blocks in the Western desert. According to Reuters, EGPC and EGAS have previously announced an international auction for the concessions in the Suez Canal area, the Western desert, the Mediterranean, and the Nile Delta. The auction was in accordance with production sharing agreements. RWE Dea will hold a share of 100% of the East Ras Fanar Offshore and 50% of the Northwest El Amal concession, with Edison International SpA holding the remaining 50%. RWE Egypt’s General Manager Maximilian Fellner said in a statement, “Both blocks provide promising opportunities in an area, where we know the geological conditions very well.” The company will pro-

vide estimated reserves after reviewing existing seismic data from the fields. Petroceltic/Edison joint venture was awarded a concession in North Port Fouad (Block 7), located offshore the Nile Delta and lies to the north of, and immediately adjacent to, the North Thekah Block, which was awarded to the joint venture last year. The combined area of both licences is in excess of 7,000 square kilometers.

Misr Petroleum Operates First Solar-Powered Gas Station A Misr Petroleum gas station in downtown Cairo is the first Egyptian solar-powered gas station to start operating although its official inauguration is set for the end of September, according to Al-Ahram. The national distributor of petroleum products is launching a pilot project aiming to convert more of its stations to solar energy to reduce consumption of tradi-

tional fuel and avoid service suspension during power cuts.

The project is implemented by Smart Engineering Solutions, a private company, in cooperation with publicly held Sianco.

The government is eyeing renewables and especially solar energy as a way out of the current energy crisis the country has been facing.

Egypt to Import LNG from Russia’s Gazprom Industry and Trade Minister Mounir Fakhry Abdel Nour stated that EGAS has signed a deal with Russia’s Gazprom for the import of liquefied natural gas (LNG), Russia’s ITAR-TASS reported. “Egypt will receive the first shipment in early December,” the minister said without disclosing any further details of amount or the terms of the deal. Egypt has also offered Gazprom to take part in tenders to explore oil and gas fields in the country. “The company has received suggestions, but has not participated in tenders yet. We intend to cooperate with Gazprom in any format,” he added.

CHOICE Words Our ultimate goal is to generate sustainable high growth that is well- balanced and inclusive in order to build prosperity for the Egyptian people. This is necessary to maintain political stability, and will also benefit the business community.

Abdel Fattah El-Sisi Egypt’s President

Having all these projects in place, having investors already knocking on the door to be placed and well-situated with the development projects we have, with the Suez Canal, the 5-6% growth in 2-3 years is very doable.

Hany Kadry Dimian Egypt’s Finance Minister

It will suffice just to organize and create a level-playing field for investors that protects citizens and the states rights’ in addition to guaranteeing the rights of the investor.

Ahmed El-Sewedy Head of Elsewedy Electric

Distributing the petroleum products smart card system is prepared and we are awaiting the government’s decision to apply the system across the republic.

UFG to Drop Lawsuit if Egypt Approves Israeli Gas Import Deal Spain’s Union Fenosa Gas (UFG), a joint venture largely owned by Spain’s Gas Natural and Italy’s Eni, may drop a lawsuit against Egypt if it approves a deal for the company to import Israeli gas into its idle liquefied natural gas (LNG) export plant in Egypt, a source close to the talks said to Reuters. UFG suspended exports from its Damietta plant in 2012 after the government cut off its gas supply to cover the domestic market. The move resulted in a multi-million dollar lawsuit against Egypt in the International Chamber of Commerce for breach of contract last year. “The arbitration has not been suspended but UFG would be ready to talk about it under certain circumstances... it’s on the negotiation table,” said the

source, requesting anonymity. UFG started talks for the import of gas from Israel’s Tamar field in May; however, Egyptian authorities said that approvals could not be granted. “They are confident that the Egyptian government will not block this project because it makes economic sense and it has some compelling long-term benefits for Egypt by restoring investor trust and freeing up more gas for domestic use,” the source said. Egypt’s oil ministry did not respond to Reuters’ request for comment. Texas-based Noble Energy holds a 36% stake in Tamar, Isramco Negev has 28.75%, and Delek Drilling and Avner Oil both have 15.625%. Dor Gas Exploration holds the remaining 4%.

Ibrahim Sarhan CEO of E-Finance

CARTOON

Islamic Development Bank to Finance Refinery and Airport Development A statement issued by the Ministry of Finance stated that the government expects to receive around $425 million in funding from the Islamic Development Bank to develop an oil refinery in Assiut and an airport in the Red Sea resort of Sharm el-Sheikh. $198 million are allocated for the development of the refinery while a further $226.8 million will go towards the first phase of the Sharm el-Sheikh airport project. Egypt has requested a further $223.2 million for the second phase of

the project. The lending will come in the form of a tenancy contract, which is an Islamic funding structure, and will be repaid over 15 years. It will be guaranteed by the finance ministry. The Islamic Development Bank made financing contributions of about $1.85 billion in Egypt between July 2013 and August 2014, the statement said, adding that Egypt would also seek external sources of funding for other development projects.

Egypt Buys 65% of Oil Imports From UAE The Egyptian government has approved a deal to buy 65% of its oil imports from the United Arab Emirates. The deal announced in a statement covers gasoline, diesel, heavy fuel, and liquefied petroleum gas (LPG), which is used in homes.

Further details of the deal were not disclosed, however, the statement mentioned that the price for the oil imports is “ap-

propriate.” Last month an official at the petroleum ministry said that the government is seeking to buy $9 billion worth of oil from the Persian Gulf country some of which are to be provided as grants while the rest is to be under a credit agreement and are to be paid over installments.

RWE Increases Investment in Egypt to $300 Million Germany’s RWE, a Suez Oil Company (SUCO) partner, has increased investment allocations for the 2014/2015 fiscal year to approximately $300 million, up from the previous $218m, a company official said to the Daily News Egypt. The investments will be utilised to drill new wells and develop others in the Ras Badran, Ras Fanar, and Gabal El-Zeit oil fields in the Gulf of Suez. The official added that the search for crude oil in older wells in the Ras Badran field by penetrating a second layer in the ground is currently underway. SUCO’s recoverable reserves increased by 16.78 million barrels of oil in the fiscal year 2012/2013, while it increased by 30 million

barrels over the last 3 years, the official explained. He added that SUCO hopes to increase its reserves to 64.5 million barrels of recoverable crude oil by 5% annually. The number of laboratories equipped to retrieve oil-wet rocks located in Ras Badran is to be increased, while tests will be performed on both oil-wet and water-wet rocks in order to increase crude oil production rates and draw out crude oil on rocks, the official said. In case the experiment is proved successful, it might result in an increase in investments estimated for next year’s budget.

OCTOBER 2014 - ISSUE 94

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Egypt News Carbon Holding to Start Petrochemical Project in Six BG Enhances Infrastructure in West Delta Deep Ma- Tanmeyah Aims to Raise rine Weeks Profit and Expand OperConstruction of Carbon Holding’s Tahir tonnes of benzene, 150,000 tonnes ations Petrochemicals project is to start in six of light fuel oil and 159,000 tonnes of weeks, company chairman Basil El-Baz said on the margins of the Euromoney Egypt Conference, reported Al-Ahram.

The $7 billion factory is to be the largest liquid naphtha cracker in the Middle East, with 65% of the investments provided by loans. The new facility will produce 150 tonnes of polyethylene, 100,000 tonnes of propylene, 700,000

heavy fuel oil. “The factory will produce its own electricity and we have our own water desalination plant,” El-Baz said, adding that his company “ chose not to depend on any subsidised source of energy to ensure the continuity of supply and to be able to compete in the international market.”

Al Nasr Refining Company Allocates $90 Million for New Investments Head of Al Nasr Refining company Eng. Reda Abdel Samad stated that his company is planning to allocate $90 million towards new investments for refineries and several other projects. He also stated that Al Nasr

Petroleum has successfully exported petroleum products valued at $544 million. Al Nasr Refinery is located in Suez with an output of 4,000 kilotonnes per year.

SacOil to Acquire Lagia Onshore Field African independent upstream oil and gas firm SacOil has agreed to acquire the Lagia onshore oilfield in the Sinai Peninsula. Mena International Petroleum currently has full stake in the development lease for the Lagia field, covering a 32km² area on the Sinai Peninsula.

The field is under development stage with heavy oil (16°-18° API) found in shallow reservoirs and light oil potential in deeper reservoirs. Its assets include existing production facilities and storage for 3,000 barrels of oil. SacOil plans to implement a phased development program to bring the field into production.

The first phase will feature the hydraulic stimulation of four existing wells and the work-over of one well. The work-over will start as soon as practicable upon completion of the acquisition and will be funded from existing cash resources.

The acquisition is expected to be completed by the end of October. SacOil CEO Thabo Kgogo said: “The signing of a definitive agreement to acquire Mena International Petroleum Company is another significant milestone in the history of the company and endorses our short to medium-term strategy of balancing our existing exploration and appraisal portfolio with lower-risk production and development assets. This acquisition represents the first booked reserves for the company and through our anticipated development program, we will be targeting a daily production rate from the Lagia oil field of more than 1,000 b/d by the fourth quarter of 2015.” The company owns a portfolio of assets in the oil and gas industry, which includes stakes in Malawi, the DRC, Nigeria and Botswana.

British Gas company, BG Egypt, stated that the company is enhancing the country’s gas infrastructure with an upgraded well control system enabling it to bring new wells on in the West Delta Deep Marine concession while maintaining supply from existing wells. Delivered ahead of schedule, this latest development, known as Phase 9a, has already started production from three of the nine wells in the program.The new well control system can now manage the production from additional wells simultaneously and provides the capacity for future potential developments. BG Egypt President Arshad Sufi said: “Following the $1.5 billion investment in the West Delta Deep Marine concession, our technical team has upgraded the well control system, enhancing the country’s gas infrastructure. This has enabled us to safely start up new wells while keeping existing ones producing. This has meant we have been able to supply much-needed gas to our customers and partners which has helped to support the Egyptian

economy.” Undertaken on behalf of the WDDM partners (BG 50%, PETRONAS 50%) by Burullus Gas Company (EGPC 50%, BG 25%, PETRONAS 25%), the Phase 9a project scope includes the drilling, completion, hook-up and commissioning of nine wells including rigid flowlines, flexible flowlines, infield control system umbilicals, two new main power distribution cables and associated significant topside controls system modifications and subsea structures.

The main scope for the engineering, procurement, fabrication, installation and commissioning (EPIC) of the subsea infrastructure comprising flowlines, umbilicals and structures was awarded to Saipem. Supply of the subsea controls and production tree equipment was from GE and One Subsea respectively. Drilling operations were undertaken by Saipem, Diamond and Transocean.

Saipem is currently completing the pre-drilled wells. Phase 9a projects achieved 1.9 million man-hours with zero lost time incidents.

Daily News Egypt reported that Tanmeyah Company is aiming to raise profits to about EGP 30 million by the end of this year from EGP 11 million last year, according to company chairman Tarek Al-Borqatawi. The company expects to realize the profits through expansion in professional services contracts for oil companies and the establishment of temporary gas production facilities. Tanmeyah is also working to expand by seeking to negotiate with the Petroleum Authority to develop oil or gas fields that are no longer under agreement with the partner, as well as negotiating with several oil companies operating in Egypt to conduct technical services on preferred sites with contracts expected to be signed soon, said Al-Borqatawi. The company will be buying new equipment in the coming period allowing it to expand the variety of services it provides to companies in the oil sector within Egypt, he added. Tanmeyah is also looking to expand its operations outside of Egypt through the development of fields in neighboring countries such as Syria, Libya and North and South Sudan as soon as political conditions calm down.

Drilling News

By EOG

GPC Drills New Well GPC has completed drilling a new developmental oil-producing well in its concession area in the Western Desert.

HF 35/11 New developmental well, drilled at a depth of 7,136 ft. utilizing the ST-4 rig.

MAGAPETCO Drills New Well

MAGAPETCO, a joint venture between EGPC and Trident, has recently completed drilling a new developmental oil-producing well in its concession area in the Eastern Desert. The production rate of MAGAPETCO was 35,545 b/d as of August 2014.

EEMM-31 The new developmental well was drilled at a depth of 4,441 ft. utilizing the ZJ-45L rig. Investments surrounding the project are estimated to be $500,000.

Agiba Drills New Well

Agiba, a joint venture between EGPC and IEOC, has recently completed drilling three new developmental oil-producing wells in its concession areas in the Western Desert. The production rate of Agiba was 1.897 million b/d as of August 2014.

NE-48 The new development well was drilled at a depth of 6,300 ft. utilizing the PDI147 rig. Investments surrounding the project are estimated to be $760,000.

E.AGHAR 4-26 The new development well was drilled at a depth of 6,300 ft. utilizing the WF161 rig. Investments surrounding the project are estimated to be $581,000.

DUBLIN/GPC Drills New Well

YUSR-60 The new developmental well was drilled at a depth of 4,731 ft. utilizing the EDC-1 rig. Investments surrounding the project are estimated to be $1.101 million.

Khalda Drills New Wells

Khalda, a joint venture company between EGPC and Apache, has completed drilling two new exploratory oil-producing wells in its concession area in the Western Desert. The production rate of Khalda was 4.312 million b/d as of August 2014.

RAS KAN-10X The new exploratory well was drilled at a depth of 15,500 ft. utilizing the EDC54 rig. Investments surrounding the project are estimated to be $3.206 million.

MESEDA H-13 The new oil-producing developmental well was drilled at a depth of 4,580 ft. utilizing the ZJ-45L rig. Investments surrounding the project are estimated to be $700,000.

FIRESTONE-1X The new exploratory well was drilled at a depth of 12,317 ft. utilizing the ST-10 rig. Investments surrounding the project are estimated to be $3.206 million.

PETRODARA, a joint venture between EGPC and TransGlobe, has completed drilling a new oil-producing well in its concession area in the Eastern Desert.

The production rate of PETRODARA was 273,217 b/d as of August 2014.

ARTA-38 The new developmental well was drilled at a depth of 4,265 ft. utilizing the ST-7 rig. Investments surrounding the project are estimated to be $710,000.

EGYPT OIL & GAS NEWSPAPER

Kuwait Energy has completed drilling a new oil-producing wells in its concession area in the Eastern Desert.

DUBLIN/GPC has recently completed drilling a new gas and oil-producing well in their concession area in the Eastern Desert.

PETRODARA Drills New Well

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Kuwait Energy Drills New Well

GPC/SCIMITAR Drills New Well

GPC/SCIMITAR has completed drilling a new developmental oil-producing well in its concession area in the Eastern Desert.

ISS-123 New developmental well, drilled at a depth of 1,822 ft. utilizing the SHAMS-1 rig. Investments surrounding the project are estimated to be $350,000.

OCTOBER 2014 - ISSUE 94

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Mediterranean News Israel’s Leviathan Production Might be Delayed Leviathan developers Noble Energy of Texas and Israel’s Delek Group are running out of time to finalize major supply deals with Egypt and Jordan to ensure government support for developing the resource before a November deadline set

by Israel for the developers to submit their plans for getting the field to production stage, reported Reuters. Turkey was one of the biggest potential customers for the Israeli gas, however, the deal is no longer under consideration as a result of a political fallout from the latest 50day Gaza assault. Failure to meet the deadline will result in a delay of production, which was expected in 2018. Meanwhile, a number of new export projects around the world threaten to reduce profits.

Leviathan’s estimated gas reserves of 622 billion cubic meters are far too large for Israel’s domestic use, making export deals critical to the project’s viability, with first phase development costs estimated at $6 billion. In the past six months, renewed tensions with Turkey, a lack of progress on teaming up with a Cypriot gas export plant and tax disputes with Australian LNG specialist Woodside have jeopardized Israel’s access to the world’s biggest gas markets in Europe and Asia. The preliminary agreement with Jordan for gas supply is a push in the right direction, however, so far only the Palestinian Authority has committed to buying gas, agreeing to a 20-year deal worth $1.2 billion.

Libya’s El Sharara Field Shuts Down, Zawiya Refinery Operating Temporarily Fighting between armed groups near the Zawiya refinery is threatening the output after rockets fell close to the 120,000 b/d refinery, which is being fed by the nearby El Sharara field. The field has shut down production after a storage tank at the refinery was damaged

by the rockets, an oil official stated according to Reuters. The refinery is currently working on storage, the official added that it is to shut down after it uses up its stock. Ongoing fighting between armed groups in Libya has affected its oil output and exports lately.

Greece to Act as Bulgaria’s Safety Net for Gas The Bulgarian government is eyeing Greece for gas import as the fears of Russian gas disruption heighten, reported Reuters. Bulgarian Interim Economy Minister Vasil Shtonov said Bulgaria is already holding talks with its southern Balkan neighbour. “We are working to reverse natural gas via an existing gas pipeline with Greece

as we could receive additional quantities between 1 to 3 million cubic meters per day,” he said. Bulgaria plans to reserve capacity at a LNG terminal near Athens, the Chiren gas storage facility, and then pump it through an existing pipeline between Bulgaria and Greece, which currently carries Russian gas to Greece.

Edison and Eni to Renegotiate Libyan Gas Contract Italian utility Edison confirmed to Platts that the second round of re-negotiations for its contract with Italy’s Eni to import some 4 billion cubic meters per year of Libyan gas to the Italian market is still ongoing.

Edison said it had successfully rene-

Algeria’s

In Amenas Gas Plant to Resume Normal Operation 8

gotiated the price of its gas import contract with Promgas, Gazprom’s subsidiary in Italy. An initial renegotiation of Edison’s contract with Eni for Libyan gas supplies was concluded in 2012. Edison’s press office said it didn’t want to comment on whether price, volumes or both aspects are subject to the current renegotiations.

Eni wasn’t available to comment when contacted by Platts.

Spain Looks for Bailout From Castor Compensation The Spanish government is studying a plan that would save it from assuming the cost of bailing out underwater gas-storage facility Castor, after it was abandoned following a series of minor earthquakes off the coast of Castellon. Two sources, with direct knowledge of the matter, said to Reuters that the government had appointed gas grid operator Enagas to reach an agreement with a group of banks regarding the 1.4 billion euro ($1.8 billion) compensation owed to Escal UGS after the government halted works in the Castor facility. The government ordered Escal UGS, jointly owned by Spanish builder ACS and Canada’s Dundee Energy, to stop gas injections

STATISTICS

Greece to Start Licensing 20 Oil and Gas Exploration Blocks Anadolu news agency reported that Greece will start licensing for natural gas and oil exploration in areas along its western coast. The government will open up 20 offshore and three onshore blocks ranging from 1,800 to 9,500 square kilometers in western Greece and the south of Crete, after a call for tenders is published in the EU Gazette at the end of September, according to a representative of the Greek Ministry of Environment, Energy and Climate Change who spoke to Anadolu Agency. “We expect €150 billion (approximately $193 billion) of investment over the next 30 years… But those are very rough estimates until the companies come up with firm programs.” Greece currently produces 1,250 b/d of crude oil and 5 million cubic meters per day, accounting for less than 1% of the country’s domestic demand according to the U.S. Energy Information Administration (EIA). The deal will open up an area measuring 101,000 square kilometers.

Companies will have six months to submit their offers after the call for tenders is published. After the assessment and negotiation period is over, exploration activities are expected to start in September 2015. Applications from companies will be considered according to their legal statues and financial and technical capability, the representative said, adding they must apply with a bank guarantee, and applications from “tax-haven” countries will not be accepted.

A major gas plant in Algeria where 40 employees were killed by Islamist militants last year is returning to normal operations following a big step up in security, one of the plant’s operators stated in September according to Reuters. Norway’s Statoil said the In Amenas plant, which accounted for about 11.5% of Algeria’s natural gas output before the attack, would return to full production in a few months. Statoil had kept its permanent workers away from the plant, which it operates jointly with BP and Algeria’s Sonatrach, after gunmen raided the site deep in the Sahara desert in January 2013. Foreign workers were taken hostage in a four-day siege

EGYPT OIL & GAS NEWSPAPER

into the plant last autumn after more than 200 minor earthquakes were detected in the area. The facility is meant to store 30% of Spain’s daily gas consumption. “They’ve asked Enagas to intermediate so that the banks finance the bailout and, in exchange, receive payment rights from the gas system. This solution would be neutral for Enagas’ balance sheet,” one of the sources said to Reuters. Spain has one of the largest public deficits in the European Union after a property bubble burst in 2008 and prolonged recession gutted public coffers, the compensation might have a big effect on an already high public deficit.

Mediterranean

Production (barrel) Oil August-12

August-13

August-14

Equivalent Gas August-12

August-13

August-14

23458571

20684821

15704286

Condensate August-12

August-13

August-14

1171055

1251821

799102

Liquefied Gas August-12

August-13

August-14

371488

390137

320561

23458571 20684821

15704286

August-12

August-13

August-14

Mediterranean Rig Count April 2014 Total

5

that ended with security forces storming the facility. “The corporate executive committee has decided that ordinary rotation (of staff) is to be resumed at the plant as all defined security measures have been implemented,” Statoil said in a statement. Security measures have been upped to insure the security of the returning workers with an onsite airport and more barriers constructed around the site. “The security has been boosted with a permanent military presence on the site, helicopters scanning the region, and the airport is ready to receive the expats who will no longer need to travel the 50 km (31 miles) from In Amenas’ airport to the base,” Bachir

Percentage of Total Rigs

4%

Benzergua, head of the union for workers at In Amenas, told Reuters. A return of In Amenas to full operations would free up more gas for Algeria to export. “The work to repair the third processing train is ongoing and it will take another few months before it is fixed, so that production can return to normal,” said the Statoil spokesman. “When the third processing train is back, we expect to return to full production.” Statoil’s current share of production at In Amenas is 16,000 boe/d, against a level of 22,000 boe/d before the attack, he said. The plant has a total production capacity of 9 billion cubic meters per year.

International News Edison and E.On Italia in Merger Talks Edison, the Italian power company controlled by France’s EDF, is set to enter private talks with E.On to buy the German group’s Italian unit E.On Italia, three sources close to the matter disclosed to Reuters. The talks aim at achieving a merge between Edison and E.On Italia.

The sources added that Italian regional utility A2A had presented a non-binding

offer for E.On’s hydropower assets and gas clients in Italy, while GDF Suez was interested in E.On’s hydropower, solar, and wind assets as well as its gas clients.

E.On is looking into the sale of its country operations in Italy and Spain as a result of approximately $42 billion in net debts as well as a demise in wholesale power prices.

Germany Sells RWE’s DEA to Russian Billionaire Germany’s economy ministry approved the sale of utility RWE’s oil and gas unit to a Russian investor despite tensions between Russia and the West over the Ukraine crisis, reported Reuters. The goahead removes the biggest hurdle for the €5.1 billion ($6.9 billion) sale, a major plank in RWE’s struggle to reduce a debt burden of more than €30 billion. As part of the deal, Russian tycoon Mikhail Fridman and his co-investors will get stakes

in about 190 oil and gas licenses or concessions in Europe, the Middle East and North Africa. The deal was announced earlier in March. The European Union’s antitrust watchdog has already given the green light but regulators in a few other countries, which RWE declined to name, have yet to give their approvals. RWE, Germany’s largest power producer, has previously said it expects the deal to be finalised this year.

Wintershall to Acquire Shares in Oil and Gas Fields From Statoil for $1.25 Billion The BASF Group Company, Wintershall is further expanding its oil and gas production and resources in the North Sea, according to a press release issued by the company. Wintershall will acquire shares in the two producing fields Gjoa (5%) and Vega (24.5%), the development project Aasta Hansteen (24%), the Asterix discovery (19%), the Polarled pipeline project, as well as equity in four exploration licenses in the vicinity of Aasta Hansteen from Norwegian company Statoil ASA. The shares in the assets comprise reserves and resources of around 170 million barrels

of oil equivalent, (boe). In addition, the companies agreed that Wintershall will become the operator of the producing field Vega, subject to the approval of the authorities and the consent of the other license partners. The transaction will be executed with payment of the purchase price of $1.25 billion and will be effective retroactively from January 2014.

Statoil and Wintershall signed the agreement on September 12, 2014 in Stavenger. The closing is expected to be by the end of the year, subject to approval. Wintershall will raise its production in Norway from 40,000 boe to 60,000 boe. Heige Lund, the President and CEO of Statoil was quoted, “The transaction and Wintershall’s further expansion in Norway clearly demonstrate the attractiveness of the Norwegian continental shelf. We look forward to extending our well-established partnership into the Aasta Hansteen field development.

Total to Attempt Sale of West African Offshore Field The French oil company Total has put one of its Nigerian oil fields up for sale after a deal with the Chinese company Sinopec Corporation fell through, Reuters reported. Total hired BNP Paribas to find interested parties for the Usan deepwater oil field.This field is located in the Nigeria Oil Prospecting Lease, (OML) #138. Total is asking for $2.5 billion for the field located 100 km off the coast. It might be difficult to find a buyer, “Anything in Nigeria is a tough sell,” said a London-based banker, “And anything with capex is even tougher these days. Very few players would be willing to acquire assets that have a big investment commitment attached.” The new owners could also face a higher tax rate if Nigeria

raises taxes on foreign investor profits, as it is expected to do in a coming business-sector reform, the Petroleum Industry Bill. Other partners in the venture are Chevron, ExxonMobil, and Nexen. Total is trying to offload several asset disposals in order to meet a 2015 budget target of $10 Billion in cash flow. International companies are under pressure to not take on any investment-heavy deals and local Nigerian companies may not have the capital to exploit the field. Conoco-Phillips sold its Nigerian operations to Oando, a Nigerian company, earlier this year for $1.5 Billion. Chevron is also selling its West African assets and Shell also recently sold four Nigerian oil fields.

Gazprom Reduces its Gas Supply to Several Countries Poland, Slovakia and Romania have reported a decrease in their gas supplies from the Russia’s Gazprom. Austria has also reported drops in gas supplies according to Reuters. Poland’s Deputy Prime Minister Janusz Piechocinski said that recent disruptions in gas supplies from Russia were an attempt by state-controlled Gazprom to test Polish resolve. Gazprom said it was not able to supply Poland with the volumes of natural gas it was requesting and could only deliver levels closer to daily minimum allowed under the contract. Poland’s state controlled importer PGNiG’s 2013 annual report shows

gas imported from Gazprom accounted for 54% of total sales at 16.2 billion cubic meters. Gazprom has notified Romania of supply cuts mid September. Gazprom has pledged to deliver Poland the requested amount of gas, hopefully allowing Poland to provide the usual gas amounts to Ukraine. A similar promise was made to Romania, “Our (pipeline operator) Transgaz was notified by Gazprom’s office in Sofia that gas deliveries will be in line with normal levels,” Romania’s Energy Minister Razvan Nicolescu told state news agency Agerpres.

Poland Aims to Become Central and Eastern Europe’s Trading and Transit Hub Poland is taking steps towards creating a gas trading and transit hub in Central and Eastern Europe aiming to shake off the reliance on Russian imports. Poland is to open a liquefied natural gas terminal in 2015 and build new pipelines, including a planned north-south corridor stretching to Croatia, to help ease the grip of Russia’s Gazprom over former Soviet bloc nations, specially after the fluctuating gas amounts Gazprom has been supplying the region lately, reported Reuters. Poland also intends to upgrade gas links to Lithuania to allow the re-export of gas to the Baltics, as well as working on plans to build 2,000 km of pipelines criss-crossing the country over the next

10 years. “The north-south corridor, currently under construction, could be an interesting alternative, particularly for the southern countries, as it will make it easier for them to access non-Russian gas,” Tomasz Chmal, an analyst at Poland’s Sobieski Institute, said to Reuters. Poland is hoping the new LNG terminal expected to open in the port city of Swinoujscie in 2015 will provide the sufficient liquidity required for a gas hub. The facility will initially be able to accept 5 billion cubic meters (bcm) per year after Poland signed a deal to bring in Qatari gas. A potential third storage tank could boost capacity to 7.5 bcm.

Eni Makes Oil Discovery in Ecuador Italian oil and gas group Eni said in a statement it made an important oil discovery in Ecuador with an estimated 300 million barrels of crude in place, reported Reuters. The discovery was at the Oglan-2 exploration well located in Block 10, approximately 260 kilometers southeast of Quito. “The data acquired in the Oglan well indicate a production capacity per well up to 2,000 b/d of oil,” Eni said.

Rosneft Sells 90,000 Tonnes of Naphtha to Vitol Russia’s Rosneft has sold up to 90,000 tonnes of naphtha for October loading from Vostochny to Vitol, reported Reuters. The spot deal was at flat levels a ton to Japan quotes on a freeon-board (FOB) basis. Weaker demand and higher volumes from Europe, the Mediterranean and the U.S. into the Far East have forced Asian prices to plummet. Last October, Rosneft made a one year deal with Japan’s JX Nippon

and Malaysia’s Petronas for $25 per ton premium for a year for cargoes lifting from Nakhodka.

The Nakhodka terminal is mainly used to export oil products from the Komsomolsk Refinery, the Angarsk Petrochemical Company, and the Achinsk Refinery, according to Rosneft’s website. Rosneft has, however, halted production at the east Siberian Achinsk refinery after a fire broke out in June.

Exxon Mobil “Winds Down” Russian Arctic Drill Exxon Mobil Corp has wound down drilling an offshore oil well in Russia’s remote Arctic just a few days after the United States and European Union barred companies from helping Russia exploit Arctic, deep-water or shale-oil fields, Bloomberg reported. The United States and European Union are planning to stop billions of dollars in oil exploration in Russia by the world’s largest energy companies including Exxon Mobil and BP Plc, U.S. government sources told Reuters. “We are still assessing the sanctions but will comply with all laws and regulations,” Exxon Mobil spokesman Richard Keil told Reuters. He declined to comment on whether the company had stopped drilling the well. Rosneft Oil was not available for comment. The well

could have tapped into 9 billion barrels of crude - worth about $885 billion at current prices that is estimated to be deep under the floor of the Kara Sea, the Bloomberg report said. Exxon and Seadrill Ltd’s North Atlantic Drilling unit were under pressure to finish or temporarily seal the $700 million well, the report quoted Chris Kettenmann, chief energy strategist at brokerage Prime Executions Inc. as saying. Oil companies were given until September 26 to halt their activities in Russia, however, Exxon was granted an extension. “Following the short time extension, the license is non-renewable and no further work is permitted,” Exxon spokesman Richard Keil told Reuters.

Canada’s Suncor Ships First Heavy Crude Tanker to Europe Suncor Energy Inc., Canada’s largest oil and gas producer, is shipping its first ever tanker of Western Canadian heavy crude from Canada’s East Coast to Europe, a company spokeswoman said to Reuters. Suncor spokeswoman Sneh Seetal confirmed Reuters shipping data that shows the aframax tanker Minerva Gloria was set to pick up a cargo of crude oil from the port of Sorel-Tracy on the St. Lawrence River in Quebec. Seetal declined to comment on where in Europe the crude cargo is going, citing commercial confidentiality. The cargo is to be discharged in the Mediterranean, according to Reuters data. Barclays analyst Michael Cohen said to the news agency he did not know of any other instances of a cargo of Western Canadian crude making its way to Europe via rail and tanker from Canada’s East Coast. The crude was delivered by rail to a storage facility in Sorel-Tracy that is owned by Kildair Service Ltd. “Canada and the United States remain our key markets but it’s important that we establish customers outside North America,” Seetal

said. “The crude is inland crude, shipped by rail to the Kildair terminal, where it is loaded on to tankers. This is the first time Suncor has done that.” Producers in the Alberta oil sands in Western Canada have been desperately seeking ways to get their crude to higher-priced international markets. The emergence of this new export route is likely to anger environmentalists who are seeking to block any avenue for shipping crude from the Alberta oil sands, where production entails high greenhouse-gas emissions, to refiners.

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Gulf News IFC Invests $100 Million in Saudi’s ACWA

Oman Oil Secures $1.85 Billion Loan

In a statement carried by WAM news agency, the International Finance Corp (IFC), a unit of the World Bank, said it has completed a 375 million Riyal ($100 million) equity investment in ACWA power, a Saudi-based water and power project developer. The investment plans were initially disclosed by the IFC in July. The investment is

Oman Oil Co, the sultanate’s state-run oil firm, signed a $1.85 billion two-part loan deal with a group of 15mainly international- banks sources stated to Reuters. The revolving credit facility is split between a $1 billion three-year tranche and an $850 million piece with a five-year lifespan, the sources said. Oman Oil did not comment on the matter. Financing activity in Oman has picked up in 2014 as a number of infrastructure schemes come to market, after a period of relatively little activity outside the local banking market. Oman Oil Refineries and Petroleum Industries Company (Orpic) signed a $2.8 billion loan with a consortium of banks in May to fund various projects including an expansion plan for its refinery in the industrial city of Sohar. Meanwhile, Electricity Holding

to boost the amount of funding for renewable energy projects to help meet growing power demand in the Middle East and Africa. ACWA aims to complete a stock market flotation in the kingdom by early 2015, having chosen the investment-banking arm of Banque Saudi Fransi to arrange the listing, an executive confirmed in May.

Israel to Supply Jordan With $15 Billion Worth of Gas According to a memorandum signed early in September, Israel is to supply Jordan with $15 billion worth of natural gas over the next 15 years, reported Telesur news agency. The new agreement along with two previous gas deals makes Israel the primary gas supplier to Jordan especially after halting the Egyptian gas supply. The Israeli Energy and Water Minister, Silvan Shalom, called the latest agreement, “a historic act that will strengthen the economic and diplomatic ties between Israel and Jordan.” He added in a statement, “at this time, Israel

is becoming an energy superpower, which will supply the energy needs of its neighbors and strengthen its standing as a central source of energy supply in the region, and I welcome it.” In 2009, a gas deposit was discovered 56 miles off the coast of Haifa, Israel. The Tamar deposit holds approximately 8.5 trillion cubic feet of natural gas. A larger deposit, Leviathan, was discovered in 2010, 81 miles off the coast of Haifa. It is estimated to have between 16 and 18 trillion cubic feet of gas and will be fully operational by 2016.

Iraq Files Two Lawsuits in an Effort to Halt Kurdish Oil Exports Iraq has filed two lawsuits early in September, the first is in a Texas court to seize a million barrels of Kurdish disputed crude oil in a tanker – The United Kalavrvta – anchored offshore Texas since July. The lawsuit comes after the court said it lacked jurisdiction to have the cargo seized, but that it could hear arguments about who is the oil’s rightful owner, reported Reuters.

Iraq has also filed a lawsuit against Greek shipping company Marine Management Services (MMS) for its role in the shipping of the disputed “illegal” oil, according to a statement released by the Iraqi government. “MMS is liable for damages of at

least $318 million, and possibly significantly more, as a result of its willing and active participation in the KRG’s illegal crude oil export scheme,” the statement read. On the other hand, Turkish Energy Minister Taner Yildiz stated to Reuters that the Kurdistan Regional Government has shipped 10 million barrels from the Turkish port of Ceyhan. He added that the 13th tanker had been shipped from the autonomous region, adding that the flow from northern Iraq to Turkey had increased to 180,000 b/d.

Company, the holding firm for all electricity firms in the sultanate, plans to raise $2.1 billion from a loan or bond issue by the middle of next year and has hired JP Morgan and Bank Muscat to advise it on financing options, its chief executive was quoted as saying in June.

Iran Increases LPG Exports by 15% Turkish Weekly reported that Iran increased its exports of liquefied petroleum gas (LPG) by 15% to 300,000 metric tonnes (mt) between August and September, according to the Islamic Republic of Iran Shipping Lines. China imported 240,000 mt of LPG from Iran while India received 45,000 mt, according to the shipping agency’s report. Iranian exports reached a peak of 319,000 mt in May, close to the

export volumes seen before the European Union imposed sanctions in 2012. Since January, Iran has exported 2.1 million mt of LPG to Asia, most of which went to China, but also to India, South Korea, and other Southeast Asian nations. The Iranian oil ministry has announced that a new refinery is close to completion and will produce 4 million liters of LPG per day.

Iraqi Oil Exports Up from Southern Terminals Exports from Iraq’s southern terminals have averaged 2.58 million b/d, according to shipping data for the first 23 days of September tracked by Reuters.

“There are still delays, but they are reduced,” said a source with a company that trades Iraqi crude. “The fields are far from the fighting, so that helps.” Southern exports so far in September are up from the average of 2.38 million b/d during all of August and if sustained, would equal May’s average of 2.58 million b/d, which was the highest since at least 2003.

A shortage of water - used for injection into oil wells

to flush crude to the surface, is hindering production at two mature southern fields - West Qurna-1 and Zubair, official and industry sources said earlier in September to Reuters. Total exports from Iraq’s northern and southern ports hit a record 2.80 million b/d in February. But northern exports of Kirkuk crude have been shut since March 2 due to attacks on a pipeline to Turkey, keeping total exports below their potential.

Unconventional News Water Scarcity Hindering China’s Shale Gas Production China holds the largest shale gas reserves in the world but much of it might not get developed due to water scarcity, according to OilPrice. com. A report from the World Resources Institute says China is suffering from high water stress, which may prevent it from developing its shale reserves. China, according to the U.S. Energy Information Administration (EIA) is sitting on 1,115 trillion cubic feet of technically recoverable shale gas. Not being able to recover it would present a large problem for a nation that will see its natural gas consumption triple over the next 25 years. The central government is putting a lot of effort into acquiring the know-how to extract shale oil by investing in North American concerns such as Chesapeke Energy and Encana, both investments which are seen not so much as financial endeavors, but as ways to learn about North American shale techniques. In China, over 60% of its resources are located in areas with “high to extremely high” water stress. This could cause tension with local populations and business interests who also need the water.

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San Leon Energy Produces Shale From Moroc- Tomco Reaches Milestone in Utah’s Holliday can License San Leon Energy, a European shale gas company, has produced the first shale oil from its Timahdit permit in Morocco, reported in Oil Review Africa. Authorities from San Leon stated that oil flowed from the Enefit retort process during the bench tests. Although the company is still carrying out tests in the area, the results are encouraging. Final results will be utilized to update the project’s feasibility study, enabling consideration of the upgrading options for the raw oil. The executive chairman of San Leon Energy, Oisin Fanning said, “Our Timahdit oil shale project continues to show its long-term potential to generate up

to 11,000 b/d for 30 years and the current work is designed to build the business case to attract capital investors.” It was reported by local sources that the European company signed an MoU with Chevron Luminous Global to maximize technologies required to produce crude oil from raw shale at the Timahdit license area. Surface and core sampling of shale oil was completed at that time. The samples are currently the subject of bench tests at the EOT/Enefit facility in Frankfurt to confirm the quality of the various layers of the shale, and the oil yield possible. The well is targeting 300 million barrels of oil equivalent.

Malaysia’s Petronas Signs $500 Million Argentine Shale Deal The Argentine and Malaysian state energy firms YPF and Petronas have signed a deal to invest $500 million to develop shale oil in Argentina’s Vaca Muerta fields, YPF said, as reported by Channel News Asia. Petronas will put up $475 million of the total investment in the Amarga Chica block, which is part of a huge shale find in southwestern Argentina, estimated to contain the equivalent of 27 billion barrels of oil. The deal was signed in Kuala Lumpur after a tele-conference between Argentine President Kirchner and Malaysian Prime Minister Razak. YPF said in a statement, “The two companies will at the same

EGYPT OIL & GAS NEWSPAPER

time evaluate expanding their strategic partnership to other exploration areas with potential for non-conventional resources.” YPF has previously signed similar deals with U.S. firms Chevron and Dow Chemical. Other French and German companies have independent exploration operations in Vaca Muerta. Oil companies are keen to exploit these vast deposits using fracking techniques. YPF has the rights to more than 70% of the 180 wells currently being developed at Vaca Muerta, but it is looking for foreign investments and technical help in developing them.

Tomco Energy reported it reached an important milestone in the Holliday unconventional project in Utah. It has now submitted the final details required by authorities in Utah concerning the company’s plan to begin large mining operations (LMO). The authorities are now able to consider a decision to tentatively approve the LMO and begin a 30-day public consultation. Meanwhile, Tomco is having a permit application processed for securing a Ground-Water Discharge Permit (GWDP). Tomco said it is moving forward and plans to make the final submission during the 4th quarter this fiscal year. Holliday project aims to unlock 216 million barrels of shale oil using a new technology called Eco- Shale, designed to address environmental concerns. The technology used in the project is being

licensed by Red Leaf Resources which –along with French oil company Total– is undertaking its own “proof of concept” project at the Seep Ridge property fifteen miles away. The Eco- Shale process involves the extraction of oil bearing shale “in capsule” with the oil subsequently separated via a heating process. Red Leaf’s mining phase is near completion.

Tomco’s intention is to closely monitor the precedents set by Red Leaf, which is expected to to show the commercial viability of Eco- Shale. Tomco CEO Paul Rankine said, “Tomco is pleased with the ongoing progress in relation to its LMO and GWDP applications... Furthermore, the company is also encouraged by progress at Red Leaf’s nearby Seep Ridge project as it develops its commercial demonstration plant.”

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OCTOBER 2014 - ISSUE 94

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Downstream Russia and China Construct “Power of Siberia” Russian President Vladimir Putin and China’s Vice Premier Zhang Gaoli commenced the construction of the 4,500 km “Power of Siberia” pipeline. The pipeline, which has a capacity of 61 billion cubic meters (bcm) per year, is constructed by Gazprom and is to carry $400 billion worth of Russian gas to China and to remote regions in Russia’s Far East. Gazprom said it planned to launch its far eastern Chayanda gas field at the end of 2018, aiming to ship the first gas to China in 2019. Chayanda is one of the keys

to supplying China and will produce up to 25 bcm a year at its peak.

Flows through the “Power of Siberia” will start at 5 bcm of gas in 2019, ramping up to 38 bcm under a deal signed by the two countries in May. Apart from Chayanda, Gazprom plans to link another huge Siberian deposit, Kovykta, with the planned pipeline. This would extend the country’s gas pipeline system from west to east, enabling Russia to switch volumes as needed.

Snam to Buy 82.2% in TAG Pipeline Snam, the Italian gas grid operator, has approved the purchase for €505 million ($654 million) of an 89.2% stake in the TAG pipeline carrying Russian gas into Italy, reported Reuters. The acquisition of the stake from Italian state lender Cassa Depositi e Prestiti (CDP) is

part of Snam’s four-year business plan to 2017 unveiled in March.

Snam is to raise the money to pay for the stake through a capital increase reserved to CDP GAS, an investment vehicle owned by CDP. The deal is expected to close by the end of March 2015.

Aibel Awarded Pipeline Contract by Statoil Norwegian Aibel has been awarded a $50.51 million contract by Statoil for work at the Kalsto Robustness project in Norway, reported Upstream news. Gassco, the project operator, announced Aibel received the contract for the upgrade of the gas pipeline landfall at Kalsto. The contract covers engineering, procurement, removal and installation.

Studies found aging of components at the pipeline and a need for maintenance at the facility on Karmoy Island, stated Gassco. Karmoy Is-

land is the point where several gas pipelines come ashore. Aibel is to construct a new control room and replace the existing control system and oil instruments. Along with the removal of an existing pig trap for Statpipe and the installation of a new valve system, the upgrades will maintain safe operations until 2050. Aibel is to start work immediately and finish by the beginning of 2017.

Iran to Invest $8.5 Billion in IGAT-9 Fars news agency reported that Iran is to invest $8.5 billion in the Iran Gas Trunkline-9 (IGAT9) to feed the country’s Western provinces and to facilitate future gas exports to Europe according to an official at the National Iranian Gas Company. “With the completion of IGAT-9, 10 million cubic meters will be added to the country’s gas delivery ca-

pacity,” said the official, adding that the trunkline has 17 units of pressure boosting stations.

The 1,800 km IGAT-9 (known as Europe Gas Export Line) starts from East of Assalouyeh and passes through provinces of Khuzestan, Ilam, Kurdistan, and West-Azerbaijan and reaches to Turkey’s border.

EU Commission Looks at Gazprom’s Access to OPAL Pipeline ITAR-TASS reported that The European Commission is studying options for Russian energy giant Gazprom and independent suppliers for access to Germany’s OPAL gas pipeline based on the Third Energy Package rules, German Federal Network Grid Agency spokeswoman Jennifer Rendla. Under the rules of the Third Energy Package, Gazprom is required to reserve up to 50% of the OPAL gas pipeline’s capacities for gas transportation by independent gas suppliers. The move is intended “to ensure reliable energy supplies and participation in auctions for the sale of the OPAL gas pipeline capacities” amid the continued crisis in Ukraine, the main transit route for Russian natural deliveries to Europe, Rendla said. The OPAL gas pipeline runs along Germany’s eastern border with an annual capacity of 36 billion cubic meters. It provides a link from Russia’s Nord Stream gas pipe running under the Baltic

Sea to Europe’s existing gas transport networks. The pipeline pumps Russian natural gas across Germany and farther to the Czech Republic.

Gazprom has requested an exclusion to the pipeline from the rules of the Third Energy Package in 2013.

German Federal Network Agency spokesman said that given the European Commission’s consent and in compliance with the agreement on the OPAL gas pipeline, Gazprom will get exclusive access to 50% of the pipeline’s capacities in the future while the remaining 50% will be distributed at market auctions through the company Prisma Primary set up to operate the primary capacity platform for the reservation of Europe’s gas transportation capacities. “If the European Commission approves the agreement, then 50% [of the capacities] will be offered to free market participation through auctions,” the spokeswoman said.

Total Sells 25% Stakes in Utica’s Shale Transport Company French Total has agreed to sell its 25% stake in Cardinal gas service, a gas transport company operating in the Utica shale gas basin in Ohio, for about $450 million, according to a statement issued by Total. The buyers, South Korean gas seller E1 Corporation and a consortium led by Korea-based Samchully, agreed to buy the stakes for $400 million with an adjustment of an estimated extra $50 million. “Total will remain an active participant in the Utica play through its upstream joint venture with Chesapeake and Enervest, and Cardinal will continue to provide to Total the same gas gathering and transportation services,” the group said. The deal is expected to close in October 2014.

Egypt Sets Private Sector Buying Tariff and Eyes Investments The Cabinet under Prime Minister Ibrahim Mehleb approved a proposal of the Ministry of Electricity and Renewable Energy regarding the tariff for purchasing electricity from the private sector to encourage its participation in establishing power stations. Minister of Electricity Mohamed Shaker stated in a press conference that the energy tariff has been divided into five categories so that the price per kilowatt for households is EGP 0.84, but for 200 kilowatts of usage, the price rises to EGP 0.911. The third category, between 200 to 500 kilowatts, will be charged EGP 0.973, while the fourth, ranging from 500 kilowatts to 20 megawatts, will be charged EGP 0.973 per kilowatt-hour.

The last category, which stretches between 20-50 MW, will be charged EGP 1.02 per kilowatt-hour. He added that, “the sale price for power generated from wind is calculated by the number of operating hours, and from 2500 hours up through 3000 hours, the rate is EGP 0.828.” The rate will be set at EGP 0.684 for 3000-4000 hours, Shaker said.

The government is targeting the generation of 2000 MW of wind energy and 2300 MW through solar; however no timeline has been

specified for the implementation. Meanwhile, Al-Mal newspaper reported that the New and Renewable Energy Authority (NREA) has received an offer from a Kuwaiti-Bahraini-Swiss coalition for the construction of a 2,000 Megawatts solar plant. The project is to have a total investment of $4 billion with a first phase delivered by 2017 producing 800 Megawatts. The government is currently working on a law that would allow for stateowned lands to be made available for new energy production projects under a usufruct system in exchange for 2% of the energy produced. The electricity companies will be obligated to purchase and transport the energy, Al-Ahram reported earlier in September. The government hopes for new and renewable energy to account for 20% Egypt’s total energy mix by 2020. In June, Minister of Industry and Foreign Trade Mounir Fakhry Abdel Nour announced that American solar energy firm, the Consilio Group which is exclusively focused on Egypt, is planning to set up projects worth $100 million; however, the deal has not yet been concluded with the government.

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12

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OCTOBER 2014 - ISSUE 94

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In Review

Can Subsidy Cuts Curb the Energy Black Market?

“In every country in the world there is a black market,” says Sherif El-Diwany, Executive Director of the Egyptian Center for Economic Studies. “But ours is huge and that’s what makes it so damaging for the economy.”

By Patrick Keddie An energy market distorted by subsidies provides an environment that is ripe for shortages and exploitation of black market profits. In early July, the Egyptian government announced a range of drastic cuts to energy subsidies. Subsidized gasoline and diesel fuel prices rose by as much as 78%.

Electricity subsidies are to be completely phased out over a five-year period, with prices set in rise by up to 56% in some pricing tiers in the short-term.

Natural gas subsidies to several industries are being slashed.

The government hopes that, in addition to easing the budgetary strain caused by subsidies and promoting energy investment, the cuts will also help to curb extensive black market activity. Yet, a closer investigation of subsidy cuts on the energy black market exposes both the potential for change and the pitfalls, revealing political tensions that could undermine attempts to tackle an entrenched phenomenon.

Energy Subsidies and the Black Market “When you have such subsidized goods, the market always wins,” says El-Diwany. When gas stations receive subsidized fuel that they are supposed to sell at fixed prices, the discrepancy between the fixed price and the market price is huge and makes the prospect of selling fuel on the black market extremely tempting. Criminal gangs run phantom gas stations that only exist on official paper.

Cheap fuel prices make fuel smuggling into neighboring countries an attractive prospect. Shortages of electricity lead to the development of a market in generators; a shortage of generators leads to a black market in generators. Fuel that could be used for transport is diverted for generator use – creating further shortages and forcing some to buy diesel on the black market.

According to Al-Ahram, 75% of Egyptian households rely on subsidized butane gas cylinders. The official, subsidized price of a gas cylinder is LE 8, but shortages and inefficient distribution mean that people can often only procure them on the black market at between LE 25-LE 50.

Many analysts believe that cutting the energy subsidies will reduce the incentives for selling fuel and other energy-related products on the black market. Justin Dargin, energy expert at the University of Oxford, says that the rise in energy prices to the market rate “is perhaps the single most effective solution against black market activity as it will no longer be profitable.”

“Black markets emerge when there are price distortions,” says Ragui Assaad, Professor of Public Affairs at the University of Minnesota. “We have had lower energy prices than Libya, which is a

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huge oil producer. If you remove the price distortion, and you make the energy prices more similar to its neighbors, then you reduce the smuggling.”

The authorities have also announced measures to better monitor the allocation of subsidized fuel in order to curb illicit trading.

According to a recent report in Daily News Egypt, an official at the Egyptian General Petroleum Corporation claimed that the first implementation phase of a new smart card system to monitor fuel deliveries and transactions had reduced smuggling by 60%. The official claimed that around 20% of fuel allocated for local markets was subject to smuggling.

However, previous monitoring schemes have been tried before with limited success. In March 2013, under Morsi’s administration, a spokesperson for the Ministry of Supply and Internal Trade stated that a smart card system to monitor fuel tankers was being introduced, claiming that “In one or two weeks the problem will be solved,” according to a report by the New York Times.

Sherif El-Diwany believes that electronic monitoring of sales can reduce the leakage of fuel to the black market. “And as the prices are aligned with the market, the incentives for the gas stations to sell to the black markets will come down.”

When the energy price rises were announced in early July, diesel fuel, used in trucks and minibuses, rose by 64%. Minibus fares rose by about 13% overnight, according to reports in the state media.

El-Diwany says that owners of minibuses collude and set price rises – which is illegal under Egypt’s competition laws.

“In order to control the black market the government has to make a serious effort to encourage formalization of such businesses,” argues El-Diwany, as well as reforming the laws regulating such businesses. “And then black markets, parallel markets, will shrink to their reasonable size.”

Yet, despite the measures taken to cut subsidies and increase the monitoring of energy sales, there are inherent political risks in curbing the black market and in reducing subsidies. “In normal circumstances supply and demand would work things out and black markets would evaporate,” says Paul Sullivan, Energy and Middle East expert at Georgetown University, “but the political and social situations in Egypt are far from normal.”

Patronage and Profit “Black markets breed organized and disorganized crime,” explains Sullivan. “The black marketeers are powerful in Egypt. Likely they have connections in the government indirectly or even directly at some levels. It is hard to tell and doing research

on that would not be the safest vocation.”

“Fuel smuggling and other black market activity is extremely difficult to curb in Egypt. The reason for this is that it was unofficially sanctioned for decades during the Mubarak era,” says Justin Dargin. “Many officials had a hand and profited from black market activity and quite an extensive patronage network arose from this.”

El-Diwany says that the patronage system is an important factor that it often missing from analyses of the black market. He says that the owners of many gas stations and the outlets of gas cylinders have a strong vested interest in maintaining the status quo of subsidized energy goods that can be sold on the black market, and likely have links with powerful officials.

“They are not just going to surrender,” says El-Diwany. “They are probably going to push back; they are going to try to finance riots, they are going to try to create resistance to change because they benefit tremendously from this, and they are well funded.”

Dissent from Below The reforms also carry significant economic risks for some of the most vulnerable groups in society. Egypt’s Prime Minister, Ibrahim Mehleb, has defended the social justice of cutting subsidies, claiming that the system has tended to benefit the wealthy at the expense of the poor. A recent report by the World Bank stated that more than 60% of the fuel subsidies went to the richest quintile of the population while the poorest quintile received only 7% of the subsidies.

The government claims that improved monitoring will ensure that those who deserve subsidized products receive them, such as the many poor people rely on subsidized liquefied petroleum gas for cooking, and farmers who rely on subsidized diesel to fuel irrigation pumps.

Yet, the rise in fuel prices and transportation costs are likely to have secondary inflationary impacts throughout the economy. Annual urban consumer inflation was steady at 8.2% in June but is expected to reach double figures due to the fuel hike, reported Reuters. This could have a significant impact on the ordinary Egyptian family, which already spends more than 40% of their income on food.

Many analysts criticize the paucity of measures taken by the government to protect the most vulnerable from price rises and inflation arising from subsidy cuts – such as cash transfers to the neediest, which have not been implemented.

Furthermore, the cuts to energy subsidies that have been made are relatively modest. David Butter, an analyst of politics, economics and business

at Chatham House think-tank, says that – although the subsidy cuts taken so far were important as a first step –they are not extensive enough to have a significant impact on the black market. “If you look at the actual increase in prices and how much is still subsidized then the situation hasn’t changed a huge amount. All the main energy products are still heavily subsidized so there is still a lot of scope for black market activity.”

If – as most analysts believe – much deeper cuts to energy are required to have a significant economic impact, including curbing the black market, the government risks further hurting the poorest in society and triggering greater misery and dissent.

El-Diwany urges cash transfers to compensate the poor. “As long as there is significant progress in that direction then the risk of a backlash on any future reform or subsidy is going to be mitigated.”

However, cash transfers are not without scope for corruption and exploitation. And even if the government succeeds in facing down vested interests and ensuring protection for the poor by cutting subsidies in a socially just manner, it will not be enough. The government will also have to ensure that Egypt can meet its growing demands for energy.

Sullivan says that Egypt’s demand for fuel vastly outstrips its refining capacity. “Even with the subsidy cuts and increases in the prices of electricity there are still shortages,” says Sullivan. “The real driving forces of black markets are shortages and the profits the shortages can give to those who want to go into black markets.”

Sullivan says that the Egypt needs to invest in its energy systems quickly – that importing fuel is unsustainable and that it is dangerous to assume that they can always rely on the largesse of the Gulf states.

Balancing Act The scale and complexity of the issue means that subsidy cuts alone will not be enough to root out the problem of an energy black market in Egypt, which has thrived in a damaging dynamic of distorted markets, shortages, patronage and illicit profit.

Egypt’s energy weaknesses fuel economic weaknesses, which in turn have political and social consequences.

In addition to ensuring energy investment, the government will have to deal with pressures from above and below to tackle corruption and poverty. When the government sets the price of energy, any change to the price is a political decision - with the potential for political fallout.

OCTOBER 2014 - ISSUE 94

15

In Focus

Enhanced Oil Recovery: A Cornerstone In Egypt’s Future Energy Development

By Curt Champeon

Faced with an increase in the need for oil globally, energy companies have two choices: First, they can discover new fields; the second choice is to find a way to increase production for their current fields. Generally speaking, this second option is called EOR, or Enhanced Oil Recovery (it may also be referred to as Increased Oil Recovery or IOR). EOR can recover 30-60% of a site’s oil, as opposed to 20-40% using primary or secondary recovery, as stated by George Douglas Hobson in his “Introduction to Petroleum Geology.” This article will discuss the history of Enhanced Oil Recovery, several methods of recovery that fall under the broad definition of Enhanced Oil Recovery. It will also point out the current use of these methods in Egypt.

History Enhanced Oil Recovery has been with us for about 300 years. It is thought that the first EOR was simply a mistake with very positive consequences. Many of the early oil production projects in the USA were in Pennsylvania in the early 19th Century. The technology used was primitive, the workers were not particularly well trained, wells were often abandoned improperly, and surface water entered the productive sand zone, according to J.A. Taber of the New Mexico Petroleum Recovery Research Center.

Without foresight, operators believed that the water entering the sands would ruin or “drown” the oil fields. It got to the point to where some states passed laws prohibiting injecting water into oil-producing sands. Over time however, many people with the industry noticed increased production from water flooding and it was common belief by the 1940’s that “unquestionably the most efficient method ever derived for increasing oil recovery,” according to Dr. Grom Heron, Senior Vice President and Chief Technology Officer at Terra Therm.

The first purposeful water flood for oil recovery was in Sweden in the 1740’s, according to Taber. Running water was used to produce crude oil from galleries cut into the rocks bearing strata of “tar and sand.” Even though water flooding was thought to be very effective by more and more people in the oil industry as time went on, it was noticed that the technique only harvested part of the oil. A patent was taken in 1917 for the addition of alkali to the

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flooding water. By the 1920’s, discussions and studies were happening that discussed how the surface forces, which were responsible for holding the oil in the rock, might be altered to improve recovery. The quest for EOR in the modern age had begun.

network. There is also a degree of uncertainty surrounding the legal framework of CO2 underground storage. There is also a need for co-operation between CO2 source companies and oil producers, according Oil and Gas Journal.

Miscible Flooding

Plasma-Pulse

The most popular method of EOR, according to Mark Walsh of Texas A&M University and Larry Lake of Rice University in “A Generalized Approach to Primary Hydrocarbon Recovery,” is Miscible Flooding, otherwise known as Gas Injection. This is a general term for any process that introduces gas into the reservoir. The gasses most commonly used in this process are CO2, natural gas, or nitrogen. Gas displacement maintains the pressure of the reservoir and improves oil displacement because the tension between oil and water is reduced. This tension is called interfacial tension because it refers to the interface between two interacting fluids, allowing for total displacement efficiency. Of the three gasses, CO2 is used the most due to the fact that it is the cheapest of the three and it reduces the viscosity of the oil. The displacement of the oil relies on the phase behavior of the mixtures of the CO2 and the crude, which depend strongly on reservoir temperature, pressure, and crude oil composition.

Plasma-Pulse is the newest technique of EOR. It was developed in the Russian Federation and is currently being used in Russia, Europe, and the USA. In a study done by the Organization for Economic Growth and Development, 90% of the wells using this technology are seeing positive results. The process is clean, safe, and does not harm underground equipment. It utilizes low-energy emissions to create the same effect that many other technologies can produce without the negative impact on the environment, as reported by the Clean Air Task Force. In most cases the volume of oil retrieved with the water is actually reduced from the pre-EOR treatment, not increased. Companies widely ranging as Lukail, Gazprom, and Conoco Phillips use this technology. It is based on technology used in the Russian space program and is being advanced for use in horizontal oil wells.

Tut field is a prime candidate for miscible flooding. It is on the Khalda concession in the northern part of the Western Desert. After a thorough investigation of Tut and surrounding locations, it was determined that miscible flooding was the proper method for two reasons: one, the inexpensive availability of CO2 in the area; second, miscibility could be achieved under the current reservoir conditions. It is predicted that 10% of the well’s total capacity could be recovered, oil that would otherwise never be made available, wrote Mahmoud Abu El-Ela of Cairo University for Oil and Gas Journal.

Of course, there are problems with implementing this method generally. It can cause the corrosion of some infrastructure. Increased capital expansion is needed for expenses involved in modifying existing infrastructure. Capital and operating expenses are also needed for the construction and operation of a CO2 pipeline

Currently, due to patent rights issues, the fact that this is a relatively new technology, as well as other concerns, there are no current Plasma Pulse projects occurring in Egypt at this time.

The miscible process is improved by the injection of various chemicals, most often in diluted solutions. They tend to aid mobility and to reduce surface tension. Where the oil has naturally occurring organic acids, injection of alkaline or caustic solutions may lower the interfacial tension enough to cause an increase in production. In some formations an increase in oil recovered can be provided by an injection of dilute solution of a water soluble polymer to increase viscosity of injected water. Dilute solutions of surficants, such as petroleum sulfanates or bio surficants, such as rhamnolipids may be injected to lower the interfacial tension or capillary porusness that impedes the oil droplets from running through a reservoir.

Microemulsions, which are special formations of oil, water, and surficant, are very effective in doing this, as stated by Dr. Aurel Carcoana of

the Petroleum, Gas, and Geological Science Institute of Bucharest, writing in Applied Enhanced Oil Recovery. Using this technology is limited by the cost of the chemicals as well as their absorption and loss into the rock. In all of these methods, the chemicals are injected into several wells with the production occurring in several nearby wells.

Polymer Flooding Polymer flooding is a way of increasing injected water viscosity by mixing it with long chain polymer molecules. Doing this improves the vertical and areal sweep efficiency. This is due to the oil/water mobility ratio. The polymer also reduces the contrasts in permeability by plugging high permeability zones flooded by polymers, thus forcing the water to flood the lower permeability zones, increasing sweep efficiency.

Polymers and surfactants can be used together, decreasing the surface tension between oil and water, reducing the residual oil saturation and improving the microscopic efficiency of the process. Primary surfactants usually have co-surfactants, also known as activity boosters. They are co-solvents added to improve stability of the formulation. Caustic flooding is the addition of sodium hydroxide to the injection water. It reduces surface tension, reduces moisture in the rock, emulsification of the oil, mobilization of the oil, and helps in drawing the oil out of the rock, as stated in Chemical Engineering News.

Microbal Injection Microbal Injection is part of a process called Microbal Enhanced Oil Recovery. It is not used often because of the high cost as well as a lack of acceptance in the energy industry. The injected microbes either partially digest long hydrocarbon molecules, generating biosurfactants, or emit carbon dioxide. It then functions the same way as the above-mentioned Gas Injection.

The main approaches to Microbal Injection are as follows. In the first, bacterial cultures are mixed with a carbohydrate, (molasses is commonly used) and is injected into the field.

In the second approach, nutrients are injected into the ground to nurture existing microbes.

The nutrients cause the bacteria to make more of the natural surfactants normally used to metabolize underground crude oil. After the injected nutrients are consumed the exteriors of the microbes become hydrophilic, then they migrate to the water-oil interface area, where they cause oil droplets to form from the larger oil mass, making the droplets more likely to migrate to the wellhead as reported by S.J. Launt Nelson in Oil and Gas Journal.

In a study done by M.H. Sayyouh, M.S., A.I. Blehed, and A.M. Hemeida of the Department of Petroleum Engineering, College of Engineering, and King Saud University, it was shown that Saudi Arabia, Iraq, and Egypt are the three leading Middle Eastern candidates for Microbal Injection. This was due to reservoir rock permeability, oil viscosity and density, and the shallow depth of the wells (2,000-6,000 feet).

Carbon Dioxide is very effective in reservoirs deeper than 2000 ft., where the CO2 will be in a supercritical state, writes Michael J. Austell in “CO2 for Enhanced Oil Recovery Needs - Enhanced Fiscal Incentives.” In high-pressure applications with lighter oils, CO2 is miscible with the oil, which results in the swelling of the oil, a reduction in viscosity, and also causing the possibility of a reduced surface tension with the reservoir rock. With heavy oils or low-pressure reservoirs, CO2 will form an immiscible fluid, or only partially mix with the oil. Some oil swelling may occur, and oil viscosity may still be reduced significantly.

In these applications, between one-half and two-thirds of the injected CO2 returns with the produced oil and is usually re-injected into the reservoir in order to reduce operating costs.

The rest is trapped in the oil reservoir. Carbon Dioxide has the advantage of being a much more economical solvent than other miscible fluids, such as aspropane and butane, according to in Chemical Engineering News.

Hydrocarbon Displacement Hydrocarbon Displacement is the process by which a slug of hydrocarbon gas is pushed into the reservoir in order to form a miscible phase at high pressure. A large disadvantage to this however is the hydrocarbon having a poor mobility ratio, and the solvent’s ability to dissolve the oil reduces as it goes through. As with the above-mentioned methods, states M. Baviere in Basic Concepts in Oil Recovery Processes, this is only attempted when it is considered cost-effective.

Thermal Flooding The next procedures are grouped under the heading of Thermal Flooding. They are various methods that are used to heat the crude oil in the rock formation to reduce its viscosity and/or vaporize part of the oil, reducing its mobility ratio. Heat reduces the surface tension and increases permeability. The oil may vaporize and then condense, forming an improved oil product.

These methods include cyclic steam injection, steam flooding, combustion, and solar thermal enhanced oil recovery. Thermal Flooding began to be used in a widespread capacity in the late 1960s, according to Aurel Carcoana in “Applied Enhanced Oil Recovery.”

Thermal flooding is the best method for recovering heavy, viscous oil, while chemical methods are best for low to medium viscosity petroleum. It is good for use in shallow wells and unless used, the oil would not be recoverable by other means.

Operators in both Egypt and Syria have been using thermal flooding since 2008. In Egypt’s Issaran oil field cyclic steam stimulation has increased production to 4,000 b/d from 50 b/d under primary and secondary recovery. In Syria, the Oudeh oil field went to an output of 850 b/d from 550 b/d and Tishrane oil field went to 2,500 b/d from 750 b/d. The potential for increasing this method of harvesting in Egypt is huge.

As pointed out by Abu El-Ela, there are 3 billion barrels of this type of heavy oil that can be recovered throughout Egypt – 40% in the Eastern Desert, 39% in the Gulf of Suez, 18% in the Sinai, and 3% in the Western Desert.

Steam Flooding Steam Flooding is a way of introducing heat to the reservoir by pumping steam into the well using a similar pattern to water injection. The steam eventually cools enough to form hot water. In the steam zone, the oil evaporates and in the hot water zone, it expands. When the oil expands, the viscosity drops and the permeability increases. The process must be cyclical to ensure success. This is the principal EOR program used today. Solar EOR is a form of steam flooding that uses the sun’s rays to generate heat water to make steam. Solar EOR is rapidly becoming an alternative to gas-fired steam production for the oil industry, as reported by the Clean Air Task Force.

Fire Flooding Fire Flooding is a method that is employed when the oil saturation and porosity are high. Combustion generates the heat within the reservoir itself. Air or gas mixtures with high oxygen content are injected continuously to maintain the flame front.

As the fire burns, it moves through the reservoir to the production wells. The heat reduces the oil’s viscosity and helps vaporize the water in the reservoir, turning it into steam. The steam, hot water, combustion gas, and dissolved solvent all act to drive the oil in front of the fire to the production wells.

There are three methods of combustion – dry forward, reverse, and wet combustion. Dry for uses an igniter to set fire to the oil. As the fire progresses the oil is pushed away from the fire toward the producing well. In reverse the air injection and the injection occur from opposite directions. In wet, water is injected just behind the front and turned into steam by the hot rock.

This quenches the fire and spreads the heat more evenly.

Offshore Potential The vast majority of EOR projects are being done in connection with onshore operations; however, technological improvements are coming to the forefront that will make these methods more accessible to offshore operations. The largest obstacle is that of the economics of development. There are weight, space, and power-limiting factors in retrofitting offshore facilities. Also, there are fewer wells that are spaced farther apart. This contributes to displacement, sweep, and lag time.

With the coming of subsea processing and secondary recovery methods employed in offshore recovery projects, EOR underwater expansion is only a matter of time, as reported in Rig Zone.

Analysis The one thing that all of these Enhanced Oil Recovery methods have in common is that they add to the cost of the oil. In the case of carbon dioxide, the additional cost is between .5 and 8 USD per ton of CO2. It also leads to increased amounts of harvested oil, and the amount of the benefit depends upon the prevailing oil price at the time. Many of the procedures discussed have only come to the forefront recently, as the price of oil has climbed to over 100 USD per barrel and appears to be maintaining at that point for the immediate future, according to Reuters. Much of the technology existed, but was not used or advanced because it was not economically effective. Prevailing prices depend upon many factors, but can determine the economic suitability of any procedure, with more procedures and more expensive procedures being economically viable at higher prices.

Aside from the economic impact, the environmental impact needs to be considered as well. According to the United States Environmental Protection Agency, Enhanced Oil Recovery wells typically pump large amounts of brine to the surface. Not only is the water too salty to drink, it can have potentially toxic heavy metals, as well as radioactive particles. All of these have the potential to threaten the drinking water supply and the environment in general if not monitored properly.

There has been much screening for EOR in Egypt. The procedure of screening is based on field results and previous experience, and includes analysis of both surface and subsurface conditions. Results indicate that the most appropriate methods are CO2 and alkali-surfactant-polymer injection methods.

The study shows that Egypt CO2 EOR by itself, could not only help Egypt reduce its CO2 emissions, but could increase the oil recovery factor by 5 to 15%, as researched by Schulmberger.

Egypt is at a crossroads. If it is to find a solution to its political and economic problems, the energy sector simply must play a leading role, a role not only in exports, but also in providing affordable energy to its population. Enhanced Oil Recovery is going to be a large part of this recovery. Lately, there has been much written about new discoveries of oil and gas in places not expected. Sudan, Israel, Argentina, the South China Sea, and eastern Brazil all come to mind. Egypt may very well have discovered more sites by now than it will in the future, but consider this – there may be as much as twice the amount of oil and gas under the ground as Egypt has brought up, used or sold since it began doing so over one hundred years ago, just waiting to be harvested. Where the wells are is known. No exploration has to be done to find them. All that has to be done is to find the proper EOR method and harvest the oil. These technologies will bring in profitable years of oil and gas for the future if the initiative is taken.

OCTOBER 2014 - ISSUE 94

17

Opinion

An Argument for Direct Marketing:

Need More Power? Free up the Gas

By Walid Hebeika, General Manager of United Eastern Group

Power cuts and blackouts lasting between four and five hours are becoming a daily norm in Egypt, and the deficit between consumption and generation is widening year after year. It is not an installed generation capacity problem: on paper, Egypt has a 33,000 MW installed power generation capacity. As of 2014, all the fuel-to-power available is enough to generate only 22,000 MW compared to summer peak loads of 26,000-27,000 MW. So the installed capacity, even at 80% efficiency is enough to meet the summer peak loads.

This failure in power is not only affecting the mood of the Egyptians, it is negatively affecting the economics of small-to-medium enterprises in places like Damietta, promoting civil unrest, and helping the case of anti-regime groups.

But was this catastrophic summer blackout a surprise? No, absolutely not.

The problem has been obvious since 2007, but with a different syndrome at that point in time, as the Ministry of Petroleum now has a waiting list of private sector customers in need of natural gas. The debate then was that the Ministry of Electricity was not paying for the fuel so the Ministry of Petroleum is going into negative cash flow and not able to pay the international partners (we need to stop calling them foreign if we really see them as partners).

In 2007/2008, the power peak load was much lower and the natural gas discoveries and production were increasing, so the main issue was how to keep paying the gas producers in order not to break the working cycle.

Since then the power consumption continued to increase, and the fight between the two Ministries was never really resolved. From 2011 onwards, the Ministry of Petroleum and the gas producers went into a downturn negative cycle in lose-lose situation. No payments were being made for the gas produced, causing the outstanding balances of different international companies to reach alarming levels so exploration for new reserves stopped, no added reserves were booked, and consequently production declined.

Back in 2007/2008, private companies were looking to de-

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velop private IPPs especially in the Delta zone and the developers were searching for uncommitted natural gas production to feed the planned IPPs and they were ready to accept “commercial” prices. In 2009, a GCC-based company operating in Egypt reached the first-ever agreement for natural gas Direct Marketing in all its new discoveries development leases, and was actually handed over the waiting list with all the projects pending natural gas supply. Moreover, the gasto-power free marketing price formula was discussed as well as the transportation tariff to transmit the natural gas through the national grid.

Where did this promising lead end? In the drawers, I assume.

So what is the solution then? Is coal the ultimate solution? Yes of course, if we are living in the 1950s. I ask all supporters of the coal idea to visit Adana city in Turkey (during landing you can’t see anything from carbon clouds around it).

Nuclear power generation is a good option but will take time to materialize and will be subject to lot of resistance from major nuclear players.

Unconventional power generation is also an option, but it is expensive to produce whether we are talking about wind, solar, or other.

I believe that the solution is to free the natural gas market and allow “Direct Marketing.” Direct Marketing is an optimum solution in two directions: first, it will alleviate the burden of paying back the international partner. And second, it will promote the exploration activity for the international operators so more budgets are spent in the country and more jobs are created. It is an optimum solution as it also allows the Ministry to market its share of natural gas produced from new discoveries at free market higher prices. And it will generate income to GASCO for commercial usage of the national grid and will empower more LDC companies to take the job of low-pressure connection.

Of course the big question is: would the international partners buy into this initiative with all their outstanding balance accumulated over three years? I believe the answer is yes, if the

proposal is made in a real win-win formulation.

This initiative will put the exploration activity on and therefore will increase capital expenditures, thus increasing inflow of foreign direct investment, and will increase the confidence level of the international financial community in the Egyptian economy.

But would it affect the electricity price? Yes, but to a limited effect. The already existing generation capacity is already paid for, so the natural gas price effect will not be more than 15-25%; however the initiative will encourage new generation projects to come to life, thus adding new more-efficient generation capacity. On the short term, this will satisfy the convenience of no more blackouts for the Egyptian people even if it happens at a bit higher cost. On the longer term, Egypt will be exporting electricity, not natural gas, and consequently netting more value for the gas molecules.

For the international partners, this initiative is a solid guarantee that the new Egyptian regime is determined to eliminate the government stronghold on the energy market, and that the motor fuels brave-heart subsidy cut a couple of months ago was just a start of a real reform.

Having Direct Marketing rights activated is not completely new, as “being paid in kind” already existed in the concession agreements, so we don’t need to have the People’s Assembly’s approval. The only condition is that all newly discovered natural gas can be marketed domestically at price formulae dependent on the application – gas-to-power will be different than gas-to-industry until the local market demand is satisfied.

However, the international partner who embraces this initiative should have priority in natural gas new exploration and import/ export licenses that will be made available by the Ministry of Petroleum.

In conclusion, I believe freeing up the marketing of natural gas will not enable more power generation but will avail a sustainable solution to unleash the full potential of Egypt Oil and Gas industry.

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For more information visit: www.pan-marine.net OCTOBER 2014 - ISSUE 94

19

Economic Review

Raising the Gas Price: Short Term Pain, Long Term Benefits Gas and fuel prices soared this July, after the new Egyptian government reduced subsidies. Electricity shortages continued with the price of electricity set to double over the next five years.

By Virginia Crawford Egypt’s energy crisis is real and presents a major inconvenience and discomfort; the country suffers from daily power cuts and increasing energy prices, but it is not going to go away and often a crisis provides unforeseen opportunities.

The situation is unrealistic as it is, with subsidies costing 33% of the budget, according to Sherif El Diwany, Executive Director of Egyptian Centre for Economic Studies. Three quarters of this is for fuel subsidies.

A recent World Bank report estimates that up to 10% of GDP is spent of subsidies, seven times more than on health. The removal of subsidies is hard on the 25% of Egyptians living on $2 a day, but so is a collapsing health sector. Finance Minister, Hany Kadry Dimian, says reducing subsidies has cut $5.6 billion from the budget – this money well spent could have far more impact on improving people’s lives than fuel subsidies.

Although The Economist, in August 2014, warned of the risk of social unrest and Egyptian Initiative for Personal Rights believe that the poor are disproportionately affected, there are very pressing reasons for the overhaul of the subsidy system.

It may seem logical to assume that subsidies assist the poor and are a “good thing,” but research shows that it is actually the most socio-economically advantaged that benefit.

Global Subsidies Initiatives discusses economist Professor Gordon Tullock’s term “transitional gains trap,” which describes the phenomena where “gains accrue to those who can immediately take advantage.” This means that further down the line when the subsidy is inevitably removed, people suffer a transitional loss. This is what is happening in Egypt now.

Cheap electricity, for example, deterred investment and strangled innovation. Electricity prices are among the lowest in the world because it was sold for half its production cost. Correcting that distortion now costs money and massive inconvenience and has serious knock on effects on the economy. However without the increase, there is no incentive, or money to invest in expansion and maintenance.

Electricity Also electricity prices all over the world have risen sharply over the last decade in an attempt to reduce consumption of fossil fuels, so Egypt is just part of a global trend. Prices will double, it is from a low base, and merely covers production costs. The immediate effects will be difficult, but the upside is that it encourages wiser use and drives the move to alternative energy sources.

Solar power has great possibilities in Egypt but is not presently financially viable because of the very cheap electricity.

Solar lighting is becoming increasingly common all over Africa – it is cheaper, cleaner, and provides a variety of positive employment options. Low skill micro enterprises like solar charging stations for mobile phones are a better deal than running a neighborhood generator – ask any operator in Egypt how difficult this is. It’s expensive, noisy, smelly and high maintenance. The installation and maintenance of either large solar power stations, or household or community size solar options generate employment and, over time,

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reduce costs. As a result, the poor will be presented with unforeseen employment possibilities. Street lighting can become neighborhood employment and training projects, removing a burden from the state and creating local employment.

to save gasoline: car sharing and more careful planning.

Driving for fun or to a shop close by are outdated behaviors in Europe. The initial inconvenience is compensated by less traffic, less pollution, and better public transport. The public transport sector is in need of an expansion.

Experts attending the recent Cairo Energy Conference report that energy saving LED light bulbs can reduce power consumption by 20% and would cost less to distribute than fuel imports. “There are several ideas that can be studied and implemented, but we have been very slow,” Mohamed Moussa Omran, undersecretary of the Ministry of Electricity, told Ahram Online.

Brazil, with an urban population of 110 million has developed a transport system that runs without subsidies or government funding. Aaron Golub’s study ‘Brazil’s Buses Simply Successful’ describes how 300 hundred buses an hour travel down an avenue in the Copacaban districit of Rio de Janeiro, each carrying 85 passengers and are less than 3 years old: they are comfortable, clean and fuel efficient.

They have replaced the minibuses and cars that created traffic and pollution. Dedicated lanes make journeys reliable and smooth.

Mohamed Shoeb, former president of the Egyptian Natural Gas Holding Company, also speaking at the Cairo Energy Conference, emphasized, “Solar energy is no longer expensive. The cost of it has decreased by almost 90% during the last 10 years.”

Heating household water uses the most electricity and so a move to solar panels to do this would reduce the need for electricity from the national grid. Twenty million solar panels cost less than a new power station and lead to long-term cash savings for households.

Investment Minister Ashraf Salman, speaking at Al-Mal GTM Conference in Cairo, on Monday the 15th of September, announced that Egypt plans to generate 4 gigawatts (GW) of solar energy and a similar amount of wind energy. Windpower Monthly reports that Egypt is aiming for 7.2GW of operating wind capacity by 2020.

Building technologies that improve insulation cost more at first, but would cut the cost of heating the home in winter and cooling it in summer, both very energy intensive uses.

Again this will generate a whole new industry, whether it is researching and using local products like palm fibre, which will also create employment.

Tax breaks for these sorts of innovations are a better are much more cost effective than endless subsidies which never solve the problem, and which rise as need grows.

The long-term benefits – as well as the broader tax base created by more employment – are more beneficial than subsidies.

The great thing about these options is that they provide opportunities for small and micro enterprises, the real employment generators. Germany has the highest level of small business, known as the Mittelstand, in Europe. The Economist has spoken admiringly of “Germany’s new Wirtschaftswunder” in its analysis of the resilience of this economy. It is extraordinary that 99.7% of German businesses employ less than 500 people according the German Federal Ministry of the Economic Affairs. Also the green economy has also hugely benefited Germany as one of the “greenest” countries in Europe.

Gasoline The gasoline increases do cause immediate inconvenience and raised costs, and will raise transport and food prices.

However, the unnaturally low price of gasoline – compared even to other African countries – cannot continue indefinitely. The fuel crisis in the 1970’s led to all sorts of clever ways

Better facilities lead to wider use. Clean air-conditioned buses are a better investment than fuel subsidies with no real return. Taking a comfortable bus to work has all sorts of benefits – chatting, reading, social media time – as does taking a walk to the local shop.

In Cairo, river buses might become financially worthwhile if car drivers had to pay the true cost of fuel. Imagine a lovely trip on the river to work and then taking a cool bus or taxi to the office.

Gas Daily News Egypt reported that natural gas exports dropped from $160 million to $30 million from April 2013 to April 2014. This also cannot continue; once an exporter, we are on our way to becoming an importer because of lack of investment.

The cylinder gas used by 75% of homes in Egypt is not ideal – the cylinders use imported butane gas, which puts pressure on the national budget. The distribution of these heavy objects is a problematic and unwieldy undertaking. The World Bank announced the approval of a $500 million loan for the Household Natural Gas Connection Project in May 2014. This will increase the number of homes connected to the gas grid by 40%, from 5.8 million to 8.2 million homes.

Investment Foreign investors and Egyptian businessmen have long advised that increased domestic prices would boost investment. Forbes magazine had the headline “Hurrah!” when the cuts were announced. CEO of international Citadel Capital Mohamed Shoeb believes “the country is full of opportunity.” Sea Dragon Energy (SDX) CEO Paul Welch says, “The time is great now to get involved in Egypt.” This echoes the opinion of many other foreign investors who would not only bring much needed investment, but also create jobs.

There are already projects in the pipeline with BP and Italian company Edison launching projects off the North Coast which will go into full production by 2016/2017.

If Egypt used more renewable energies at home and exported a greater proportion oil and gas everyone would win: more employment and self-sufficiency, cleaner air, increased export revenue, and more foreign investment. All of this is possible and optimists would say it is even likely.

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•

• • •

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OCTOBER 2014 - ISSUE 94

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Political Review

Militant Violence Spillover from Libya: The Threat to Egypt’s Oil and Gas Sector Since the ouster of Muammar el-Qaddafi in 2011, the oil-rich country of Libya has descended into unrelenting violence, with rising fears that unrest could spill over the border into Egypt. The United Nations and foreign embassies in Libya have evacuated their staff and citizens, and many foreign airlines have terminated flights to Libya.

Egyptian officials are openly anxious about growing links between militant groups in Libya and Egypt. With refinery attacks in Libya, and cross-border violence encroaching on Egypt’s Western Desert oil fields, concerns within the oil and gas industry are mounting.

By Lily Leach

Fears that the neighboring nation would provide a safe haven for Egyptian militants are rising, especially since 21 Egyptian military border guards were killed by gunmen near the border last July, as reported by Reuters. “Security officials say militants operating from Libya are trying to forge ties with Islamists in the Sinai, an alliance that could prolong Egypt’s instability and scare away investors that are badly needed to help fix the battered economy,” said the article. “[Egypt doesn’t] want an oil-rich Islamic state on the border that could support the Muslim Brotherhood and Islamic elements in Egypt,” Issandr El Amrani, who heads the International Crisis Group’s North Africa Project, told VICE News.

The threat of Libyan violence spilling over the border is a particular hazard for the oil and gas sector. Operators are very active in the frontier region of the Western Desert, where industry executives have noted a marked increase in incidents in recent years of organized theft of gasoline and trucks transporting chemicals for trade in local markets, and securing roots for smuggling arms and hashish, as reported by Egypt Oil and Gas in August.

According to Egyptian security officials, “some militants along the Libyan border harbor ambitions similar to the Al Qaeda breakaway group that has seized large swathes of Iraq – they want to topple Sisi and create a caliphate in Egypt,” said Reuters. “Egypt’s role is potentially crucial” in the global campaign against the so-called Islamic state, said the article; “Egyptian security officials fear they face a threat from Egyptian militants based across the border in Libya and from the Sinai-based Ansar Bayt al-Maqdis, Egypt’s most dangerous militant group.”

Sameh Seif Elyazal, a retired Egyptian general and security analyst with close ties to the army told the Guardian that he rejected concerns that an “Isis-style” threat is growing in Libya, adding that “We don’t know what will happen if Isis becomes somehow involved, comes to our border, and tries to infiltrate.”

As civil war continues to rage in the OPEC-member nation, concerns over control of its oil reserves are also prominent.

Reuters reported mid-September that OPEC plans to cut production due to the news that Libya curbed output after rockets hit an area near a refinery, and have planed a November meeting to discuss the issue.

“OPEC Secretary General Abdallah El-Badri told reporters he expected the group to lower its oil output target to 29.5 million

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barrels per day (bpd) from 30 million bpd when it meets next in late November,” said the article.

volved airstrikes and intensive gun battles with enemy militias in Tripoli and the eastern city of Benghazi.”

The ongoing violence in Libya has split mainly between two warring militant groups—roughly characterized a fight for control between Islamist and anti-Islamist rebels. On the first of September, the Libya Dawn coalition, mainly the Misrata militia and its Islamist allies, seized the Libyan capitol Tripoli, forming a General National Council. Libya’s non-Islamist parliament has since fled to the city of Tobruk, reportedly living in a car ferry.

Egyptian authorities have denied involvement in the military bombardment of Islamic rebel groups in Libya, though their obvious concerns about having a failed state as a neighbor has maintained suspicions within the international community.

Meanwhile, the Renegade General, Khalifa Hifter, also based in Tobruk, is launching offensive strikes against Islamist rebels and is largely considered to have control of the eastern city.

This purported “counterrevolution” is said to be modeled on the “military takeover in Egypt and backed by its conservative allies: Saudi Arabia and the United Arab Emirates,” wrote the New York Times in late August.

Last May, Hifter “declared that he would seize power by force to purge Libya of Islamists,” reported the New York Times.

“Borrowing lines from President Abdel-Fattah El-Sisi of Egypt, General Hifter also pledged to close the parliament and arrest moderate Islamist members,” said the article.

Comparisons between the rhetoric of Libyan rebels and Egypt were being made amidst reports, first announced by the New York Times this August, that anonymous US officials blamed Egypt and the UAE for the recent airstrikes that bombarded Tripoli. The United States, Britain, France, Germany, and Italy condemned the airstrikes, in a joint statement, saying, “Outside interference in Libya exacerbates current divisions and undermines Libya’s democratic transition.”

However, the US authorities soon back-pedaled from their accusations saying the comment on Libya was “intended to refer to countries reportedly involved, not speak for them.” General Hifter’s forces have since taken responsibility for the anti-Islamist airstrikes, though there are doubts that they were capable of such an act.

“Many observers are convinced that what’s taking place is an Arab proxy war,” wrote the Washington Post. “Qatar is backing a coalition of Islamists, who under the name of Libyan Dawn sit in Tripoli and hold sway in a number of other major urban centers; meanwhile, the United Arab Emirates, with Egyptian help, has been supporting those warring with the Islamists, including Khalifa Hifter whose anti-Islamist offensives have in-

In fact, secret documents were recently obtained by Al-Araby Al-Jadeed signed on behalf of the Egyptian authorities by Brigadier General Muhammad Muhsin Al-Shadhli, Chief of Armed Forces Operations within the army, saying in the “Joint Strategic Military Cooperation Agreement between the Arab Republic of Egypt and the State of Libya” that it stresses that “any threat or military aggression against any of them or any of their armed forces whether directly or indirectly would be considered an attack on the other party. Consequently, each party commits to assist the other that comes under attack, including with the use of armed forces in order to deter attacks while informing international and regional organizations of the nature and type of threat or attack and of the measures and actions taken to deal with it,” reported Al Monitor.

Egypt has also recently called for an international coalition to fight militants, aligning with the US in their campaign to battle Islamic militants in Libya, Iraq, and Syria. “We will take all measures that are intended to eliminate this phenomenon altogether, whether in Libya or any other part of the Arab world or in the African continent in particular,” Egyptian Foreign Minister Sameh Shukri said in a joint news conference in Cairo with U.S. Secretary of State John Kerry this September.

Egyptian President Abdel-Fattah El-Sisi “stressed that any international coalition against terrorism must be a comprehensive alliance that is not limited to confront a certain organization or to curb a single terrorist hotbed but must expand to include all the terrorist hotbeds across the Middle East and Africa.”

Shadi Hamid, a Brookings Institution’s Center for Middle East Policy fellow told VICE News that the threat of Islamist militants from Libya spreading extremism in Egypt is still largely theoretical. “The paranoia is not very tied to the realities of the threat.

I think that the regime doesn’t see the Egyptian Brotherhood as just the Egyptian Brotherhood, but as one component in a regional conspiracy against Egypt and the regional order that Egypt supports.”

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Events

Cairo Energy 2014 Under the Patronage of HE Engineer Sherif Ismail , Minister of Petroleum & Mineral PETROJET Sponsors Key Renewables Conference

By Passante Adel - Reported by Wael El-Serag The Cairo Energy Oil and Gas International Conference organized by the Pyramids Group Fair Organization under the patronage of Eng. Sherif Ismail the Minister of Petroleum and the Egyptian General Petroleum Company (EGPC), took place from September 6th through the 9th 2014 at the Cairo International Convention & Exhibition centre (CICC) in Cairo. The event was sponsored by PETROJET- the official sponser, Egyptian Maintenance Co. (EMC), AIDMO, General Electric, EGAS, Ganope, ABB and Scheider.

The conference focused on renewable energy resources in Egypt, as well as methods and plans for its development. The three day conference also covered discussions and workshops on several main topics including: -”Legislation and incentives to invest in renewable energy,” discussing the process of allocation of land needed for new and renewable energy projects, also the regulatory controls to the entry of the private sector in the projects of renewable energy.

-”Green Cities ... renewable energy” was displayed as a strategy to mainstream use of renewable energy in the tourist towns as well as the positive use of renewable energy.

-”The role of solar energy in solving the problem of water shortage in Egypt,” discussed ways to use renewable energy in the extraction of groundwater and water desalination as well as how to solve the problem of water shortage.

The event included speeches and talks by several noted figures from the petroleum and power private and governmental sectors. It shed a light on the priority that Egypt is giving renewable energy within the upcoming period.

The conference opened with a speech, given by the First Deputy of the Ministry of Petroleum Sherif Soussa, on behalf of Petroleum Minister Eng. Sherif Ismail, in which he highlighted the importance of providing “energy security” and increasing the petroleum production to answer for local demand. It also stressed the importance of exploiting conventional and unconventional energy sources, including renewable energy, in the shadow of the energy crisis the country has been going through. The speech expressed the sector’s interest in Egypt’s shale reserves, explaining that huge reserves –yet to be estimated– have been found in the Red Sea area and the Western desert. Soussa stated that concessions will be tendered soon for shale exploration. Egypt currently relies on petroleum products to produce 91% of its energy, while 9% only is produced from hydraulic and renewables, Soussa said, adding that Egypt’s next step is to seek a variety in its energy sources following other international success models.

The speech was followed by the Electricity Minister Mohamed Shaker’s opening word, given on his

behalf by Mohamed Moussa Omran, First Deputy of the Ministry of Electricity and Renewable Energy. It stated that the electricity sector in Egypt, keen on providing its best service, has successfully connected 99% of Egypt to the national grid.

The speech added that Egypt is rich in renewable energy resources; therefore, the Ministry of Electricty is adapting a new strategy for the development of these resources. A Solar Combined Cycle plant has been inaugurated in Koraymat producing 140 MW, of which 20 MW are solar, while another renewable project is currently underway in Gabal El-Zeit area to produce wind power with a production capacity of 550 MW. The speech stated that the government’s current priority is renewable energy sources with investments being channelled toward several wind and solar power projects in the next period. It also stated that the cabinet has approved for 1,000 governmental buildings –25 for each ministry– to run on solar power through panels installed on the buildings’ roofs, after the electricity ministry’s success in installing 40 MW solar panels on its buildings. Soussa also explained that the government is to encourage renewable energy projects by allocating lands to investors, as well as providing the necessary incentives for a profitable investment, adding that tariffs and regulating laws are to be announced shortly.

The first day of the conference also included a session on the government’s vision of a “secure energy mixture” in Egypt led by Prof. Dr. Galal Osman, Head of the Egyptian Wind Energy Association, who said in his word that Egypt should stop fuel burning, [population] should expand beyond the Nile Valley, address carbon emissions, and separate renewable energy from the ministry of electricity. Meanwhile, former Minister of Petroleum Abdullah Ghorab criticized the current government for their plans to import gas explaining that Egypt still has huge gas reserves in the Mediterranean and the Red Sea, which might be more costly to explore but yet cheaper than the international import price.

are the fastest to construct, with a timeline of only one year for the installations, and with no running costs for the first seven years, with guaranteed production for 20 years, making it not only an environmentally conscious decision to rely on renewables, but also a cost effective one in the light of the current energy and economic crisis that Egypt is facing.

Khaled Gasser, Chairman of Solar Energy Development Association (SIDA), explained that the expansion in renewable energy projects is dependant on the expansion in its different applications from power generation and water heating to water desalination. On the other hand, Eng. Amr Mohsen from Lotus Energy explained that the sun provides more power in a year than all oil, gas and coal

reserves in the world. He added that energy and water are matters of national security and should be treated accordingly. He said Egypt needs to invest in a wind turbine, as it might assist in the water issues with Ethiopia, for the African country has more wind power resources than the its consumption needs. He also stressed the importance of manufacturing renewable energy production essential equipment locally.

The conference was accompanied by an exhibition for 70 oil, gas and energy companies including EGAS, PETROJET, Misr Petroleum Co., General Electric, Enppi, TAQA, Mobil, Caltex, Schneider and many more.

Eng. Mohamed Shoeib, the former Chairman of EGAS, expressed that energy saving is the best resolution at the moment adding that switching to LED lights alone can save 20%. He also stressed the importance for having legislations for solar water heaters, hopefully replacing all electric water heaters in Egypt with solar operated ones within the next three to five years, with the government making them available to the public via payment plans or installments.

The conference attendees agreed that, if all went according to plan, Egypt can rely on renewables to produce 80% of its energy by 2050 and 20% by 2017.

Renewable energy expert, Ibrahim Zaya,t explained during the conference that solar plants

At Cairo Energy 2014, GE Highlights Possibilities of Distributed Power to Deliver Electricity Where Needed GE is showcasing the competencies of its Distributed Power solutions that draw on non-traditional sources of power generation to deliver power where it is needed most, and thus meet Egypt’s growing demand for electricity at the Cairo Energy Oil & Gas International Conference & Exhibition being held from September 6 to 9, 2014, at Cairo International Convention Center.

Sofiane Ben Tounes, President & CEO, GE, North East Africa, said: “GE recognizes the efforts of the Egyptian government in rationalizing consumption and diversifying energy sources. We would like to express our willingness to invest in projects that

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EGYPT OIL & GAS NEWSPAPER

can support the government’s efforts. With over 40 years of operation in the country, GE has been a strong growth partner in supporting the country and the people in meeting their energy needs.

We work with our partners to deliver efficient and reliable power solutions that address their diverse requirements. At Cairo Energy 2014, we are not only showcasing our technologies that enhance the operational efficiency of power plants but also the newest solutions from our Distributed Power business that helps deliver power where it is needed most, in addition to drawing on renewable sources.”

He added: “With electricity consumption in the country growing at an average of 7 per cent annually, GE is committed to support the expansion of key power plants in the country as well as partner in initiatives that will position the country at the forefront in renewable energy.

“Our Distributed Power solutions enable our partners to generate efficient and reliable power at the point of use, and will be a game changer for the industry. The aeroderivative gas turbines, Jenbacher gas engines and Waukesha gas engines, which can generate power from 100 kW to 100 MW, are ideally suited to tap alternative sources including

landfill and other renewable sources.”

GE Oil & Gas and Petrojet Mark the Manufacture of 1000th Pumping Unit for Oil and Gas sector in Egypt Rami Qasem, President & CEO of GE Oil & Gas for the Middle East, North Africa and Turkey, said: “One of the core commitments of GE to Egypt, where we have had a presence for over 40 years, is to promote localized manufacturing that strengthens the domestic supply chain for the oil and gas sector. The achievement by GE’s Well Performance Services highlights our ability to deliver advanced technological solutions to our customers faster as well as provide them the required support services locally. Strengthening the operations of GE Oil & Gas enables us to be closer to our customers and help enhance their operational efficiency.”

Cairo, Egypt; September 22, 2014: GE Oil & Gas (NYSE: GE) and Petrojet Egypt, a multidisciplinary contractor who specializes in providing EPC services for the oil and gas sector, celebrated the local manufacture in Egypt of the 1000th API Certified Sucker Rod pumping unit.

Lufkin product line, has historically focused on the manufacture of artificial lift solutions including beam pumping systems, hydraulic pumping units, plunger lifts, gas lifts, progressive cavity systems, automation equipment, well optimization and services for the oil and gas sector.

“The highly successful model of integrating Petrojet’s extensive knowledge and potential in the Egyptian, Middle Eastern and African markets with the abilities of a partner like GE has undoubtedly been mutually beneficial for both parties and added real value to customers in Egypt, the Middle East and nearby markets by providing an affordable world-class product in a short delivery time,” said Eng. Mohamed Shimy, Chairman of Petrojet.

The 1000th pumping unit celebration was formally inaugurated by senior government officials and representatives of GE Oil & Gas and Petrojet.

The 1000th pumping unit manufactured locally in Egypt by Petrojet is a significant milestone for the company, highlighting its competencies in meeting the requirements of the Egyptian domestic oil and gas sector.

Petrojet’s key fabrication facility is located in Kattamia, and has 25 years of experience in manufacturing process static equipment for oil and gas plants.

It was the first partner of GE WPS outside the United States for building sur-

GE Well Performance Services (WPS) sub-business, which includes the

face-well pumps that have reached several oil fields in Egypt, as well as Arab and European countries.

A follow up two-day customer training event will be held on October 7 and 8, 2014. The training will include sessions

by GE Oil & Gas experts on progressive cavity pumps; gas, plunger and hydraulic lifts; beam pumping systems; electric submergible pumps and surface pumping systems; GE Well Automation/Optimization and GE Power to Lift™ solutions. The event will conclude with a panel discussion focused on the key challenges and opportunities in the Egyptian oil and gas sector.

GE Oil & Gas partners with Egyptian Liquefied Natural Gas (ELNG), one of the world’s largest producers of liquefied national gas (LNG). Established with the Egyptian Natural Gas Company, GE’s Pipeline Integrity Management Center of Excellence (PIMCOE) is focused on delivering proactive and cost effective services to Egypt’s national gas grid and other customers in the petroleum sector.

GE has also signed an agreement that will help bring electricity to more than 2.5 million additional homes in Egypt with the installation of eight 9FA turbines at the Giza North and Banha combined-cycle power plants that will together add 3GW of power to the

country’s grid. In another key partnership, GE has signed an agreement to support Carbon Holdings in Egypt on a US$3.8 billion naphtha cracker plant in Ain Sokhna. GE has a strong presence in Egypt in the healthcare, transportation and aviation sectors too.

OCTOBER 2014 - ISSUE 94

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Project

Belayim Development Project- New Land Oil Train

By Dr. Ayman Mahmoud Emara - General Manager Planning & Projects Project Overview

•

•

Location: Petreco, Sinai, adjacent to the Gulf of Suez.

A. New inlet manifold.

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Existing plant separation units are not achieving the required oil/water separation due to increasing water cut (80%) and aging of the equipment (20 years).

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Meeting the increased production of the plant (200 KBPD vs. 90 KPBD current capacity).

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Enhancing the quality of export oil.

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Enhancing the quality of wastewater by removing residuals to reduce the load on the existing water treatment plant.

Project Purpose •

Improving the separation of oil from produced water.

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Maneuvering to maintain the old trains.

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To meet the requirements for current and future production.

Project Configuration •

The new train is designed to handle 100 KBPD (plus 10% design margin).

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EGYPT OIL & GAS NEWSPAPER

The project process equipment are as follow:

B. Three oil/oil heat exchanger banks each one consists of six exchangers.

C. Three phase separator.

D. Crude oil transfer pumps.

E. Gas boot (100,000 bbl/d).

F. New settling tank (G.B-03) with capacity of 10,000 M3.

G. New thermal oil system consists of (No.2 heaters, thermal oil storage tank, thermal oil circulation pumps, thermal oil expansion vessel, thermal oil make up pumps, thermal oil drain system and dedicated nitrogen generation system).

H. Instrument air package.

I. Chemical injection package.

J. New substation and control building associated with HVAC and FM200 extinguishing system.

Project Status •

The new train was completed and put in service in April 2014, with 85,000 bbls/d as the gross rate.

•

The total cost for the train is $80,000 USD.

Turn Your Office into an Energy Efficient Spot Administrative offices are evidently listed among the places with the most electricity consumption rates in Egypt, but this can no longer be the case. Cutting down on workplaces’ consumption rates is simpler than most of us imagine. The below are basic tips that can help you contribute in making your office an energy efficient spot!

Lighting • Turn off the lights in unused rooms/meeting rooms, and after working hours.

• Replace incandescent bulbs with compact fluorescent bulbs.

• Use sunlight whenever possible to limit the need for electric lighting.

Air conditioners • Set air conditioners to 24 - 25 degrees.

• Turn off air conditioners in unused rooms/meeting rooms, and after working hours.

IT equipment • Unplug your computer when not in use and after working hours.

• Unplug printers after working hours.

• Unplug internet routers after working hours.

TVs and satellite receivers (where applicable) • Make sure to unplug the TVs and satellite receivers when not in use, and after working hours.

With the current challenge facing the energy sector, more and more people are encouraged to apply energy efficiency approaches. You can also go the extra mile and join our community on Facebook to know more about the energy challenge and help us promote energy efficiency: https://www.facebook.com/Belma32ol.

OCTOBER 2014 - ISSUE 94

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Academic Focus

Egypt Oil & Gas:

Attracting New Investments and Shaping the Energy Market in the Mediterranean Area

By R. Perfetto

Despite the large hydrocarbon potential that Egypt has, the country has become a net hydrocarbon importer in 2011 due to its large and growing population, expanding economy and sizeable industrial sector.

This, as a result, has impacted the strategy of the country which is now focused on meeting the growing demand for energy, (which has already increased by an annual average of 5% in the last decade), and simultaneously compensate the production decline from the conventional development asset base.

To avoid an energy crisis in the near future, and to secure the demand of energy for the coming generations. The Country has to define a short and long term strategy that focuses on: •

Providing a secure and attractive investment environment for the IOCs to increase their exploration activities

•

Considering the exploitation of the “unconventional” oil and gas resources

•

Market’s deregulation should be also stimulated deeply

Egypt compared to other African’s countries can be considered well positioned for industry structure, refining system, LNG facilities, and suppliers’ presence. Deregulation will help IOCs to monetize the NOC’s debt, catalysing further investments in the Country.

There is vicious circle created, local government eroded the stock of foreign currency during the last years, then reduced the export off gas through the LNG that was also a source of foreign currency the actual debt represents a critical point to.

Acting with a leadership role in this direction, means envisioning what is the future of the industry in this Country.

Egypt can become one of the most important oil & gas players in the Mediterranean region.

Power of suppliers Suppliers are specialized in the business and concentrated, switching costs are high, and their inputs have impact on costs: their power can be considered medium to high.

Threat of substitutes Switching costs for the industry are very high, e.g. considering only the refining segment Egypt, is the African leader with capacity of 775,835b/d BMI (2013).

All other sources of energy like nuclear-solar-wind can be considered as substitutes expected to grow in the future but in the long term.

Threat of new entrants The huge amounts of initial capital to be invested represent a barrier for new entrants: it is difficult to penetrate and compete away the value.

Industry Structure The intensity of competition and entry/exit barriers affect how fast actual players respond to increasing capacity, the industry in itself is highly profitable. In the last time has experienced an intensification of buyers’ force (structural change) due to economic downturn.

The government’s subsides represent a cap for oil & gas players not allowing these to market their product directly and also being not economic for NOC itself (Africa Business, 2013).

The Oil segment can be considered the cash cow, it is source of cash (requires less cash than it produces), this can be achieved thank to the huge capitals already invested, for example the near field discoveries and low time to market are possible due to the presence of existing facilities, as also indicated by Hax, 1983: High Market Share - High Volume -Lower Costs - High Profitability.

The main players’ presence along the energy supply chain allows costs reduction and economies of scale.

The intensive technology usage, know-how and the cumulative experience also are barriers for the new comers, the brand’s power is important to access to bid rounds.

Competition In both oil and gas segments the competition can be considered high and stable, the capital amounts already invested permit to enhance economies of scale, (development of near field discoveries especially in the oil segment) the exit barriers are high. The oil segment due to declining production can be effected by overcapacity (higher fixed costs, reduced profits).

The licensing rounds are based on IOCs’ PSA proposal to NOC, as lower the % to IOC (profit oil partition) as higher the probability to win the bid, but less revenues expected.

Figure 2: Porter’s Five Force Oil & Gas Egypt PEST Analysis Political The local government has direct control over the industry; the Country is entering a stable phase getting out from political turmoil started in 2011 considered the main cause of a reduction in drilling activity (BMI, 2013).

Figure 1: Industry SWOT analysis Michel Porter’s (2008) five force analysis is proposed to give an overview on Industry.

Regional stability

Power of buyers

According with IMF, (2013) the 2014 is expected to be the beginning of a stable phase in NA-MENA region.

NOC is present across the business from exploration to marketing (main player of the local refining system).

US’s geopolitical strategy

The NOC can be considered the buyers of IOCs’ capabilities to develop hydrocarbon’s resources, their relationship is regulated by means of PSA contracts: after the recovery of cost oil, IOC can start to get revenue from produced resource, according to the agreed prospect. The power of buyers can be considered high, retaining most of the value created for them.

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The shale gas effect (Maugeri, 2012) can lead to a reduction of US’s interest in the MENA-NA region (Mitchell, 2013).

Table 1: Egypt upstream players BMI (2013)

Economical

sidering that people with less than 2 $/day is 18 % of total population (World Bank, 2012).

Global GDP & Energy demand

This critical tension in Egypt is supported by Mitchell (2013) that presents Egypt not like a pure-rentierist country, based only on the oil and gas’s revenues. Egypt has a diversified economy and the reduction in oil & gas production has a direct effect on GDP.

GDP has decreased from 7.1 % in 2008 to 1.8 % in 2011 (IMF, 2013). Public debt is high (IMF, 2013), even if Egypt cannot be considered as a “pure rentierist” because of diversified economy: a decrease in oil production has an effect on GDP (Fuhinas, 2013): the increase in oil & gas’s production means GDP’s growth.

Diverting the oil & gas’s supply on the local market generate tension internally but also externally to keep industry’s attractiveness.

The oil and gas prices and exchange rates affect also economy.

Figure 4: Influence – Interest Matrix (adapted from Johnson et al., 2011)

On the other side IOC, especially the one being in the Country since long time, supports a model of sustained business facing the tension to maximize shareholder’s value, reducing exposure in the critical areas.

IOC-NOC: Which tensions?

Market VS Resource

IOC and e NOC cooperation must find the right alchemy even when some strategic paradoxes are present like:

The oil segment is in a mature/decline phase manifested by a substantial overcapacity, significant imports and cost control as business’s strategy. The search of competitive advantage is focused on cost reduction (product differentiation is not possible being a commodity); the industry is concentrated with high exit barriers.

1. deliberate VS emergent 2. sustainability VS profitability 3. market VS resources 4. global VS local IOC E&P Strategic Goals: Figure 3: Egypt GDP

•

Organic growth focused on exploration and reserve replacement

Shareholders

•

Production CAGR growth

IOCs’ shareholder can force companies to divert/delay investments in more stable countries (BMI, 2013); e.g. Apache sold to Sinopec the 33% of Egyptian operation, (Reed, 2014).

•

increased cash flow

•

Technological innovation, operatorship-cost efficiency, key competences acquisition

IMF

•

mitigation of operational, political, Country and environmental risks

In 2012 made a 4.8 $ billion loan on conditional of fuel subsidiary reform (BMI, 2013).

Social

NOC Strategic Goals:

Overall the Industry is facing a demographic problem: a lack of recruitment in the previous 20-30 years with a gap of skilled and experienced people. (Wordoil 2012,).

•

Attract foreign investments

•

Satisfy local oil & gas demand

The following table is giving a general overview about some key social-economic aspects (World Bank, 2013).

•

Develop local hydrocarbon reserves

•

Contribute to the growth of local economy

•

Increasing job opportunities

•

Appling new technologies

In the table below the main critical strategic points are reported for both companies showing where potential tensions can be detected.

Table 4: Egypt’s Production Forecast (BMI, 2013) Worldwide, the oil & gas’ consumption is expected to be:

Table 5: World Oil Consumption Forecast (Exxon, 2012) The resource base is shifting from oil to gas but the shift is not a quick step due to previous investments/resources and capabilities locked in (rigidity to change).

Egypt according with BMI 2013 has a good position in the LNG business (the 8th largest exporter in the world) and the industry’s structure is suitable of US shale system’s reply.

However the EGPC’s decision to build a floating LNG gasification plant (BMI, 2013 p. 12) makes clear that the flow’s direction of gas is exactly the opposite of the IOC’s desired one.

The shift from oil exporter to oil importer has put also on the ground a threat that has to be faced, NOC has to build the competences in order to look outside the national boundaries. Increasing supervision/operatorship from NOC will put tension on the relationship not only on the operational side but also on the financial side: a study from Hartley 2013, showed that increasing in government’s ownership induces firm’s inefficiency.

Global VS Local The IOC’s interest in the gas business is gaining momentum, driven by the possibility to drive a big game in the Mediterranean region (Eni in pole position).

Globally the oil Industry is expected to face the creation of 2 focal points: on the supply side, increasing exploration and production in the Western Hemisphere (Maugeri, 2012), driven by shale gas and deep water. And on the demand side the increased demand in the Eastern Hemisphere driven by China (and Asian economies).

Table 2: Egypt overview, World Bank 2013 Technological Technology represents a key driver in the oil & gas especially for IOCs that are forced to develop competitive advantages in new technological areas (Ernst & Young 2012; Goldman Sachs 2011, OPEC 2012) like shale gas (fracturing), deep water wells, arctic environments, LNG. Influence – Interest Matrix (adapted from Johnson et al., 2011)

Table 3: Strategic Tension Overview Sustainability VS Profitability The Egyptian society is a collectivistic culture and this can support further the government decisions giving priority to the internal demand. On the other side the government tried to protect the industry’ attractiveness reducing the subsides on liquid and gas fuels (BMI, 2013 p. 32), a critical decision con-

This could create tension on the local strategy; the NOC understands that gas is a key attractive element to the Majors (someone already calling them gas major instead of oil major, Maugeri 2013), but, as highlighted above, the capitals are invested on the oil business and the development of gas segment is still far from the oil one.

The author would like to thank Eng. Ayman El Bendary for the kind support received.

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Case Study

Reservoir Characterization Modeling, A Multi-Disciplinary Approach To Improve Hayrocarbon Productivity From Kareem/ Rudeis Carbonate Rocks, Zeit Bay Field, Gulf Of Suez, Egypt Saber Moustafa Selim, Suez Oil Company, EGYPT Saber.Moustafa@suco-eg.com Summary: Zeit Bay field represents one of the brownfield as its production had been started commercially since 1983 with average daily rate 20000 BOPD and reached with the maximum rate at 80.000 BOPD in 1986. Significant decrease in daily production rate has been noticed where the current daily production rate ranged 6.000 BOPD due to decreasing in the reservoir thickness in addition to changing in contacts’ levels. Revisiting of petrophysical evaluations of the upper most part of reservoir units contributed to be re-testing the Kareem/Rudeis Carbonate. Perforating the Kareem/ Rudeis Carbonate intervals led to increase the daily field production rate and encouraged the authors to constructing reservoir characterized model for that type of reservoir rock considering it as a main reservoir target for next planned wells and help setting a development scheme.

Geological Evaluation: The Kareem / Rudeis Carbonate Reservoir is volumetrically the largest reservoir unit in the field, containing approximately 50% of the total reserves.

This Carbonate was deposited in pre-tidal to shallow marine environments that were more or less restricted at the western flank of the field structure.

Introduction: Reservoir characterization plays an important role in defining, in a comprehensive manner, the details distribution of reservoir rocks and fluids content with the ultimate goal of a reservoir management scheme. Reservoir management aims to provide facts, information and knowledge necessary to control production operations and to optimally develop any oil field by obtaining the maximum possible economic recovery from the reservoir units. The reservoir characterization model embodies the integration of the technical disciplines of the exploration, reservoir engineering production and financial and usually accomplishes prior to or contemporaneously with the development phase of the oil field. Existing test and production data are also used to develop a better understanding of reservoir dynamics and to improve the depositional model of the reservoir.

Objectives The authors use all available data and various methods and techniques to construct a Reservoir Model for Zeit bay Reservoir units aiming to determine: 1)

Facies distribution and reservoir quality.

2)

Structural trends and trapping mechanism.

3)

Fluid properties and distribution.

4) Formulate a reservoir management policy and development plane of the field throughout its life with minimum expenditures.

General Outline About Zeit Bay Field: Zeit Bay Oil field is located in the southwest offshore margin of the Gulf of Suez, in a shallow water depth (water up to 65 ft) just east of Ras EL Bahar Peninsula. The field is located 65 km north of Hurghada, 85 km south of Ras Gharib and 12 km north of the abandoned Gemsa oil field.

The stratigraphic succession of the field is similar to the sequences presented elsewhere in the southern part of Gulf of Suez basin. The field is characterized by the presence of two different types of Miocene facies.

These Miocene sediments are unconformably underlain by Paleozoic to Mesozoic Sandstone of Nubia facies which cover unconformably the Pre-Cambrian basement rocks.

Oil-in-place is mainly localized over the western flank of the field comprising several reservoir units in complete hydraulic communication, making it one of the unique reservoirs.

Methodology and Workflow The Kareem / Rudeis Carbonate Reservoir are volumetrically the largest reservoir unit in the field, containing approximately 50% of the total reserves.

This Carbonate was deposited in pre-tidal to shallow marine environments that were more or less restricted at the western flank of the field structure.

This study has been done using all the available petrophysical, geological and production data to zone and subdivide the Carbonate into production layers that can be correlated across the field.

Geophysical Evaluation Due to the poor seismic quality that causes discontinuity of the seismic reflector in some parts and the presence of a lot of multiples and noise that masked the seismic reflector, seismic can be used as a guide to detect Kareem/Rudeis Carbonate in some areas. But it cannot be used to differentiate the different zones of Carbonates.

1) Surface Evaluation Gebel Zeit is located closely to the north of Zeit Bay field. It can be used as an analogue to simulate Zeit Bay field structure and stratigraphy.

The field was discovered in June 1981 through the drilling of the Exploratory well “QQ 89-1” which was drilled in the crestal part of the structure and considered as gas producer well. In October, 1981 another well “QQ 89-2” was drilled 2 km south and down dip from well QQ 89-1. This well recorded the underlying oil-leg with an oil water contact at 4850 feet subsea.

General Structure of Zeit Bay Field Zeit Bay field as most of the structural features in the Gulf of Suez is represented as an elongated North West tilted fault block. It differs from these major structures in that it has 4-way dip anticline closure feature in the central major part of the structure on the level of Belayim till Basement. It has two major basins to the west (western basin) and to the east (eastern basin) with long axis for the regional structure, trending North West–South East, which is bounded by faults from all directions.

Middle Miocene Carbonate sequence on Abu Shaar, Esh El-Mellaha area can be observed and described from top to bottom as follows:- Massive white limestone, mottled with pink stained bands.

- White gypseous limestone, yielding numerous fossils.

- Yellowish calcareous marl, well bedded and fossilifereous.

- Siliceous and flinty beds.

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EGYPT OIL & GAS NEWSPAPER

Depositional Environment: Two major depositional sequences comprise the Miocene Carbonate reservoir. •

At the base, a thick outer platform sequence deposited in low energy normal marine waters about 20m deep culminates with a slight deepening event (to 40/45 m). Bioclastic packstone textural carbonate sediments dominate the sequence.

•

A coral rich limestone at the top was deposited disconformably upon the lower platform sequence. Its water depth fluctuated between 20m at the base up to 45m and finally shows evidence of shallowing upwards to less than 20m.

The carbonate facies can be distinguished into several facies, as shown in the correlation chart.

2) Subsurface Evaluation Various geological section were constructed follow the combination of the seismic and geological interpretation aimed to add more specific geological interpretation in some cases specially that not clear from the seismic.

Structure contour map on Top Carbonate had been constructed revealed that the structure is dissected by two main fault systems:-

Petrophysical Evaluation: Kareem/Rudeis carbonate is characterized by it heterogeneity and can be detected all over the field.

The petrophysical evaluations have been made using ELAN software. This program gives a quantitative determination of porosity, hydrocarbon saturation and mineral volume fractions.

The petrophysical analysis of the Kareem/Rudeis reservoir was done using the available electric logs and core data.

1) North West- South East trending faults.

2) West - North West /East – South East trending faults.

ELAN interpretation reveals that the upper most part of Carbonate section is a limestone body which is developed as separate mound along the western flank. The dolomite facies which underlain the limestone is considered as a secondary dolomite derived by dolomitization processes from original deposited limestone. This dolomite/dolomitic limestone facies can be subdivided into three zones.

Porosity/Permeability Cross Plots Porosity/permeability cross plots and porosity distribution maps of carbonate zones were also constructed. These cross plots show different linear relations fit with the carbonate zonations. On the porosity /permeability cross plot a limestone zone I with relatively moderate porosity, low permeability is identified. Low GR dolomite (Zone II and III) with moderate reservoir parameters exist.

The best reservoir carbonate (Zone IV) of high GR, high porosity and permeability is identified.

The Kareem/Rudeis carbonate reservoir overlies the Basal Miocene sand.

It attains a maximum thickness of 600 ft. and pinches out laterally on the crestal part of the structure. The Belayim evaporites form the vertical seal of the carbonates. The Kareem/Rudeis strata show deep water shales on the flanks and carbonate on the crest.

The upper most one is a transitional dolomitic limestone characterized by the presence of algal dolomite while the second one is represented by presence of anhydrite content with low gamma ray. The lower dolomite is characterized by a relatively high gamma ray with sand content.

OCTOBER 2014 - ISSUE 94

31

Case Study

Zone II and III attains maximum thickness of 200 ft. within the two loops.

The porosity distribution maps show high porosity values on the structural high which indicates higher dolomitization process in the crestal part of the structure. Both isochore thickness and porosity distribution trends (North West-South East) are matched.

Conclusions Zone VI attains a maximum thickness of 200 ft. within the two loops. It has the best reservoir parameters and achieves the best production performance.

•

Kareem/Rudeis Carbonate mainly deposited generally quite uniform as wedge along the southwestern flank its thickness was controlled by tectonic tilting where it changes laterally abruptly into shale and marl off the south west margin of the platform.

•

The Dolomitized Coralline Algae- foram Wackestone which is the dominant facies of the Kareem/Rudeis interval represents deposition in Low-Energy, partly restricted conditions on a shallow marine platform.

•

The Kareem/Rudeis Carbonate is described as a heterogeneous reservoir and divided into:»» Lower dolomite with high GR response (Zone IV). »» Middle Dolomite with low GR response (Zone II and III) and »» Upper fossiliferous limestone (Zone I).

•

The lower dolomite has porosity about 25% and permeability ranging from 100-280 m d. It is considered as very good reservoir unit.

•

The Middle dolomite has porosity about 20% and permeability ranges from 10-180 md considering as good reservoir unit.

Recommendations:

The Isochore Thickness Maps The Isochore thickness maps of the four reservoir sub zones have been constructed. These maps revealed the presence of two loops of carbonate for the entire reservoir zones trending NW-SE. This trend is the same fault trend indicating that carbonate development is structurally controlled.

Zone I of Carbonate attain a maximum thickness of 400 ft. in the south loop

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EGYPT OIL & GAS NEWSPAPER

• Production Performance History

It is recommended to re-test the upper limestone in the previous drilled wells as it has good porosity (about 20%) and low permeability.

•

Gross/net/oil and W.C % figures were plotted against time, the best production performance is clearly related to oil produced from Zone IV.

It is recommended to drill infill wells targeting both limestone and lower dolomite than any of the other reservoir zones.

•

Drilling of horizontal geo-steered wells can drain oil reserves of thin Carbonate pay zones.

Reservoir Model

•

Integration of Petrographical, sedimentological analysis in combination with the wireline logs and core data are recommended to allow good reservoir characterization and modelling.

OCTOBER 2014 - ISSUE 94

33

Industry Statistics Egypt Statistics

August-12

Oil

Equivalent Gas

Condensate

Liquefied Gas

Barrel

Barrel

Barrel

Barrel

August-13

August-14

August-12

Med. Sea

August-13

August-14

23458571 20684821 15704286

E.D.

2294391

2526668

2131840

W.D.

8409108

9200611

9439161

GOS

4699776

4273778

Delta

79901

Sinai

August-12

August-13

August-14

August-12

August-13

August-14

1171055

1251821

799102

371488

390137

320561

3291

2916

9614

6473

60000

42143

7188750

7054286

7009821

1575459

1330336

1425960

603294

658097

696194

4203515

215714

433929

454643

59974

69959

55075

166748

217293

213462

68869

42318

1757857

1803036

2272679

137848

174339

187827

95895

124708

118195

2200786

2154193

2197014

1071

7857

3393

35452

33383

30951

84709

93096

78266

Upper Egypt

15083

16308

10199

Total

17699045

18240427

2979788

2863129

2501831

1322134

1492945

1433151

Egypt Rig Count per Area – September 2014

Rigs per Specification August - September 2014

Rigs per Area August - September 2014

Rigs per Specification September 2014

9000% 9000%

80

April-14

8000%

August-­‐14

8000%

70

May-14

September-­‐14

7000%

7000%

60

1% 8%

6000% 6000%

4%

50 5000% 5000%

8%

Aug-­‐14

40

Sep-­‐14 30

4000%

4000%

3000%

3000%

20

50%

2000%

2000%

10

1000%

0

Land-­‐Drilling

Land Work-­‐Over

Jack-­‐Up

Semi Submersible

Fixed Pla>orm

1000%

Standby/Stacking

29%

0%

0%

G.O.S.

G.O.S.

Oil Production August 2014 - 2012

Med. Sea

W.D.

Med. Sea

Sinai

W.D.

E.D.

Sinai

Delta

Ganoub El Wadi

E.D.

Delta

Equivalent Gas Production August 2014 - 2012

Land-­‐Drilling

Land Work-­‐Over

Jack-­‐Up

Semi Submersible

Fixed PlaForm

Standby/Stacking

25

10 9

20

8

Million Barrels

6

August-­‐12

5

August-­‐13 August-­‐14

4

Million Barrels

7 15

July-­‐12

Rigs per Area September 2014 (Total of 123 Working Rigs)

July-­‐13 July-­‐14

10

3

0% 1%

5

2 1

Med. Sea

E.D.

W.D.

GOS

Delta

Sinai

Med. Sea

Upper Egypt

9%

10%

0

0

E.D.

W.D.

GOS

Delta

Sinai

4%

Upper Egypt

9%

Liquefied Gas Production August 2014 - 2012

Condensates Production August 2014 - 2012

0.8

1.8

0.7

1.6 1.4

0.6

1.2

August-­‐12

0.4

August-­‐13 August-­‐14

0.3

Million Barrels

Million Barrels

0.5 1

August-­‐12 August-­‐13

0.8

August-­‐14

67%

0.6

0.2

0.4

0.1

0.2

0

0

Med. Sea

34

E.D.

W.D.

GOS

Delta

EGYPT OIL & GAS NEWSPAPER

Sinai

Upper Egypt

G.O.S.

Med. Sea

E.D.

W.D.

GOS

Delta

Sinai

Upper Egypt

Med. Sea

W.D.

Sinai

E.D.

Delta

Ganoub El Wadi

9/18/2014

8/28/2014

8/27/2014

8/26/2014

8/25/2014

9/15/2014

9/12/2014

9/11/2014

9/9/2014

9/10/2014

9/8/2014

9/5/2014

9/4/2014

9/3/2014

9/2/2014

8/29/2014

8/28/2014

8/27/2014

8/26/2014

8/25/2014

8/22/2014

8/21/2014

8/20/2014

8/19/2014

8/18/2014

8/15/2014

9/18/2014

9/17/2014

9/16/2014

9/15/2014

9/12/2014

91

9/11/2014

3.6

9/9/2014

92

94

9/10/2014

3.65 9/8/2014

93

95 9/5/2014

3.7

9/4/2014

94

96

9/3/2014

3.75

9/2/2014

95

97

9/1/2014

3.8

8/29/2014

96

98

8/28/2014

3.85

8/27/2014

97

99

8/26/2014

3.9

8/25/2014

98

100

8/22/2014

3.95

8/21/2014

99

101

8/20/2014

100

4

8/19/2014

4.05

102

8/18/2014

103

8/22/2014

Opec Basket Price 101

8/21/2014

Natural Gas 4.1

8/20/2014

Brent Price 104

9/17/2014

100%

9/16/2014

123

18024047 32621963 30043929 25486965

9/15/2014

0%

9/12/2014

1%

0

9/11/2014

2

9/9/2014

10 %

8/19/2014

Total

9%

12

9/10/2014

Ganoub El Wadi

11

9/8/2014

67 %

9/5/2014

82

9/4/2014

4%

9/3/2014

5

9/2/2014

Gulf of Suez Mediterranean Sea Western Desert Sinai Eastern Desert Delta

9%

9/1/2014

Percentage of Total Rigs

11

8/29/2014

Total

8/18/2014

Area

OCTOBER 2014 - ISSUE 94

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EGYPT OIL & GAS NEWSPAPER