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Energy Committee

• FIELD TRIP, Chamber members tour Idku LNG plant
• Regulatory issues obstruct downstream flow
• Pushing and stretching the boundaries

FIELD TRIP, Chamber members tour Idku LNG plant View Presentation

On May 31, the Energy Committee organized a field trip for AmCham members to British Gas Egypt’s liquefied natural gas (LNG) operations in Idku, 30 kilometers east of Alexandria. The facility, which came online in 2005, produces 7.2 million tons of LNG per year and generates over $1 billion in revenue per annum for Egypt.

Ian Hewitt, president of BG Egypt, explained to the visiting Chamber members how BG is working to develop Egyptian LNG in Idku with its partners, including Petronas, Egyptian General Petroleum Corporation, Egyptian Natural Gas Holding Company and Gaz de France. The first LNG train came on stream in May 2005, while the second one became operational in September of the same year. The two trains were both on budget at a cost of $949 million and $880 million respectively, Hewitt said, pointing out that the Idku LNG facility is the largest project-financing deal completed in North Africa.

To date, the Idku project has supplied Egyptian LNG to 13 countries in North America, Europe and Asia. The export volume from the Idku gas hub, from the first shipment in 2005 until the end of March 2007, amounts to 26 million cubic meters. The LNG has been loaded on 39 different vessels, including some of the world’s largest carriers. Hewitt stressed that Egypt is a core part of BG’s global portfolio. “Egypt is well located as a swing supplier both geographically and in mindset,” he said. “It is driving change in the industry through its mould-breaking project structure, industry-leading project execution, and present demonstration that large-scale inter-basin arbitrage is possible.” He concluded by emphasizing the measures taken by BG to ensure worker safety, guard against environmental damage and to support the local community. He described the Idku facility as a “world-class project adding great value to Egypt.”

Following the presentation, AmCham members were given a tour of the site. The committee then moved to an adjacent facility for a brief overview of the operation run by two joint ventures, Rashid Petroleum Company SAE (Rashpetco) and Burullus Gas Company SAE. The companies were established to operate the Rosetta field and West Delta Deep Marine (WDDM) concession respectively. The Rosetta field supplies gas for export, while the WDDM concession is used for the domestic market.

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Regulatory issues obstruct downstream flow

The Energy Committee held a meeting on February 12 with guest speaker Tom Walter, chairman and managing director of ExxonMobil Egypt, who gave a presentation entitled “Downstream Egypt: opportunity and challenge.”

Walter began with an overview of the downstream petroleum industry in Egypt, discussing the production and distribution of fuels, and the need for considerable investments and management. He predicted dramatic increases in Egypt’s future energy consumption, driven by population growth and economic progress. And although energy resources are seemingly adequate to sustain such growth, he said large-scale investments and advances in technology will remain vital to meeting the country’s energy challenges.

Increasing energy efficiency and expanding resources will require changes to the current regulatory environment, Walter stated. Although a number of factors indicate a shift toward more market-oriented policies, inland fuel prices and margins remain fully regulated and are often distorted. Steady industry support is needed to help the government continue taking steps toward subsidy reduction and a more sustainable price and margin environment, he added.

Concerning the opportunities that exist, Walter pointed out that Egypt’s consumers are increasingly seeking sophisticated goods and services. Such demand is likely to result in investment growth, which in turn will create jobs and develop the skills of local labor. Yet setting the stage for such sustainable improvements in Egypt’s downstream sector will also require meeting the growing safety, health and environmental needs of the sector through both government leadership and private sector collaboration.

In closing, Walter encouraged public discourse on issues of fuel prices and subsidies, calling for further government leadership to push for subsidy reductions on fuels as well as an improved vision on the government’s behalf regarding the sector’s potential and need for support.

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Confronting energy challenges: ‘Pushing and stretching the boundaries’

AmCham’s Energy Committee held a meeting on September 19 to discuss challenges confronting energy companies. Guest speaker Zainul Rahim, managing director of Shell Egypt, highlighted the role of industry in exploration and resource exploitation as well as the technological challenges involved.

Rahim noted that the demand for energy is growing and is expected to increase in light of the needs of emerging economies such as China and India. Fulfilling this demand poses environmental challenges, especially in terms of carbon emissions. He explained that the most accessible resources have been discovered and now it is the time to look for alternatives such as heavy crude oil. Most of these unconventional resources are located in the US, Canada and China, while Jordan has the most in the Middle East. Extraction of these resources is very capital intensive, he stressed.

Rahim also commented on the future of oil prices. He argued that increased prices will reduce demand and encourage investment in supply, but due to the inelasticity of energy prices they may not fall soon. Energy used for transportation will continue to occupy a very large amount of total consumption despite lower growth than energy for power and heat, Rahim said. He argued that to reduce dependency on finite fuels used in transportation the world has to invest in renewable energy and cleaner fuels and better technology. Meeting these challenges requires new technology, which, he pointed out, is very expensive.

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