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Interview

Eng. Khaled AbuBakr – Executive Chairman, Egyptian Gas Association

The executive chairman of the Egyptian Gas Association, Eng. Khaled AbuBakr highlights the association’s recent milestone in obtaining preliminary approval to establish an independent gas regulator and how this move serves to liberalize the gas market and encourage more private sector involvement. He also elaborates on the implications of the recent discovery of the supergiant gas field Zohr and how this pivotal finding is among a series of factors that will help position Egypt as an Eastern Mediterranean gas hub.

Can you introduce the scope of EGA’s role in Egypt, while elaborating on the priorities currently at the top of the organization’s agenda?

“In the last three years, the government has established a unified push to reform and enhance the oil and gas sector—an endeavor that they’ve recognized can only be accomplished in collaboration with all industry stakeholders.”

The main objective of the association is to be a platform for all the stakeholders of the gas industry in Egypt—spanning government, public sector, private sector, local, and international gas companies. We all need a platform where we can share our concerns, our challenges, and our success stories. In the last three years, the government has established a unified push to reform and enhance the oil and gas sector—an endeavor that they’ve recognized can only be accomplished in collaboration with all industry stakeholders. Therefore, we’ve been enlisted as a nonprofit organization to help the government on challenging opinions, communicating with the media, while also sharing best practices we as an industry have picked up over the years in forming Egypt’s gas sector.

Recently, there have been three primary areas that our advocacy efforts have focused on. The first one entails restructuring the gas industry and liberalizing the market. In collaboration with the government, the Egyptian Gas Association has helped draft a new gas law that will establish an independent gas regulator and liberalize the market to the point where private sector companies will have greater freedom in participating in the gas market—specifically the trading, distributing, importing of gas, while providing all products and services related to this resource. The law has just received preliminary approval from the parliament—a milestone that we’re very much proud of.

The second focus is on human capital. This mandate entails finding ways to bring about the best practices and attract the best talent available to Egypt’s gas sector. We’re not only focused on technical roles, but also non-engineering ones. Modern times call for modern skillsets, especially in the areas of law and contract negotiation. Arbitration cases, for example, are costing the industry billions of dollars each year, warranting the need for such talents. Internally, we are developing a continuous education program with the industry, government, and international law firms.

The third focus is sharing the best practices of gas utilization to Egypt. We are encouraging shared gas exploration and development, while incorporating all environmental considerations. We’ve also partnered with the European Bank for Reconstruction and Development (EBRD) to more effectively capture gas flares. This will not only help diminish hazards to the environment, but also increase the supply of natural gas.

Moreover, EGA is a chartered member of the International Gas Union (IGU), allowing us access to its extensive archive of research and knowledge, and enabling us to extend these best practices to the Egyptian gas industry. I also serve on IGU’s board of directors and act the representative for Africa and the Middle East. This allows us to become a pivotal center for sharing knowledge in these two regions. Especially in Africa, where the gas industry has only recently started gaining momentum, existing success stories are a fundamental pre-requisite. Effectively, we are trying to bring the gas industry to Africa and bring Africa to the gas industry.

Leveraging Egypt’s track record and experience, and together with the World Bank and the United Nations, we’re now going out to different parts of Africa, such as Ghana, Côte d’Ivoire and Tanzania to tailor education programs for policy makers looking to learn about gas applications.

Compared to other resources, how would you evaluate Egypt’s dependence on natural gas, both from an industrial and residential standpoint? And how will the discovery of the supergiant gas field Zohr impact this level of dependence?

In the last 40 years, Egypt has developed robust infrastructure, established a strong knowledge base, and invested heavily in human capital, with many of the region’s leading gas experts now based in Egypt.

As it currently stands, 70 percent of industrial consumption and 65 percent of power generation (upwards of 90 percent) is attributed to natural gas. In terms of residential and household usage, we are bringing and connecting gas to nearly one million additional customers every year. There are also ongoing efforts to replace the usage of liquefied petroleum gas (LPG) with natural gas, which is much cleaner, reliable, and safer. Although we’re pushing towards a more diversified energy mix, potentially inclusive of renewables, coal, nuclear, and hydropower, it’s safe to say that Egypt is becoming increasingly reliant on natural gas.

This is why there has been an imperative to invest more money in exploration and production of natural gas, which has lead to several success stories in the Western Dessert and the Mediterranean over the last 20 years. More recently, this trend has culminated in the Zohr discovery. Estimated at approximately 30 tcf, Zohr the largest gas field ever found in the Mediterranean and will add 50 percent more to our total gas reserve. The supergiant gas field is actually among a handful of other high-profile discoveries in the area, including Israel’s Leviathan and Tamar fields, as well as Cyprus’ Aphrodite field. These countries, however, lack the proper infrastructure to effectively access international markets and monetize their gas reserves, further bolstering Egypt’s role as the East Mediterranean gas hub — an ambition that has been fervently voiced from the top down, from President Abdel Fattah El Sisi to the Minister of Petroleum & Mineral Resources Tarek El Molla. We have existing LNG trains, pipeline networks, and transit routes that can fill this vital medium.

As you can see, every year our industry undergoes new developments, enhancing various areas of the sector, and adding new applications—leading me to maintain a very optimistic outlook on Egypt’s gas future.

Especially with the monumental Zohr finding, government leaders have expressed their ambitions of positioning Egypt as a regional gas hub. But given the current lack of exports and the country’s massive rate of consumption, how would you project the feasibility of this ambition?

Becoming a gas hub doesn’t necessarily mean we have to own all the gas. For example, the SUMED pipeline transports 120 million tons of oil that’s not produced in Egypt. Similarly, the majority of the commodities transported through the Suez Canal are not Egyptian products. We’re able to cultivate this positioning as a hub because we have the necessary infrastructure and the means to seamlessly facilitate trade between Eastern and Western markets.

That same concept then applies to our ambition of becoming a gas hub. We have the proper location, LNG terminals, transmission terminals, and all encompassing infrastructure. So Egypt doesn’t necessarily need to become the lead exporter in the region, but simply the center where gas from other countries can be exported. And this invariably includes players outside the Egyptian government who will bring in gas from other parts of the East Mediterranean, whereby Egypt will provide the land, technical manpower, premiums, taxes, royalties, etc.

We’re reaching a point where there will be different flags of gas from different countries that are passing through Egypt, with the gas not necessarily being owned by the Egyptian government—this is the idea of the gas hub.

Egypt itself is a very large consumer of gas and wavers between a net importer and net exporter. Regardless of that balance, gas development in Egypt will continue to grow, likely doubling in the coming 10 years. These additional quantities of gas will be covered by either local discoveries or imports depending on how much the economy is growing and how fast industrial consumption is rising. But we’ll have full flexibility to waver between such supply and demand gaps. Where there is a surplus, the excess levels of production will just be added to the hub. When there’s a deficit, existing quantities of gas within the hub from other countries can cover the shortage. Whether or not we solidify a position in one or the other will not matter. Japan, for example, imports 100 percent of their energy needs. Here in Egypt, you’ll either have 20 percent excess or 20 percent deficit—a spread that is very minor in the grand scheme of becoming a regional gas hub.

We’ve got everything in place, so now it’s solely a commercial issue: how much energy do you bring into the country? And how much you allocate to the local market? Nevertheless, one thing is clear, the more we develop as a hub, the more we’ll be able to ensure the continuity of supply.

When it comes to advocating for a more favorable operating environment for your member companies, where do you see the most opportunities for improvement?

Over the last five years, due to the Arab Spring and the political reform in 2013, there have always been challenges. The main task ahead of us as an industry is to modernize a country that’s been a centralized, planning-based state economy to a more free-market economy. This is a huge endeavor in and of itself because there are always those who are resistant to change or not receptive of reform.

We’ve been working with the government to liberalize the economy through the establishment of standalone regulators to elicit more participating of the private sector with diminishing government intervention. But this is a task that cannot be done overnight as you don’t want to collapse the society, requiring a more staged approach. But while we’re occupied with this, the government is also dealing with other challenges such as security, health, and social welfare. So there are many other tasks competing for the government’s attention that might even come before modernizing the oil and gas sector. It is then our role as representatives of the gas industry to continue placing our concerns at the forefront of government priorities. But based on our interactions thus far, I can see that government stakeholders are responding positively to our efforts and progress in developing the market.

For the international investors that still hold political and economic instability as primary inhibitors when it comes to embracing the Egyptian market, what would be your message?

There are several challenges in the area of the Middle East. But these challenges are not different from any other place in the world. In terms of safety, in light of recent events it’s clear that no one is completely immune from terrorist incidents spanning both developed and developing countries. And in terms of investor mindset, you cannot wholly restrain or limit your future plans or ambitions based on these situations. Politically, Egypt is becoming more stable and cooperative with its neighboring countries in the region. But of course the Middle East is certainly embroiled in widespread unrest, and I can only hope that the situation in countries like Libya and Syria will stabilize, which would serve to bolster our own economy.

Despites all these events, I see investors moving forward with their plans and enlarge their shares in projects. And the diversity of stakeholders in some of Egypt’s major capital projects is only expanding. Rosneft, for example, recently acquired a 30 percent stake in Eni’s Zohr development. We see this as a very positive trend, as the involvement of more industry players entails an overall reduction of financial and technical risks.

Given all these developments, what is your outlook for future gas demand in Egypt?

In terms of gas demand, the sky is the limit. Besides the need for gas in the power generation sector, there are potential projects incorporating Egypt’s strong industrial base that will become very large consumers of gas. The petrochemicals segment, for example, is a huge sector with many promising projects in the pipeline. We have the base, and there needs to be enough gas to eventually support this base. So, it’s clear that we have ample room to accommodate increasingly larger quantities of gas. In the coming years, I see Egypt’s rate of gas consumption growing from 50 BCM a year to 80 or 90 BCM.

And where will the association be focusing its efforts in the next three to five years?

We would like to position ourselves as the voice of gas in Egypt, while making the role of the gas industry more visible to the public domain. We also aim to create greater awareness about the benefits of gas among the younger generation, within schools and universities in particular. Furthermore, we want to enhance the industry’s centers of excellence for R&D. Finally, we would like to see the best talents in Egypt working within our sector.

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