H.E. Tarek El Molla – Minister of Petroleum and Mineral Resources, Egypt
H.E. Tarek El Molla, the Minister of Petroleum and Mineral Resources for Egypt, outlines the key mandate he was given when he was appointed, the modernization plan he is spearheading to transform Egypt’s oil and gas sector into a world-class organization, and the significance of the development of the Zohr gas field as a signal to international investors that Egypt is committed and able to deliver on its promise of becoming a regional energy hub.
Your Excellency, you were appointed Minister of Petroleum in September 2015 during a particularly challenging time for the global industry after a long and distinguished career in both IOCs and state corporations, specifically Chevron and the Egyptian General Petroleum Company (EGPC). Let me open by asking, what mandate were you given – and what was your personal motivation?
“I have been empowered and received a clear mandate – the time has come to deliver.”
The fundamental mandate is, on one hand, to secure petroleum products for the Egyptian people, and on the other, to take into consideration the broader societal aspects like social equality, the empowerment of Egyptian people, and the optimization of the current oil and gas infrastructure of the sector in Egypt.
This is a very important question precisely because it was such a challenging environment at that time: oil prices had fallen, IOCs were not as motivated to invest and nationally we were facing gas shortages, electricity blackouts and bottlenecks in key petroleum products like LPG, and so on. We had to define our mandate while looking at these different challenges to plan the way forward. This is where the importance of a strategy – of setting, and implementing it – comes in.
We wanted to implement, firstly, a tactical plan to secure hydrocarbon resources for our people to bridge the gap between supply and demand, whether through upstream E&P activity or imports. Secondly, we also wanted to secure and optimize the needed infrastructure that will enable us to close this gap and make available all products. Thirdly, we wanted to modernize and upgrade the oil and gas sector – as well as related activities like empowerment, capacity building, transformation – so that it can become world-class.
As for my personal motivation, I want to apply the model of an international organization to the sector here in Egypt, in other terms, seeing my oil and gas industry like any international organization or sector in other countries. With my previous multinational experience, and with my wide-ranging career in state corporations like EGPC, where I was the deputy CEO of several departments before being appointed CEO, I have a very complementary blend of IOC and State Corporation experiences.
Being appointed a Minister has reaffirmed my motivation to contribute to my country. I have been empowered and received a clear mandate – the time has come to deliver.
The Ministry launched a modernization strategy with a number of key initiatives. Can you highlight the elements of most interest to our international readers?
It all comes down to my vision vis-à-vis the oil and gas sector, influenced by my background, which is to set the oil and gas sector into an international position. Implementing this vision meant that we had to kick off a project which we have named Modernization Project, supported by the advice by an international consultancy. This Modernization Project is a five-year strategy plan started in 2016 that lays down a transformation plan taking us to the year 2021.
The vision in full is to become the “Pace Setter” in Egypt’s Modernization journey and by 2021, continuously unlock the Sector’s full value chain potential as a growth and a sustainable development engine for Egypt:
Achieve attractive financial income
Become a leading regional Oil and Gas Hub
Be a role model for the future of modernized Egypt
while maintaining the core values of safety, innovation, ethics, transparency, and efficiency.
This will be realized through six important initiatives, some of which will be implemented over the medium- (two years) and long-term (five years), but we will also deliver some quick wins over a six-month period, in order to gain more buy-in from the organization.
Ultimately, it is about the way of doing business. It is not a matter of just crafting processes to follow, but about changing the mindset of the organization and the way we do business.
In brief, the six initiatives are: firstly, to encourage and optimize upstream activities; secondly, incentivize and attract more investments along the entire value chain; thirdly, capacity-building in terms of developing our people and human talent; fourthly, organizational restructuring of the Sector; fifthly, to optimize the downstream; and finally and most importantly, to transform Egypt into a regional energy hub.
The idea of the restructuring is to have our oil and gas sector like any other oil and gas sector in the world, where the Ministry is the policy-maker, the NOCs focus purely on production, optimization and their profitability, and there is an independent regulator overseeing the market. This is the set-up we expect to see in Egypt by 2021.
I also want to emphasize that, even though we have been talking about oil and gas, the idea is for Egypt to become an energy regional hub in its totality, because we are including electricity in this program as well.
When it comes to organizational change, one thing is to change policy but it is more difficult to change behavior and attitudes. How will you ensure that these reforms will be fully implemented?
First and foremost, we have designated a sponsor for each initiative, who are leaders from the respective organizations. Under them, we also have a champion. In total, around 150 people are involved in this program. This is a very important project that we are all approaching enthusiastically because our dream is to see our organization well-positioned for success.
As to changing behavior and attitudes, that is precisely why we have dedicated one complete initiative to address the area of human capital. The core of the project is people. The idea is to improve capacity building to manage not only the transformation but also their expectations of the transformation. With all these hub projects we have embarked on, we cannot succeed without preparing and gearing up our human resources. We also need to organize and restructure the organization to enable them to withstand the inevitable challenges of the transformation process and the future.
To prepare our people for 2021, we must start assessing their competences, perform some gap analysis and evaluate our needs. In this regard, we are working with several consulting firms that are very experienced in such big projects. Certainly, we will not miss an opportunity to develop our people, be it in terms of training, on-job rotation or overseas programs.
On the upstream side, Egypt has seen a lot of E&P activity with over USD 15 billion worth of agreements signed in the last couple of years despite the globally depressed landscape. Moving forward, is there more potential in Egypt?
Yes – the answer is definitely yes. The latest discoveries that we have had coupled with the policies that we have been adopting lately place us in a very good shape to continue the momentum on the upstream side.
Having said that, when we talk about potential, there are definitely other opportunities in the Mediterranean for Egypt, such as in the offshore Nile Delta and in the Eastern Nile Delta. Published studies, from the US Energy Information Administration (EIA), as well as other international sources, that Egypt could have as much as 220 trillion cubic feet (tcf) of gas reserves – so the 30 tcf in the Zohr field is the beginning. We are certainly very optimistic that we will be able to uncover more proven reserves, as we have many more activities to come shortly.
In order to be even more attractive to foreign investors, we want to demonstrate our full commitment to our IOC partners and ensure that we unlock all the potential in Egypt.
Speaking of Zohr, how will Zohr help Egypt achieve its dream and turn back the clock – because this was Egypt’s aspiration 10 years ago – to become a regional gas hub?
“Frankly speaking, Zohr is just the beginning”
Frankly speaking, Zohr is just the beginning. We expect to have production of around 1.2 billion cubic feet (bcf) per day by year end, beginning with 200 standard cubic feet per day and ramping up every 15 days to reach the first phase target of 1.2 bcf but Zohr alone will not solve our local consumption needs. Our population is over 90 million and we are consuming a lot of gas, electricity and energy for both home and industrial use. Zohr is a very good step in closing this gap between production and consumption but Zohr’s importance is more in terms of presenting a case study of how Egypt has the expertise, structures and will in place to deliver such a huge and ambitious project.
Looking at the time of discovery, which was announced in August 2015, to the time of real production, projected before year-end 2017, it is only 26 months – a world record. Within that time, we need to have secured all the funds, partners, global suppliers and vendors for all components – planning, engineering, manufacturing, etc. – of this megaproject. Consider that this is a deepwater field 200 kilometers offshore, with a well depth of over six kilometers and water depth of over 2.5 kilometers. It is not that easy to secure all the drilling ships and to lay down the pipelines, to say the least. This project is technically challenging – and it will exceed USD 15 billion in terms of investment over the entire project lifecycle.
We intend to use this giant project to demonstrate to international investors, governments, investor funds and banking institutions – to the entire world – that Egypt can successfully raise and secure, with its partners, this investment and this big project in this record time frame. Accordingly, it will motivate others and boost their confidence that Egypt is a place where you can invest and grow easily and successfully.
Egypt’s ambition to become a regional energy hub will require significant infrastructure, some of which is already in place like the Suez Canal, the SUMED pipeline and the refineries. But there are already many megaprojects going on in the region, so what opportunities do you see within the midstream and downstream sectors for Egypt to sharpen its advantages here?
As you know, we have only recently invested USD 8 billion into expanding the Middle East Heavy Oil Refinery (MIDOR) in Alexandria and the Assiut refinery in the south of Egypt, which are major ongoing projects. These projects were started primarily to secure local needs. We are currently importing over 35 percent of our needed petroleum products, so we want to stop this as much as possible. The possibility to export to other countries is a secondary option.
Egypt also benefits from economies of scale. We have a huge population that is growing significantly each year, and we have a very young population as well. We look to secure the future growth and development of Egypt.
“Egypt also benefits from economies of scale. We have a huge population that is growing significantly each year, and we have a very young population as well.”
We are also looking at this very strategically by tying this to the regional hub strategy. It is not just about exporting our products. The hub would be a means of trading and integration with our neighboring countries, and we can utilize the Suez Canal very naturally to leverage on our geographical location. By 2021, our expanded infrastructure could be used not just by Egypt but by third parties (exportation on behalf of others), who could use our LNG facilities in Alexandria or in Damietta, or through our refining capacities while we benefit from the process fees.
It is all about looking at the bigger picture. We want to integrate our vision through our strategy into the implementation of these initiatives I outlined above, and we will proceed tactically and sequentially, along with the main vertebrae, which is the idea of the modernization of the oil and gas sector in Egypt.
On a more personal note, as this interview is for an American publication, what are your thoughts on the newest American administration and its potential impact on the global oil and gas sector?
Personally, I believe that the appointment of Rex Tillerson as the Secretary of State is the right decision. I met him at the Abu Dhabi International Petroleum Exhibition Conference (ADIPEC) in Abu Dhabi last year while he was still the CEO of ExxonMobil. Similarly, I am aware that he has good relationships with other oil-rich countries like Kuwait, Saudi Arabia, UAE and Russia. In my opinion, this should consolidate bilateral relations.
The bilateral relations between Egypt & US have been outstanding for a long time, and our President, H.E. Abdel Fatah El Sisi, believes firmly in bolstering relations with various countries worldwide. Thus, the coming period may witness very positive changes, in my opinion.
Among the most significant US companies operating in Egypt is Apache, which contributes significantly to Egypt’s total production. We are also targeting other US majors to work in the upstream sector such as the likes of Chevron and ExxonMobil. Now, I am optimistic that this may take place over the next few years, which would make the Egyptian market even more dynamic.