Many industry surveys have shown that over the last few years the African continent has been attracting more and more attention from investors – to prove this trend a number of major construction projects are planned or being implemented in the region.
Energy-producing industries have greater influence on the economies of African countries and the social development than anywhere else in the world. Many experts see Africa akin to a new India or China with potential for steady and in some cases rapid growth.
Of late we have seen Africa producing more than 8% of the world’s total amount of energy and its share in world oil production exceeds 10%. The African region boasts the second largest proven natural gas reserves (after the Middle East), and they should last (given planned production rates) close to 70 years. Progress in R&D has made a tremendous difference to natural reserves.
These facts alone provide a strong basis to confirm a steady future of energy in Africa. There is also specificity to the region’s energy balance – significance of biomass-originated fuels – around 32% in production compared to 38% of oil and around 15% for both gas and coal.
Even though African countries are comparatively rich in terms of mineral resources of energy, renewables such as fuelwood constitute almost half of the total primary energy supply. The region’s current focus is firmly on:
- ethane feedstock reduction;
- use of heavier feedstock to support the development of production chains such as propylene, butadiene/butenes & aromatics;
- increased attention to operational efficiency amid falling profits as a result of lower oil prices.
As the population in Africa continues to grow, the demand in heat and electricity rise – the need for sustainable energy supply has found its way into energy policies of several African countries.
Most of the supply in oil, gas and coal comes from Nigeria, Algeria, Egypt and South Africa – meaning the other countries are highly dependent on their output.
Looking further afield a total of 6.7 GW in renewable power generation capacity is set to come online in the six Gulf Cooperation Council nations by the early 2020s, led by the UAE, Oman and Kuwait. Based on IRENA data, major wind and solar projects in MENA region will be developed in Morocco, UAE, and Egypt (the latter will have 1.5 GW of wind and 2 GW of solar power after projects come online).
In 2019, the power sector witnessed a significant decline in investments ($114 bn). This was due to the commissioning of several projects in Egypt, UAE and Saudi Arabia.
Planned upstream spending this year already has been cut by 20-30% by NOCs and large independent oil companies as a result of the important drop in oil and gas prices and unprecedented fall in demand.
Still, gas developments aimed at domestic consumption and export markets are executed, new gas fields are being developed, those are expected to offset the impact on the upstream sector in the MENA region – the region seems to be coping with the crisis much better than some other regions.
If we focus on Egypt - there has been a trend of moving towards the petrochemical route of development, and despite feedstock insecurities and need for infrastructure expansion, it is set to become a significant exporter of products in the next decade.
According to SIBUR’s estimates, a sharp increase in investments in petrochemical plants in the Middle East was seen between 2007 and 2011. Today the situation is different as the production of Ethylene illustrates:
2007-2011 14.3 million tons of ethylene was produced
2012-2018 6.8 million tons of ethylene
In Egypt, downstream industry is for the majority state-owned – this puts a strong emphasis on government support measures and policies. Unfortunately, as in most countries with a similar setup, refining has seen less investment compared to upstream E&P. A sector which has secured the country with a stable supply of oil and gas and opportunities to export in the region, but at the same time – lost opportunities in producing higher-margin products.
The Downstream industry mostly relies on partner(s) investments – like neighboring countries in ME (and Asia) in their period of rapid growth, Egypt clearly made it a key strategy to attract investors from all parts of the world - through JV schemes. Both 2019 and 2020 have seen an unprecedented number of MOUs signed:
- BP signed an agreement with the Ministry of Petroleum and Mineral Resources to convey petroleum middle management training, developing offshore fields, and discussing with the country’s President and Bechtel a petrochemical complex planned for the Suez Canal Economic Zone;
- Shell also signed an agreement with the Ministry for developing their personnel;
- Egyptian Petrochemicals Holding Company (EChem) and Bechtel signed the MOU for the refinery complex project;
- Egypt Petroleum Company (EGPC) and Schlumberger will jointly build, operate and transfer Egypt’s Upstream Gateway (EUG);
- EBRD will invest US$ 60 mln. to become a shareholder in Infinity Energy S.A.E., one of Egypt’s leading private energy companies, along with JV agreement between Infinity Energy and Abu Dhabi Future Energy Company PJSC “Masdar” to develop renewable projects.
In addition, Egypt is also very present and active in other countries - developing cooperation with Somalia, Equatorial Guinea, and Chile.
Without doubt, the petrochemical sector is booming in Egypt and is leading the region’s development: according to ICIS, the announced capacity additions are over 10 mtpa by 2030, with CAPEX of close to $12 billion in the period.
Potential remains high – Egypt is in top-8 of major PET importers from Europe, increasing its volume 50(!) times – from 1 to 57 thousand tpa in a two-year period (2017-2019). It is predicted that pressure on prices will come from PET capacity increases coming on stream in Asia.
At the same time, Europe is second largest exporter of PTA to Egypt – while there was no trade in 2017, last year saw a large amount of PTA imported – over 67 thousand tonnes – again, a significant change that means an opportunity for future import substitution.
ExxonMobil stated, that in 2019, Egypt, along with Nigeria, South Africa, and Morocco, bought large volumes of base oils, notably Group I.
The Petrochemical Industry is looking to expand significantly – with 11 new projects with total investments estimated at $19 billion. The new strategy adopted by Egypt will be developed and implemented through to the year 2035. The final version of the plan is currently being reviewed in preparation for its approval.
Key Projects
| COMPANY NAME | PARTNERS | INVESTMENT | PROJECT GOALS | CAPACITY |
|---|---|---|---|---|
| ASSUIT NATIONAL OIL PROCESSING COMPANY (ANOPC) | PETROLEUM AND MINERAL RESOURCES MINISTRY, ENGINEERING FOR THE PETROLEUM & PROCESS INDUSTRIES (ENPPI) and TECHINT ENGINEERING | US$ 2.5 bn | Refining Residue Upgrade: maximise the utilisation of resources using latest hydrocracking technology to refine heavy vacuum oil residue, into petroleum products of a higher value, mainly diesel with European specifications, produce Butane and naphtha for high-octane gasoline production. | 2,8 mtpa |
| EGYPTIAN PETROCHEMICALS HOLDING COMPANY (ECHEM) | BECHTEL, MINISTRY OF PETROLEUM & MINERAL RESOURCES (MOPMR), CENTRAL BANK OF EGYP, AMERICAN EMBASSY | EPC US$ 6.7 billion | Grassroots integrated refining and petrochemicals complex: to meet increased demand for transportation fuels and petrochemical products on Egypt’s domestic market and exports | 2,7 - 3,2 mtpy: 0,9 mtpy - Petroleum Products 1,2-1,9 mtpa - Petrochemical Products |
| EGYPTIAN REFINING COMPANY (ERC) | QATAR PETROLEUM | US$ 4,4 bn grassroots | Refining residue upgrade project: to process about 4.7 million tonnes/year of mainly atmospheric residue feed from the adjacent 145,000-b/d Cairo Oil Refinery Co. to produce Euro 5-quality refined products, such as diesel and jet fuel, intended for consumption primarily in Cairo and surrounding areas. | 4,7 mpta |
| ETHYLENE AND DERIVATIVES COMPANY (ETHYDCO) | PETROJET, SAIPEM | $ 180 million | Production of Polybutadiene: to produce 36,000 tons per year of Elastic Poly Butadiene at Ethydco company based on 20 thousand tons per year of Butadiene produced from Ethydco and SIDPEC companies to maximise the added value, cover part of domestic demand and export the surplus | 0,020 mtpa Butadiene |
| METHANEX | EGYPTIAN MAINTENANCE COMPANY (EMC) SUN MISR, WADI El-NILE, ZAVKOM, ENPPI; | $117 million | Methanol and Derivative Project | 0,110 mtpa urea-formaldehyde products, naphthalene and sulfonal-formaldehyde. |
| METHANEX | $400 million | Polyacetal Project | 50,000 tons annually of polyacetal products | |
| MIDDLE EAST OIL REFINERY (MIDOR) / ALEXANDRIA | UOP, Woodmac, TechnipFMC; | $2.3bn | Middle East Refinery Expansion: increase the total production from the current 100,000 barrels per day (bpd) to 160,000bpd of refined product, to increase the middle distillate yield as well as meet the domestic requirement for Euro V grade fuel | ~ 6,9 mpta |
| MINISTRY OF PETROLEUM AND MINERAL RESOURCES | $8.5 billion | Refining and Petrochemicals Complex: studying the construction of a new refinery and petrochemicals complex in the Al-Alamein region | 2,5 mtpa | |
| MISR FERTILIZERS PRODUCTION COMPANY (MOPCO) | $260 million | Melamine Project | 60,000 tons annually of urea. | |
| SIDI KERIR PETROCHEMICALS COMPAY (SIDPEC) | W.R. GRACE | $ 1.6 billion (phase 1) | Production of Propylene and Derivatives: to cover local demand and export the surplus, the project depends on the utilisation of the available propane quantities with the facilities of GASCO in Alexandria instead of exporting them | 0,45 mtpa |
| SUEZ OIL PROCESSING COMPANY (SOPC) EL-NASR PETROLEUM REFINERY | PETROJET | $445 mln | Developing three salt separators for the first time with an integrated work system aiming at refining 816 tons of the crude oil per day with an integrated plan to develop the petroleum sector’s refinery. | 816 tpd |
| SUEZ OIL PROCESSING COMPANY (SOPC) EL-NASR PETROLEUM REFINERY | $ 50 million | Formaldehyde and its Derivatives Production project (SMD): to maximise the added value of methanol produced by Emethanex, the urea produced by MOPCO and the caustic soda produced by the Egyptian petrochemical company | 0,052 mtpa Formaldehyde 0,026 mtpa Naphtalene |
Challenges & Development Areas
With most world regions facing similar problems and challenges it is interesting to look at the MENA region and analyse the different strategies that have been applied in the oil, gas and petrochemicals sectors.
When faced with a downturn and/or increased competition companies look to review capital-intensive sectors and give priority to rational operational cost reduction and risk optimisation. This is to sustain margins and save market position.
In addition, investment strategies are reviewed and, in some cases, revised – having said that some majors prefer not to scale back, because this could lead to unfavorable loss of future profits.
Asset management is brought to the forefront of priorities, grounded by the structure and degree of depreciation of production facilities in the region. It addresses many issues, including supply chain and maintenance efficiency and, partly, performance management.
Human resources have long been a key area for industry development in the region: there is an available pool of potential human resource and investments have been made in education and training. There also has been a conscious effort made by companies to find the right balance number between local and foreign specialists.
The next step will likely be focused on diversification – both geographic and in terms of products – and expanding to new emerging markets, preferably outside the region.
Other areas for industry efficiency increase that haven’t been mentioned but of importance relate to infrastructure development: pipeline and port construction, more gas-fired electricity generation units, unconventional gas projects, local supplier development and independent power producers, methanol, urea and fertilisers production for local use.
All of this clearly illustrates the willingness and drive to grow and further develop the Egyptian Downstream industry. In 2020, the oil processing industry will decrease the overall budgets but is expected to still invest in major projects that are critical for future performance, Middle East focusing on boosting higher-value products portfolio—low-sulfur and transportation fuels and petrochemicals, also increasing gas processing capacity and logistics infrastructure.
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises leading conferences worldwide. Euro Petroleum Consultants have recently launched the ‘EPC Expert Lab’ – a series of online (virtual) training courses for the oil and gas sector including. For further details please visit europetro.com/training.
Published by:
