Egypt overhauls oil refineries in push to become regional energy hub

Egypt, which produces 666,000 barrels of crude oil a day, has a refining capacity of 810,000 barrels a day.
Sunday 08/07/2018
Strategic vision. A general view of the Midor plant in Alexandria. (Midor)
Strategic vision. A general view of the Midor plant in Alexandria. (Midor)

CAIRO - Egypt has signed a contract for the expansion of one of its main oil refineries, part of a national strategy to upgrade its petroleum infrastructure and increase refining capacities. Cairo is looking to transform Egypt into a regional energy hub to offset planned subsidy cuts.

The contract, which was signed with the UK company TechnipFMC, will increase the refining capacity of the Middle East Refinery Company’s Midor plant more than 50% to 175,000 barrels of oil a day.

The $1.7 billion contract covers the construction, supplies and engineering designs for the expansion of the plant. The move complements measures by the Egyptian government to increase capacities at eight oil refineries.

The capacity expansion and upgrade of petroleum infrastructure, the Ministry of Petroleum said, is needed to meet growing local demand, reduce dependence on imports and allow for the processing of petroleum from other countries.

“We have a clear plan in this regard,” said Petroleum Ministry spokesman Hamdi Abdel Aziz. “The refinery expansion projects will contribute to implementing Egypt’s strategic vision for the next years.”

Egypt wants to become an energy hub in the eastern Mediterranean region, something it hopes to achieve by capitalising on its location and oil and gas discoveries in the region. Egypt has sprawling oil refining and natural gas liquefaction infrastructure but aims to upgrade that to become the largest in the region.

In February Egypt approved a $15 billion deal between companies operating Israel’s Tamar and Leviathan offshore gas fields and the Egyptian private firm Dolphinus Holdings for the import of 64 billion cubic metres of gas over ten years.

The Israeli gas will be sent to Egypt to be processed at liquefaction plants to satisfy local demand, with surpluses shipped to markets in Europe and Asia.

Egypt expects to hammer out a similar deal for the liquefaction of Cypriot gas after production from the country’s Mediterranean fields goes online. The long-term intention is to strike similar deals with oil producing nations in the Arab Gulf, which would solidify Egypt’s position as a regional energy hub.

A large portion of the world’s oil passes through the Suez Canal from production wells in the Gulf to markets in Asia, Europe and the United States.

The Midor expansion would make the facility Egypt’s largest crude oil refining plant. TechnipFMC was expected to start implementation of the contract in July and complete the project by 2023, Abdel Aziz said.

Egyptian Petroleum Minister Tarek al-Mulla said the ministry had allocated $8 billion to upgrade the national petroleum network, including the expansion of oil refineries.

“The upgrade of the refineries will reflect positively on raising their capacities,” Mulla said. “It will also help us maximise economic benefits from these refineries.”

Egypt, which produces 666,000 barrels of crude oil a day, has a refining capacity of 810,000 barrels a day. This capacity will need to rise dramatically for Cairo to become an energy hub.

Most of the country’s refineries are operating at half capacity because they haven’t been upgraded recently.

Oil consumption is expected to increase in the coming years, even with plans by the government to eliminate fuel subsidies.

Egypt announced a long-expected increase in electricity prices a few days after the Midor plant expansion, part of plans by the government to slash subsidies. Electricity Minister Mohamed Shaker said electricity costs for factories would rise 42% and 21% for households. A few days later, Cairo announced steep increases in fuel and cooking gas prices. The cost of cooking gas increased more than 60% percent, 92 octane petrol was more than 30% higher per liter and 80 octane gas was up 50%.

The subsidy cuts are part of a long-term economic reform plan that seeks to ensure cheap unsubsidised energy for Egyptians. However, that relies on improving Egypt’s energy facilities.

“Enlarging the capacities of the local refineries and liquefaction facilities is a must for achieving this energy hub goal,” said petroleum expert Salah Hafez. “This is a very costly thing to do and will require more than just the $8 billion allocated by the Petroleum Ministry so far.”