’S NATURAL GAS MARKET OVERVIEW Egypt’s Gas Industry Milestones

Gas Regulator

1st LNG import

1st FSRU Tender 1st Gas Export Private LDC 1st CNG Vehicle 1st Residential st 1 customer Industrial 1st gas customer Discovery

1967 1976 1981 1992 1996 2003 2012 2015 2017

2 Historical and Forecast Gas Production (by area)

90 BCM/yr 80 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Nooros Fields West Delta Deep Marine West Delta Project Zohr Total production

3 Zohr Gas Discovery

• The Largest gas discovery in the Mediterranean. • One of the largest gas discoveries in The World. • 30+ TCF of GAS in place • 1.5km water depth , 100 km2 acreage, 220km from shore • Significant potential in adjacent Blocks

4 LNG imports act as bridge for next upstream production

Due to the ongoing energy shortage Gas balance (BCM) Egypt began importing LNG in 2015

2.8 A 500 mmcfd capacity Floating Storage and 2.8 Regasification Unit (FSRU) was installed 10.3 at the Port of Sokhna on the Red Sea and multi- 10 23.6 year deals have been concluded with LNG 15.3 39.4 3.6 5 43.7 sellers. 10.3 48 A second FSRU, with a capacity of 750 mmcfd, 0.3 0.4 49.3 48.3 was commissioned in November 2015 alongside 45.5 63 61.9 the first at Sokhna 61.3 57 48.5 47 44 41.6 46 45.1 36.1 28.9 In August 2015, Eni announced the Zohr 23.9 discovery, a new play opening find with an 18 14.7 12 estimated 21.5tcf of recoverable gas reserves. -1.4 -0.8 -0.7 -0.7 -0.7 -0.7 -4.8 With a fast track development planned, Zohr will -10.4 -9.4 -7.7 -3.7 -2.9 -8.7 -10.1 -11.5 help to reduce the need for costlier LNG imports. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 This new source of gas will help Egypt to lower its cost of supply and, if followed by further Production online New gas production LNG LNG discoveries, could see Egypt return to a period of in 2015 (2015) imports exports energy self sufficiency

Source: Woodmac – Seek Permission, OIES

5 Egypt as the new Energy Hub in the Mediterranean

• Major recent huge gas discoveries (Zohr) • Oil & Gas infrastructure (LNG Facilities, Pipelines) • Centered looking in the middle of resource-rich countries and major energy consumers, as well as availability of major Int. Maritime Trade lines.

ZOHR

Damietta LNG Idku LNG EMG P/L

FAJR P/L

FSRU East Gas P/L FSRU AQABA

6 Gas fuels economic growth

Falling domestic production Gas & LNG LNG helps growth in the Egyptian steel Steel production with greater than anticipated imports (BCM) industry ‘000tn/yr demand led to costly

70 8,000 fuel and power shortages in Egypt

60 7,000 Rapidly deployed FSRUs import 6,000 LNG until new fields were in 50 production 5,000 40 This allowed $457mn steel to 4,000 be exported, using idle 30 3,000 capacity, keeping the lights on LNG imports enable 20 with significant financial and steel plants to continue 2,000 to operate environmental saving vs 10 1,000 alternative fuels

0 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Steel production Gas LNG Ktn/yr production imports Source: World Steel Association, BP Statistical Review, GIIGNL LNG Reports

7 Gas Value Chain in Egypt

Gas Usages

Power

Fertilizers

Industry

Gas Grid Local Distribution CNG

Gas Delivery Domestic

8 Natural Gas Supply vs. Demand vs. Consumption

Egypt consumption of Natural gas is increasing by higher rate than worldwide consumption Despite the drop of production in the last four years, turning Egypt from being a gas exporter to gas importer With the new discovery of Zohr, net gas imports are expected to be covered by local production.

Going forward, Egypt will witness a growth in natural gas production from “supergiant” Zohr. Producing currently 0.349 BCF per day, to reach 1 BCF per day in June and 2.7 BCF by end of 2019. Additionally importation through gas el sharq will start beginning of 2019.

9 National Oil, Gas Grid & Facilities Theth Simian/ sienna Med. South Robi Raven Denise East Fields Taurt Scrab/ Saffaire Akhen Tarouse safron Baltem El-Max Temsah North Abu sir Hap’y North Bardwell North Idku 32“- 160 Km King Roseta 24“- 50 Km El Gamil Port Fouad 24“- 26 Km LNG Flower Theka West Abu Qir Qara Naf UGDC El Sheikh El obyed Helm 22“- 40 Km Zowayed Abu Qir Desouk Abu Madi Port said North Sinai & South Wastani El masaid Salam Belquas South El Fayroz 18“- 12 Km 30“- 26 Km Manzala East Gas Shams 12“- 40 Km 42“- 40 Km 16“- 9 Km Abu Hommos South Aum Barkah South El West Mansoura South Sedi Krier Shabshir El Tena El-Tina Tarek Intergene Ameriya East Port Said P.S & Ind. Area 24“- 14 Km 32“- 85 Km Sinai Cement & Mahmudiya 28“- 86 Km 24“- 215 Km 36“- 196 Km industrial Area 24“- 26 Km El Qasr Ameriya 36“- 264 Km Nubariya Qusina Ameriya Borg 24“- 26 Km 10 BCMY South Elarab Meleha Deep Dab’aa Cement Sadat Banha Abu sultan Neag 6 October 32“- 75 Km 12“- 14 Km

Bed - 2 24“- 25 Km El Fayoum Offtake Bed - 3 Abu Sannan Bed - 1 265 Km 24“- Mostorud I-A Tebbin A’youn Vegas fields A/GH Dahshour Moussa Karoun Fayoum 22“- 87 Km Jordan 24“- 10 Km El Sokhna 30“- 28 Km Za’frana A/R Koraymat 16“- 192 Km Suco

Belayim 20“- 660 Km 16“- 256 Km Ras Bakr October Abu Rudis Existing . PL Ramadan Esma 2 • Under cons. PL El Menia Esma 8 Unit 108 Future. PL (5 Years) Unit 103 Badri • Morgan Unit 104 • Gas fields Ras Shukir Future Gas Fields Shoab Ali • Suco 20“- 40 Km New Assuit • Facilities Agiba Sharm El Shikh • Distribution Stations Deshna Zeit bay Sea bird Assuit • Power stations • Industrial Areas Quos Hurgada • Consumer • Distribution Co. Export West • Aswan Kima 10 • Natural Gas Consumption in numbers (till June 2018)

» 58 Power Generation plants

» 14 Local Distribution companies

» More than 2,491 Industrial Consumer

» 415 brick kilns

» 8.8 Million Residential Customer

» More than 18,776 Commercial customer

» 7486 Bakeries

» 243,688 vehicles converted to CNG

» More than 70 conversion centers

» 187 CNG stations

Source: EGAS annual report 2018

11 Gas to end users Residential Fuels substitution & conversion • Apartments • Houses Water heating Space heating • Villas Cooking Steam Generation Furnaces Manufacturing Process Heat Commercial Refrigeration Gas-fired Air-conditioning

• Hospitals • Schools and Universities • Offices • Restaurants • Bakeries etc. Natural gas will replace: • Industrial Diesel for water and central heating

• Factories • LPG for heating and cooking Medium Heavy - Chemical - Steel • Fuel oil and diesel for industrial - Paint - Cement - Textile - Fertilizer applications - Food • Gasoline in cars

12 Development of the Egyptian Gas Distribution Sector

13 Gas Distribution – Deregulation Development

The Main National Grid / Trunk line is constructed & Operated by GASCO (on behalf of EGAS) Everything down stream of the Pressure Reduction Station is within the cost of the LDC connection rate. Payments made “per converted customer”

14 Development of the Egyptian Gas Distribution Sector

From ONE state monopoly …

… to 9 private sectors & 5 state-owned LDCs/EPCs

8.8 Million customers connected Ongoing Distribution Activities Over 1 bn $ of Foreign & Local investment 16 Egyptian Governorates covered by Gas networks Regulator

Regulator 600 MM $ /Year Saved in subsidies P.R.S Enhanced HSE Standards Introducing new technologies Attracting the Multi-Nationals Social Investment – Jobs/Employment - Environmental Off Take Provide a better quality of life for Egypt’s citizens Typical Downstream Gas Network

15 Compressed Natural Gas “CNG” Business Model

 Well developed gas grid;  The end consumer price and margin are regulated;  Conversion is undertaken only by the CNG companies;  Local codes in place governing all technical and HSE aspects;  Conversion loans were offered through CNG companies till mid. 2003, now through commercial banks;  The Government is the sole supplier of the gas, and the sole owner of the supply grid nationwide

16 Deregulation Development – Egypt’s CNG Market

Phase I Phase II Phase III 1992 - 1996 1996 - 2002 2002 - now

Pilot Project National Project Expansion

2 Pilot Projects Monopoly 4 Private With the assistance 2 State-Owned “NGVs” Of 2 IOCs (JV with IOCs) (Local & Int.)

17 Market based Incentives: CNG Smart Card

Mechanism

Financing 100% of cost of conversion through commercial lending on a debit card to be presented at fueling stations by converted vehicles’ drivers

Increase

No. of Vehicles Converted

18 18 Gas Sector Governance

The Egyptian Government has approved a new Gas Law.

• The new Gas Law, paves the way for a substantial reform of the gas sector. • The law mandates the creation of a new independent gas regulator. • Offering an opportunity to the private sector to enter and compete in wholesale downstream market segments, the existing shadow regulator finalized the gas transmission codes, gas transmission tariff, which will be published soon.

19 Lessons from Egypt - Making it work  Supply and infrastructure

 Role of private sector Full involvement of investors & distribution companies  Capital intensive industry  Slow but steady returns  Involvement in the whole supply chain  Consumer education  Support from international institutions Commitment from international institutions  Financing collective infrastructures  Support for micro-credits  Exchange of good practices  Regulations  developing adequate framework using experience from well established and structured market  opting for a cylinder deposit system  banning cross-filling  establishing a licensing system

20 Lessons from Egypt - Making it work  Access for poorer classes and implication of taxes  developing an efficient network  financing solutions such as micro-credit  eliminate taxation of LPG and cylinders (import duties and VAT)  harmonizing the tax system (in case partial taxation is maintained)  Support from governments  Stability of the political and legal systems  Rules governing trade and investment  Regulations concerning industry operating and safety standards  Involvement in fair tax / duty treatment

 Awareness & Consumer’s Adherence  Openness to change  education campaigns (schools, associations, role of village heads) - safety - applications  advertising campaigns by marketers

21 Policy enablers, blockers and opportunities

Enablers •Strong multilateral support, FDI •Subsidy regime (initially) •Clear cost recovery model for LDCs •Free trade zones

Blockers •Cost recovery mechanism for upstream, power sector •Subsidy regime (later) •Regulatory environment •Customer payback •Security of supply for large industry •Connection fees •Monopsony buyer

Opportunities •Regional gas hub •Modernisation programme (subsidy phase out) •Regulatory reforms and capacity building (direct sales) •Efficiency opportunities

22 THANK YOU

2 Simon Bolivar Sq, Garden City , 8th floor Tel: (202) 2796 1494 Fax: (202) 27962821 www.taqa.com.eg

23