Sunday,19 August, 2018
Current issue | Issue 1242, (16-22 April 2015)
Sunday,19 August, 2018
Issue 1242, (16-22 April 2015)

Ahram Weekly

Grinding to a halt

Egypt’s ongoing gas shortages are crippling the country’s energy-intensive industries, reports Ahmed Kotb

Al-Ahram Weekly

Recurrent shortages of natural gas have led to the temporary shutdown of a number of Egypt’s factories, shrinking production at others using large amounts of energy among them steel, cement and fertiliser factories.

The reduction in natural gas supplies to the factories has come as a result of increasing gas deliveries to electricity power stations in order to prevent the extended blackouts that have been occurring over the last few weeks. 

The Egyptian Natural Gas Holding Company (EGAS) announced last week that the gas supplied daily to the electricity sector had been raised from 78 million cubic metres to 82 million cubic metres, which is why supplies to industry had been cut back.

Almost 65 per cent of Egypt’s total daily natural gas production, or 3.23 billion cubic feet out of 5.03 billion cubic feet, is consumed by electricity power stations. The industrial sector consumes about 33 per cent of Egypt’s natural gas.

Ismail Gaber, head of the Industrial Development Authority, said that the natural gas had not been completely cut off from the factories.

Instead, each factory was temporarily getting a portion of its contracted percentage of gas from EGAS, he said.

EGAS prioritises the electricity sector when it comes to the distribution of available natural gas. The last shipment of natural gas Egypt received was directed to the country’s power stations.

One source at EGAS who asked to remain anonymous said that more than half of the natural gas allocated to the industrial sector had been redirected to electricity power plants.

That was about 600 million cubic feet per day, he said, adding that gas shortages had led to supplying many cement factories with Mazut fuel instead of natural gas. Mazut can replace natural gas in fuelling factories as well as power stations, but is not favoured because it is more harmful to the machines in the long run.

The repercussions of the natural gas shortages have been evident. “The steel factories are losing hundreds of millions of pounds as a result of the shortage of gas supplies,” said Mohammed Hanafi, manager of the Chamber of Metal Industries at the Industrial Development Authority.

The cost of production increases as production capacity declines, he stated, adding that the factories were operating at about 40 per cent of normal capacity.

Rafik Al-Daw, chief executive officer of Suez Steel, said that some of his company’s production lines had completely stalled as a result of the gas shortages. “Production has fallen back by over 150,000 tons during the last few weeks,” he said.

Al-Daw said that the government would have to find a way to fulfil its commitments to supplying the factories with fuel as long as they reimbursed their financial dues, especially after the price increases of natural gas last July.

The cabinet decided in July 2014 to increase natural gas prices for energy-intensive industries to $3 per million thermal units (PTU) for electricity production companies, $4.5 for fertiliser and petrochemical companies, and $8 and $7 for cement and steel factories, respectively.

A ton of steel is currently being sold for an average of LE5,000, and the price of a ton of cement is roughly LE750. Prices went up by an average of LE200 compared to early March on the back of the energy shortages.

The situation is more severe at local fertiliser factories. The natural gas shortages have resulted in temporarily halting production at eight factories, leading to an about 70 per cent decline in domestic fertiliser production, according to Omar Al-Degwy, head of the Association of Fertiliser Traders.

Abuqir Fertilisers, Egypt’s largest fertiliser company, announced last week that it was operating at 60 per cent of capacity because of the lack of sufficient natural gas since the beginning of this year.

 “A 50 kg bag of fertiliser is now selling for LE200, up from LE90 earlier,” Al-Degwy said, adding that there was an approximately 75 per cent deficit in the fertilisers needed for local consumption.

He stressed that this would affect the summer growing season as the ministry of agriculture would not be able to get the usual quantities from the fertiliser companies to distribute to farmers.

The ministry received only 25,000 tons out of the usual 50,000 tons from one big company last month, Al-Degwy stated, adding that crops would become more expensive as a result.

The EGAS source told Al-Ahram Weekly that production from new local natural gas wells would come on line by the end of next month, with a daily capacity of 500 million cubic feet. “They will help ease the crisis once operation starts,” he said, adding that gas supplies to factories would continue to be reduced if the new wells did not enter service on time.

However, he stressed that EGAS would not be able to fully supply all factories with the needed natural gas unless imported gas shipments covered the demands of the electricity sector. EGAS has finalised import agreements over the last few months to bring in about 90 shipments of natural gas throughout 2015 and 2016.

Several cement companies decided last year to overcome the gas shortages by importing coal, which is also cheaper than natural gas, to fuel their plants. According to minister of industry and trade, the use of coal to fuel the factories would save about 450 million cubic metres of natural gas per day.

The cabinet approved the industrial use of coal last April.

To begin the transition from natural gas to coal, manufacturers are still waiting for the permission of the Ministry of Environmental Affairs, which announced last month that a final draft of the regulations for the industrial use of coal was being reviewed by Prime Minister Ibrahim Mehleb.

Coal is a more polluting source of energy than natural gas.

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