Tuesday,21 November, 2017
Current issue | Issue 1129, 3 - 9 January 2013
Tuesday,21 November, 2017
Issue 1129, 3 - 9 January 2013

Ahram Weekly

Running short on gas

With domestic production failing to keep up with growing demand, the government has been compelled to import more natural gas, writes Niveen Wahish

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eco21
Al-Ahram Weekly

After years of being told that the country’s natural gas reserves are almost bottomless, Egyptians have now woken up to government plans to issue a tender to import gas in just a few weeks.
“They were lying to us,” Amr Kamal Hammouda, an energy consultant and manager of the Al-Fustat Centre for Studies and Consultation, said. “For 20 years, the Ministry of Petroleum has been exaggerating estimates of Egypt’s reserves.”
According to Hammouda, the ministry had claimed that Egypt had 77 trillion cubic feet of natural gas, but experts have put reserves at less than half that figure.
“They used to make deceiving calculations,” Hammouda said, adding that reserves are usually calculated in terms of real reserves, possible reserves and likely reserves. However, “they added all three together.”
Moreover, he added, the government had overlooked the fact that it only had the right to half of the gas recovered, since outputs were split with companies producing the gas.
The minister of petroleum announced recently that the government would be issuing a call for tenders in a few weeks for the import of natural gas “to cover the government’s needs, whether for the electricity sector or for government-owned factories,” according to the Reuters news agency.
The minister was speaking on the sidelines of a meeting of Arab oil ministers in Cairo. He also said that even private-sector entities could import gas.
The government had been contemplating the idea of allowing the private sector to import their energy needs in order to overcome its inability to meet growing consumption. What is new is for the government to start importing gas to cover its own needs, and shortages of the gas used as fuel in power stations have been plunging many parts of the country into darkness.
Bloomberg has reported that Egypt is pumping about six billion cubic feet of gas a day, most of which is for domestic use. Gas consumption in Egypt climbed 10 per cent last year, coinciding with declines in production by companies such as British Gas, Dana Gas and Apache Corporation.
Hammouda said the government had not rationalised or respected Egypt’s gas reserves. “No matter how much our reserves are, we should not use more than a third of them, and the rest should be left for future generations,” he said, adding that instead the government had been selling gas to other countries in the Mediterranean.  
“Now they have found themselves up against the wall,” he said. Gas had been sold at cheap prices to local investors, whereas “such consumption should not be promoted, given the needs of the people and of future generations.”  
Importing natural gas will mean a larger bill for the government at a time when the pound is depreciating in value and foreign currency is hard to come by. Imported gas is expected to cost between $8 per million British thermal units (MBTU) and $14 per MBTU.
“Egypt would need to pay about $10 per million British thermal units. That would be about $10 million a day or $3.65 billion a year to import one billion cubic feet a day,” Bloomberg said.
“How is the government to afford these additional bills if it cannot even meet its existing debt,” asked Hossam Arafat, head of petroleum products at the Federation of Chambers of Commerce.
It has been reported that the Egyptian General Petroleum Authority (EGPC) owes some $8 billion to its foreign partners, leading the latter to stop production.
Arafat also questioned how the government could embark on imports when it does not have the infrastructure to process them or the regulatory framework to guide those wishing to enter the business.
In the past, importing fuel was banned and was only allowed with the green light of the EGPC. “How they will manage the imports is not clear. And it is not clear either what will happen should there be a change of minister,” Arafat said.
The government’s decision to import natural gas has led to further questions. Hammouda wondered whether the government would continue to subsidise fuel when it is forced to buy gas at high prices and whether it would continue to honour its export contracts, which stipulate much lower rates.
Exports of Egyptian natural gas rose 2.9 per cent to $1.96 billion in the 2011-2012 fiscal year, making them the biggest good shipped abroad after crude and refined oil, said Bloomberg.
“All exports of natural gas must stop,” Hammouda said. “It would be cheaper to pay the penalty clause, rather than continue to lose money. We are going through difficult times, and this would be acceptable.”
He said that Egypt should have stopped exporting gas a long time ago, since while the country sold natural gas at around $5 per MBTU, it was buying Mazut fuel for its power stations at $13 per MBTU.
In the meantime, he said, consumption must be rationalised. “Fuel should not be sold to factories at subsidised prices, especially energy-intensive industries such as cement and fertilisers.”
The minister of petroleum has said that Egypt has agreed to import gas from Algeria and has negotiated imports with Qatar. Other potential exporters, according to Hammouda, are Saudi Arabia and Libya.
He said that these countries should take into account their “historical relationships” with Egypt and grant it payment facilities.
In the meantime, Hammouda called for a broad energy strategy in which companies should be encouraged to drill for natural gas on land. Currently, natural gas producers are only granted privileges for offshore drilling.
Renewable energy resources, such as solar energy, should also be taken advantage of, especially in areas where consumption is not heavy and where setting up the infrastructure for natural gas would be too costly.

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