Egypt turns its back on natural gas

The country faces a dire shortage of natural gas

The country faces a dire shortage of natural gas to power its heavy industry sector as demand outstips supply
The country faces a dire shortage of natural gas to power its heavy industry sector as demand outstips supply

Egypt has announced that it will no longer be able to meet the energy demands of its heavy industry sector by solely relying on power generated in its natural gas burning
power stations.

Egyptian Government figures released earlier this year revealed that rising demand for natural gas would outstrip production levels in the country by around 170 million cubic feet per day. This figure seems ironic given that many experts believe enormous gas reserves could lie just off of Egypt’s Red Sea coast.

However, exploration companies are not exploiting these resources due to the Egyptian government’s failure to provide sufficient incentives.

“In order for additional gas to come onto the grid, the Egyptian government needs to provide a high enough gas price to justify the cost of additional infrastructure,” a spokesman for oil & gas company Apache told Oil & Gas Middle East.

The spokesman also said that a higher gas price was needed to make the exploitation of Egypt’s unconventional reserves more economically viable.

According to Justin Dargin, Gulf energy expert at the University of Oxford, the problem of a regional gas shortage has been looming large for a number of years, with governments being slow to recognise the need for additional investment.

“If you go back to 2007 or 2008, this was the time period when the impending natural gas crunch became apparent. That is when demand in most natural gas producing countries started to outpace production, in countries like Algeria, Egypt and Kuwait, so you see more and more blackouts occurring in these countries. Egypt instituted a moratorium on gas export projects in 2008. Before that, none of the countries wanted to talk about gas pricing and shortages,”
he said.

Dargin also believes that political tensions in the region have played a key role in allowing the current gas shortage to fester.

“After 2011, the issue became quite tricky. On the one hand you had ever increasingly stark evidence of gas deficits growing year on year. Then you had the Arab spring where you could not rock the boat,” he said.

A growing population coupled with poor investment incentives for gas production and highly subsidised gas prices have lead to severe gas shortages in Egypt. The Egyptian government has now announced plans to burn coal in its power stations instead of natural gas.

The move to burn coal instead of gas is symptomatic of a greater problem in the Middle East; a chronic regional shortage of available natural gas.

“This is part of a worrying trend in the MENA region. Despite enormous reserves of natural gas in Qatar and Algeria, the region is chronically short of natural gas. As a result we are seeing coal burning power stations cropping up in places like Egypt, Oman and Morocco,” said Cat Hunter, researcher at environmental analyst firm IHS.

This Middle Eastern trend runs contrary to the global precedent which sees countries reducing their dependency on coal in favour of gas.

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Like many countries in the Middle East and North Africa, Egypt has up until this point relied on burning natural gas in its power stations to create the energy needed to fuel its industrial and domestic sectors.

There are clear advantages to burning natural gas instead of coal. Natural gas is widely acknowledged as the cleanest of the fossil fuels, owing to its far superior combustion rate. Coal also produces higher levels of key greenhouse gases CO2 and NO than the use of natural gas.

With Egypt already considered a heavy polluter, the move to coal could pose new problems for Egypt as international emissions legislations tighten.

With a staggering 91% of Egypt’s energy mix being generated by oil & gas, the country’s energy policies are far from progressive.

The relatively high start-up costs for renewable sources of energy, such as solar and wind power, coupled with the comparatively low price of converting existing gas power stations to burn coal, means that Egypt has not been able to diversify its energy mix into more sustainable areas. This problem has been compounded by the fact that Egypt’s government has provided heavily subsidised feedstock to its industrial sector.

Egypt’s decision to revert to using coal for power generation has been born out of necessity. The new legislation allows coal to be used for the generation of power that is to be supplied to the country’s industrial sector , particularly its power intensive cement industry.

Government officials began reducing the amount of power made available to the industrial sector in January 2014 and sources estimate that the country’s cement industry has been running at around 50% capacity since then.

This industrial under performance creates a vicious cycle in which less revenue is raised by these companies, less tax paid and ultimately less funds are available to the government to invest in new gas exploration projects and infrastructure in the country. Egypt’s power stations are expected to process coal by the beginning of September 2014.

Burning coal may be a quick fix to the countries energy crisis but increasing environmental scrutiny will make it almost impossible for Egypt to entertain the idea of burning coal as a viable long term alternative to natural gas.


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