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The fuel crisis

By mid 2000s, Egypt witnessed a significant increase in its natural gas reserves and production, which encouraged the government then towards exporting, especially that energy consumption of the electricity and industry sectors was not a problem at that time. This led the Egyptian government to conclude natural gas export contracts with Europe, in a liquefied form, as well as Jordan and Israel, by supplying natural gas to the two countries through pipelines.

The 25th January revolution in 2011 and its security implications that reflected on investment climate made several international corporations suspend any new projects they planned to carry out in Egypt, and the energy sector was one of the most affected sectors in that regard, especially with the economic crisis that hit the country and made the government unable to meet its financial dues to the foreign oil companies operating in Egypt which were estimated at six billion dollars, leading those companies to stop developing oil wells from which they extract natural gas. This had resulted in a 20 per cent drop in Egyptian production of natural gas, reaching a mere 4.8 billion cubic meters daily against local daily needs of six billion cubic meters, thus creating a severe crisis.

There is no doubt that political unrest in Cairo since the 25th of January revolution in 2011 resulted in a worsening economy that led to exacerbate the fuel supply crisis, as it became hard to establish new electricity generating stations or even doing the regular maintenance for the existing stations. The production capacity of electricity stations in Egypt was standing at 70 per cent by summer 2014, due to the obsolescence of many electricity stations that are not maintained properly. This created an increase in the prices of many products. As the Egyptian government planned to attract huge investments during the coming period, it has become a challenge to provide the needed fuel that would supply new factories. Egypt needs more than 20 billion dollars to finance its needs of fuel in the next 10 years.

The situation is alarming to officials who took a number of necessary measures to ease the crisis on the short term, as the government has cancelled a public bid to grant seven new licenses to produce cement, because the cement industry is an energy intensive one. The Egyptian government also banned new licenses for nitrogenous fertilisers due to the fuel crisis. However, the government decided to allow cement factories to use coal instead of natural gas, at the same time it benefited from the support it received from the Kingdom of Saudi Arabia, the United Arab Emirates and Kuwait, in the form of giving Egypt large quantities of oil products as an economic aid. The government in Cairo has also paid a percentage of its dues to international oil companies, and agreed with them on intensifying the development of natural gas fields to reduce the shortage of supply. Additionally, a deal was sealed with Russia and Algeria to import large quantities of liquefied gas starting March 2015.

Egyptian officials have resorted to long-term solutions, as energy is considered the main nerve of development and its current situation in Egypt represents a great risk to the economy that depends on oil and gas with a percentage of 96. Also, oil and gas represent 91 per cent of fuel needed by the electricity sector.

This means that efforts to attract Arab and foreign investments will not be successful amid lack of energy needed for operating new projects. This left no choice for the Egyptian government but to take painful measures such as increasing the prices of petroleum products for consumers by roughly 60 per cent, and raised the cost of selling natural gas to the industries by 90 per cent. These decisions were taken because the cost of annual fuel subsidies reached 130 billion Egyptian pounds, which represents 25 per cent of the country’s budget.

Moreover, the Egyptian government offered an attractive tariff for purchasing solar energy from private the sector, in addition to preparing a set of power generation projects from renewable energy sources that will presented before the participants of the economic summit that will take place in February 2015 in Cairo.

The important question here would be “Is the crisis so bad that it could last for several years?”

I say it is still possible to find solutions, especially if the nuclear power plants project is implemented as fast as Egypt can after choosing the best offer from international corporations.

The nuclear power plants, planned to be used for power generation only, is a vital solution to eradicate Egypt’s energy crisis, especially that opportunities to increase electricity generation significantly from traditional sources are not present. Financing the nuclear project will not be a big obstacle, taking into account the offers from Russia and other countries to implement the project. The solution found in nuclear energy production does not mean ignoring other energy projects, because diversifying energy sources is a strategic objective that would help Egypt stop relying mainly on fossil fuels and risk its economy and national security.

Dr Ahmed Mokhtar is the deputy editor in chief of Al Ahram Al Massai.