To compensate for the larger quantity of gas needed to generate electricity during the recent heat waves, the government is cutting back on natural gas supplies to some fertiliser production plants by 20 per cent starting this week.

The factories have received official letters notifying them of the reduction, according to informed sources who spoke with the Asharq Business news website.

Electricity shortages started last week on the back of increased demand, and the government took steps to increase the gas needed to increase production. Some fertiliser plants were notified that their natural gas supplies would be reduced by 20 per cent, but there was no mention of how long the cutbacks would last.  

One source from a public-sector fertiliser firm told Al-Ahram Weekly that his company had not received an official notification.

The impact of the cutbacks in the gas supply will vary depending on the type of fertiliser produced. Two main categories of fertilisers are produced in Egypt, according to Ahmed Khalifa, vice president of the Evergrow Fertilise Group.

The first is nitrogen fertilisers (based on urea and ammonia), which require natural gas both as a raw material and as fuel to power the factory’s furnaces. The second is phosphate and potash fertilisers, which just need gas to power the furnaces.

The plants that produce the second type consume very little gas — only about one per cent of the amount needed to produce nitrogen fertilisers, so they will not be affected by the reduction in the gas supply.

Egypt produces about 23 million tons of different types of fertilisers, of which it consumes 10 to 12 tons, leaving a large surplus for export. However, with the global rise in energy costs and the consequent rise in fertiliser prices, the government has placed a higher priority on exporting them.  

This applies above all to nitrogen fertilisers, for which there is high global demand for the finished product and for its main component of liquid ammonia. Egypt’s exports of the latter to the US have increased 300 per cent since the global inflation wave struck in 2021, with its consequent impact on worldwide energy costs.

This is not the first time Egypt’s fertiliser industry has suffered from a gas shortage. In 2013, the shortage was more severe, causing a significant decline in production.

According to Ahmed Safwat, secretary of the Fertilisers Division at the Federation of Chambers of Commerce, since gas is the main raw material in the production of nitrogen fertilisers, if it is reduced by 25 per cent, production will decrease by 40 per cent, and if it is reduced by 20 per cent, production will fall by 30 per cent.

Safwat said that 1.4 tons of urea fertiliser is produced for every cubic metre of gas used. About 55 per cent of the urea fertiliser produced in Egypt is allocated to the Agricultural Bank, which is responsible for distributing it among agricultural associations and farmers. The rest is directed for export or for sale in the domestic market.

Both the export trade and the domestic market will be affected by reductions in production, Safwat said. However, given that fertiliser exports sell at three times the price they fetch locally, producers will try to keep the volume of exports high.

If a factory ends up producing at 70 per cent capacity, 40 per cent will be directed for export and 30 per cent for sale locally.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), Egypt exported $3.3 billion in fertilisers in 2022, up 50.2 per cent from $2.2 billion in 2021.

Among the main consumers of Egyptian fertilisers are France, the UK, Brazil, and Italy.

“All the factories will be affected [by the cutbacks in gas], and the local market and exports will be adversely affected as a result,” said Sherif Al-Gabali, CEO of the Abu Zaabal Fertiliser and Chemical Company.

“Fertiliser production is a promising industry that can drive increased exports if the available production capacity is increased and production lines are expanded, provided there is a sufficient supply of gas,” Al-Gabali said.  

Nitrogen and phosphate fertiliser exports are expected to drop by around 20 per cent during the cutback period, after which they should pick up again.

In a statement to the press, Khaled Abul-Makarem, chair of the Export Council for Chemical Industries and Fertilisers, said that the anticipated drop in fertiliser exports would appear in the last quarter of 2023.

He urged the government not to extend the period of reduced gas supplies to fertiliser plants for more than a month, so that the sector is not forced to suspend production lines or lay off staff.

One manager at a fertiliser plant told the Weekly that the plant’s production capacity would fall by the same proportion as the reduction in the supply of gas. His company would not be able to sustain the gas cutbacks for more than a month, he added.

“If it lasts longer than that, we won’t be able to meet our export orders, which are supposed to be filled by the end of the year.”

* A version of this article appears in print in the 3 August, 2023 edition of Al-Ahram Weekly