The massive Zohr natural gas field placed Egypt as an energy hub
Egypt is getting closer to becoming a regional energy hub, exporting its excess production of natural gas and facilitating exports from neighbouring countries. It has also embarked on several projects connecting the electricity grids of Arab, African, and European countries.
The situation was completely different a few years ago, when millions of people were affected by recurring power cuts resulting from the national grid’s inability to meet rising demand due to a lack of maintenance and outdated power plants. The peak was in 2013, when maximum power-generation capacities reached about 30,000 Megawatts (MW), which was not enough to meet local demand.
The problem was augmented by difficulties finding the needed fuel for power plants. The National Centre for Power Control reported in 2013 that the national grid was losing more than 4,000 MW of its capacity as a result of fuel shortages.
Power stations in 2013, according to the Ministry of Petroleum, consumed about 80 per cent of Egypt’s daily needs of natural gas. And natural-gas production was affected because of the failure of the government to pay the arrears of international gas-exploration companies following the 25 January Revolution.
Egypt’s production of natural gas by the end of 2012 was about 80 per cent less than today’s level, and it could not meet local demand. The energy crisis was a major threat to Egypt’s economy and its growth plans.
In 2014, President Abdel-Fattah Al-Sisi and the cabinet prioritised power generation and Egypt started to witness a flow of investment into the energy sector. The government also planned the repayment of arrears to the gas-exploration companies and the phasing out of energy subsidies.
The latter constituted about 10 per cent of Egypt’s GDP at a total cost of about LE130 billion per year. Egypt’s upgrading of petroleum projects since has resulted in slashing imports of oil products by a third and importing 3.5 million tons of oil by the end of 2020 compared to 10 million tons at a total cost of US$4.5 billion in 2016.
After gradually lifting fuel subsidies over five years as part of an economic-reform programme that aimed to trim the budget deficit and was part of a $12 billion loan deal with the International Monetary Fund (IMF), the government decided to implement a quarterly price-indexation mechanism meant to review fuel prices every three months starting from June 2019.
The system is based on global fuel prices, the exchange rate of the Egyptian pound against the US dollar, and other variable factors.
Massive natural-gas discoveries that placed Egypt high on the world’s energy map included the prominent Zohr natural gas field. The discovery, which started production in 2018 and is currently producing 2.7 billion cubic feet of natural gas per day from 13 wells, is helping Egypt to reach self-sufficiency and look for exports for the excess gas.
Natural-gas production in Egypt has now developed to reach an estimated seven billion cubic feet per day as of September 2019, compared to 6.8 billion during the 2018-19 fiscal year, which ended in June, 5.6 billion in 2017-18, and 4.5 billion in the previous fiscal year.
The country used to depend heavily on gas imports, especially in the years following the 25 January Revolution when companies were reluctant to produce gas due to the government’s failure to pay their arrears. In 2016, Egypt imported $3 billion worth of gas, but it stopped importing gas in late 2018.
Although Egypt is currently self-sufficient in terms of natural-gas consumption, the massive discoveries and strong infrastructure including the availability of two liquefied natural gas (LNG) facilities have helped to drive the country forward in its dream to become an energy hub and increase its exports from natural gas to two billion cubic feet per day instead of the current 1.1 billion.
Egypt was selected to host the headquarters of the East Mediterranean Gas Forum, turning it into the region’s major hub for natural-gas producers and exporters.
Greece, Cyprus, Italy, Israel and Jordan established the Forum, and the UAE has joined as an observer. France has applied to join, with the US and EU requesting observer status. The major objectives of the Forum are to preserve the natural-gas resources of members and guarantee that they will be used for achieving public interests.
Moreover, investments in the electricity sector and major new power plants and renewable energy projects, along with the anticipated production of the Dabaa Nuclear Power Plant, have all helped Egypt look to export its excess production of electricity.
The annual volume of investment in electricity distribution networks over the past 12 years reached LE11 billion in 2019, 11 times the investment before 2014. Egypt has been expanding the production of electricity from renewable sources and has allocated large areas for both wind and solar-energy projects.
Egyptian production of renewable energy has reached about 7,000 MW, providing more than 20 per cent of consumption needs, which are projected to exceed 33,000 MW during the next two years. Egyptian investment in renewable energy reached about $8 billion as of 2019, including $2 billion for the Benban project.
The Benban Solar Park, which has a total capacity of 1.8 GW, making it the world’s largest solar park when completed, is subdivided into 41 plots, each given to a power company to generate solar energy.
Its first phase was inaugurated and started production in 2019 with six power plants in the Benban Solar Park in Egypt’s southern governorate of Aswan finished and connected to the national grid at a capacity of 390 MW. Work on the Park started in 2015, according to a presidential decree, and it is built on 27 square km.
A new electricity law was issued in 2015 to establish a competitive electricity market in Egypt in which electricity generation, transmission, and distribution activities would be unbundled.
A feed-in tariff system for renewable energy was also passed in 2014, which is a special pricing system by which the government is obliged to buy electricity generated from renewable energy installations by the private sector at a fixed price. It has resulted in adding solar photovoltaic and wind projects that have added more than 5,000 MW to the national grid.
To maximise the use of renewables, the ministry of electricity has drafted an Integrated Sustainable Energy Strategy 2035, which targets supplying 20 per cent of the country’s energy from renewable sources by 2022 and 42 per cent by 2035. Egypt’s peak load is currently around 30,000 MW during the summer.
Egypt’s power-production capacity in 2020 stood at around 54,000 MW, with about 24,000 MW of excess power production during the winter season and 15,000 MW during the summer.
This has led the country to adopt a strategy for electricity linkages with neighbouring and other countries, and President Abdel-Fattah Al-Sisi has directed the government to strengthen efforts to implement electrical interconnection projects with other countries.
Egypt currently has electricity interconnection projects with Sudan, Jordan, and Libya.
The project with Sudan is currently in its first phase with a capacity of 70 MW out of a total capacity of 300 MW.
It is electrically connected with neighbouring countries in the east with Jordan, with a project having a capacity of 200 MW and a study underway to raise this to 400 MW, and in the west with Libya, with a capacity of 100 MW and studies being conducted to raise this capacity also.
Egypt and Saudi Arabia are expected to start an electricity interconnection project with a total capacity of 3,000 MW in 2021 after the project was delayed after 2012 when the two countries first agreed on the project. It will allow Egypt to establish energy links with the Gulf countries and Asia.
An initial feasibility study for an electrical interconnection project between Egypt, Cyprus and Greece has been completed, with Egypt becoming an energy bridge between Africa and Europe through this project.
According to Mohamed Shaker, Egypt’s minister of electricity and renewable energy, the country is capable of establishing electricity interconnection lines with a total capacity of 15,000 MW, and there are plans to become an international energy hub by linking African, Arab and European countries through such projects.
That capacity will increase further as Egypt’s first nuclear power plant comes online. An agreement was signed between Cairo and Moscow in 2017 to build this, and it will start operations in 2022.
The deal with the Russian nuclear firm Rosatom said that the latter would finance and construct four third-generation reactors in the new nuclear power station in the coastal city of Dabaa, each with a capacity of 1,200 MW and a total of 4,800 MW overall.
*A version of this article appears in print in the 24 December, 2020 edition of Al-Ahram Weekly