Prioritising local needs for gas

Abdel-Razek Mohamed, Wednesday 13 Oct 2021

Egypt could maximise its revenues from natural gas by channelling it to the petrochemicals industry, writes Abdel-Razek Mohamed

Prioritising local needs for gas

There was a boom in Egyptian natural gas exports during the first quarter of 2021, according to the Ministry of Petroleum, with the country recording a 315 per cent increase in sales compared to the first quarter of last year to reach $564 million thanks to global increased demand.
But some experts believe that focusing on exporting natural gas is less beneficial than using it in local industries, whether as a fuel or a production input.
Natural gas prices rose internationally by 2.34 per cent on Monday to reach $5.834 per Metric Million British Thermal Unit (MMBtu). This coincided with a rise in the price of benchmark US Texas crude oil above $80 a barrel and Brent crude approached $84.
According to former minister of petroleum Osama Kamal, Egypt’s natural gas would be better spent producing petrochemicals. He said the petrochemical companies’ revenues had been climbing by leaps and bounds since 2020, and production from the sector had reached nearly four million tons annually compared to 500,000 in 2002.
The sector is expanding rapidly, and several petrochemicals projects were launched in 2021 in the framework of a government-led strategy to transform Egypt into a petrochemicals production hub
According to reports by the Ministry of Industry and Foreign Trade, petrochemical exports account for 25 per cent of Egypt’s overall commodity exports.
 Egypt produces 6.8 billion cubic feet of natural gas a day, with two-thirds being the government’s share and the remaining third the share of foreign partners. Egypt has the sixth-largest natural-gas reserves among the Arab countries at 2.1 trillion cubic metres, while daily domestic consumption stands at six billion cubic feet.
After years of being a net importer of fuel, Egypt’s newfound gas reserves have helped it to achieve self-sufficiency. Local discoveries of natural gas saved Egypt from importing $3.5-$4 billion worth of gas during the summer, Kamal said.
 The Ministry of Petroleum’s Egyptian Natural Gas Holding Company (EGAS) plans to add 3.2 billion cubic feet of gas to daily production by 2022, which will offset the normal depletion of reserves.
Several natural gas projects are also underway in various concession areas across the country, including the Red Sea, the Mediterranean Sea, and the Western Desert, according to Kamal.
Egypt’s consumption of natural gas increased during the 2019-20 fiscal year by 27.7 per cent to reach 60 billion cubic metres, compared to 47 billion in 2015. It relies on natural gas to generate 75.5 per cent of its electricity.
“We have achieved self-sufficiency using our quota and the quota of our foreign partner, and it is best to use it in transformative industries,” Kamal said.
However, Medhat Youssef, former deputy head of the Egyptian General Petroleum Corporation (EGPC), favours the idea of increasing the country’s natural gas exports. He said consumption of natural gas fed electricity power plants during the winter season.
The surplus gas could either be exported or used by the petrochemicals industry, he said, but Egypt has a relative advantage when exporting natural gas because of its proximity to Europe.
While some believe higher international prices benefit exports, others say they harm domestic production. Tamer Abu Bakr, chair of the Petroleum and Mining Chamber at the Federation of Egyptian Industries, said gas prices in Egypt were too high for the industrial sector at more than $4.5 per MMBtu.
The high prices undermine the export potential of industries that use natural gas as a source of energy, Bakr explained.
He added that the price of gas is crucial for industries that use it as a fuel and not as a production input, since fuel accounts for three to nine per cent of their cost per unit. Abu Bakr proposed selling gas to factories at minimum cost as an incentive for the industrial sector.
He said that a fair price for one MMBtu for industries in Egypt was $4 to $4.5, as compared to between $4 and $7 now. He said that the government could not slash prices now, but once global prices stabilise it could take such as step.
Kamal said prices do not need to be discounted for the industrial sector, claiming that companies using natural gas as a source of fuel were already making “huge profits”, especially those producing petrochemicals.
The Abu Qir Fertilisers Company delivers urea to agricultural cooperatives in Egypt at a cost of around $220 per ton, at a time when the price of urea has reached $720 per ton worldwide.
Nonetheless, the company still made a profit of LE3.5 billion.

*A version of this article appears in print in the 14 October, 2021 edition of Al-Ahram Weekly

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