INTERVIEW: Neutralising energy prices

Abdel-Razek Mohamed, Thursday 4 Nov 2021

Al-Ahram Weekly sounds out Chair of the House of Representatives’ Energy Committee Hossam Awadallah on recent hikes in global energy prices.

Neutralising energy prices

According to Hossam Awadallah, chair of the House of Representatives’ Energy Committee, the government’s recent decision to raise the price of natural gas for some industries in Egypt is the result of unusual circumstances in the global economy.

In an interview with Al-Ahram Weekly, Awadallah said that the price hike set by the government was suitable for different industries, whether they used gas as a fuel source or as a component in production. It would not lead to a major increase in prices, he said, adding that “prices will increase by only one to 1.5 per cent.”

The government raised the price of natural gas for iron and steel factories, as well as for cement, fertilisers, petrochemicals, and other industries, by between $0.25 and $1.25 per million British thermal units (MMBtu). Manufacturers of cement, iron and steel, fertilisers, and petrochemicals will be receiving gas at $5.57 per MMBtu, or according to the pricing formula in their contracts. Meanwhile, the price for all other industrial activities is set at $4.75 per MMBtu.

In March 2020, the government slashed the price of natural gas for the industrial sector to $4.5 per MMBtu in an attempt to increase exports and assist the sector in defraying the impact of the Covid-19 pandemic. Before the reduction, cement companies paid $6 per MMBtu, while metal and ceramic manufacturers paid $5.5.

At the beginning of this week, the price of natural gas on stock markets around the world dropped from $5.782 per MMBtu to $5.559. Before the decision to raise prices in Egypt, which came into force on 1 November, factories were calling for a reduction in the cost of energy, including natural gas, from $4.5 per MMBtu to between $3.5 and $4 per MMBtu.

Awadallah explained that the price of gas in Egypt is not dependent on the rising costs of imports and transportation, but rather due to the rising costs of extraction and services. Drilling for gas could cost more than $200,000 a day, he pointed out.

Egypt is planning for natural gas production in the country to reach 7.2 billion cubic feet (bcf) per day this year, nine per cent more than the 6.6 bcf indicated last year in a statement by the Ministry of Petroleum. In 2019-20, Egypt’s natural gas production reached 6.55 bcf daily.

Egypt has seen a boom in gas production in recent years, thanks to the Zohr Field in the Mediterranean Sea and new discoveries north of Alexandria and the Nile Delta. “Oil discoveries in Egypt are continuing, and the price of gas is set according to a pricing formula that takes into consideration the ebb and flow of global demand and not how much you own or discover,” Awadallah said.

There are plans to invest $1.4 billion in the oil sector in the current fiscal year, according to figures from the Ministry of Planning. Awadallah said that his committee would review around 10 petroleum agreements, whether new ones or those combined with others, to reap the most benefit for the Egyptian economy when partnering with international oil companies.

He admitted that there has been no discussion so far about the changing price of electricity supplied to factories by the ministry of electricity. The House of Representatives is at the beginning of its new session, but Minister of Electricity Mohamed Shaker will be invited soon to discuss the issue, he said.

Awadallah said that the recent price hike would not impact the government’s goal of increasing exports and the competitiveness of Egyptian products on global markets due to increases in the prices of energy worldwide. The country wants to reach $100 billion in exports in the next five years. Egyptian exports during the first half of 2021 grew by 22 per cent to reach $17.7 billion compared to $14.55 billion during the same period in 2020.

The higher global price of natural gas will also not impact the country’s strategy of expanding gas services to residential areas or converting cars to natural gas, Awadallah said. This strategy aims to cut foreign-currency expenditures on various petroleum fuels, including gasoline, and replace them with natural gas.

The Ministry of Petroleum plans to extend natural gas services to 1.2 billion residential units, according to Awadallah. He added that the presidential Decent Life initiative aims to extend natural gas services to every corner of the country.

*A version of this article appears in print in the 4 November, 2021 edition of Al-Ahram Weekly

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