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Natural Gas: A Solvable Puzzle?

 Egypt has lots of natural gas, but local producers cannot extract it fast enough to meet local demand.

 By Ahmed Mansour

Egypt has signed a deal with French and Russian suppliers to import 12 shipments of liquefied natural gas at an average price of $17 per 20m Thermal units, the Ministry of Petroleum has announced. The deals, worth approximately $1 billion, are part of extensive negotiations to cover the fuel needs for the nation’s power plants and factories as summer approaches.

Egypt’s proven natural gas reserves stand at 2.2 trillion cubic meters, according to BP Statistical Review of World Energy 2012, and is ranked 16th in the world in terms of reserves. For the past several years Egypt has been trying to boost its natural gas production, but given the recent political and civil unrest, investors have slowed their exploration and extraction operations. Meanwhile, local demand for the subsidized fuel has skyrocketed. On December 17, 2012 the Petroleum Ministry announced that Egypt has become a gas-importing country.

The latest agreements were signed with Russian Gazprom and French EDF, two of the biggest natural gas companies’ worldwide. Each shipment will contain about 170,000 cubic meters, with the 12 shipments expected to cover only 3% of the total supply needed for power plants and factories during the summer.

Petroleum Ministry officials said there were plans to import four more shipments through the end of summer 2015, and the government is in negotiations with Algeria’s Sonatrach, the largest Algerian and African company and the world’s 11th largest oil consortium, for another six shipments.

Ministry officials told Reuters last week that Egypt needed to raise $2.5 billion to cover gas imports through the end of the year. The Petroleum Authority also requested $1 billion from the Ministry of Finance to ensure that there would be enough diesel to fuel electricity plants during the summer, according to the official.

In January 2014, Petroleum Minister Sherif Ismail stated to Reuters that they will allow companies to import gas using the government network. Previously, local companies were required to use only local sources for natural gas.

“If the private sector has the desire to import natural gas at their expense, we have no problem with it,” Ismail added. “We do not want to halt the progress of the factories here in Egypt, so we thought that this is a solution for the energy shortages that we are facing and will soon be fixed.”

Ever since the 1970’s, Egypt’s main focus has been on increasing the proven reserves of its natural gas. According to Observatoire Mediterraneen de l’Energie (OME) by 2010, 75.8% of Egypt’s total proven fuel reserves were natural gas. In 2010 alone, Egypt’s natural gas production increased from 646 billion cubic feet to 2.2 trillion, according to the U.S. Energy Information Administration (AIE) data.

Since early 2011, as uneasy investors withdrew amid political uncertainty, the country’s production of natural gas has declined by 0.35% — 61.3 billion cubic meters — compared to the year before. “We have warned the Egyptian government but they have failed to listen,” the OME said. “We stated that Egypt could become a net importer of gas by 2030 if the country’s production levels and reserves were not improved dramatically.”

Observers say the incoming government will have to move quickly on the crisis. “We still can make it out of this dilemma and the solutions are hard but not impossible,” says Radi Khalaf, economics professor in the American University to Egypt Today.  “What we need to do is make the investors feel safe and come back and give us their money, and with their money what we have to do is find major new areas to drill and neglect all the turbulence that the country is facing. We all do hope that the next president would accomplish such a task.” et

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