Interview: Khaled Abu Bakr
What is your forecast for natural gas demand?
KHALED ABU BAKR: Current demand for natural gas in Egypt is 52bn cu metres per year, of which 30bn goes to power generation. In the coming seven to eight years, the government is planning to add at least 15,000 MW of capacity, which will require an additional 15bn cu metres. While some capacity will come from other sources, gas will continue to be a leading fuel. It will take at least five years for the country’s first coal-generated power plant to be built, and while there are many opportunities in renewables (especially solar) due to the new feed-in tariff, this segment will also take time to develop. In all, I expect gas consumption to continue rising at least 5-6% annually over the coming 10 years.
What improvements need to be made to the gas transmission and distribution networks?
BAKR: While it has experienced some localised bottlenecks in the past decade, Egypt’s gas grid is, for the most part, seen as both reliable and extensive. In fact, the relatively small area where people and industries are concentrated (the Nile river valley and delta) allows for excellent coverage of consumer needs. That said, as gas production and consumption continues to rise, a number of improvements will need to be made to the transmission and distribution networks.
The government is working to bring more gas into the grid through a number of methods. It took delivery of its first floating re-gasification terminal in April 2015 and has plans to add another, both of which will be rented for up to five years and are meant to help the country bridge the short-term gap between demand and supply, especially during the hot summer months when power shortages are more likely.
The first terminal will be used primarily by the state, but the second is expected to reserve some capacity for private sector importers, which is a very positive step. Memoranda of understanding are in the works to bring gas from blocks in the eastern Mediterranean to the country’s liquefied natural gas (LNG) facilities. This will require improvements and additions to the country’s existing infrastructure.
Egypt is well-placed, geographically, to serve as a regional export hub once local demand is satisfied. As the economy continues to grow, so will the need for more grid connections among industrial and retail clients. Already, the government is working to connect 600,000 to 800,000 residential customers to the grid each year, which creates a lot of work.
How are industrial users dealing with shortages?
BAKR: Industrial gas customers have suffered through shortages for the past several years. To address this, the government is promoting increased production by repaying arrears to international oil companies, awarding new concessions and inking new development deals, which should begin producing in 18 to 24 months. The government is also working to bridge the short-term supply gap by importing LNG and gas from other countries. Meanwhile, by allowing the cement industry to import coal to meet their energy needs, it has also freed up gas for power generation for the steel and fertiliser industries.
One of the most important developments, however, has been the movement to allow for the import of gas by private firms, which is part of a more gradual effort to liberalise the gas market. At the end of the day, industries want a reliable and efficient supply of gas, and if it means paying a little extra to private importers, they will not hesitate to do so. In fact, there is a common misconception that gas prices are subsidised in Egypt – they are not. Yes, locally produced gas is cheaper than imported gas, but industry still pays $8 per million British thermal units (mBtu) from the grid, which is much higher than the $1.5 per mBtu charged to electricity firms. At current prices, imported gas, especially gas transported via pipeline, costs industries only a small amount more than what they pay for local gas.
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