Qatar’s decision to supply five cargoes of LNG to help Egypt out over the summer period will bring some welcome relief to a country facing an energy crisis – but it is only a very short-term palliative solution. The cargoes will not go to Egypt – because it has no LNG import infrastructure – but instead to Egypt’s LNG customers, so that gas that would otherwise be liquefied can find its way into the domestic market.
Egypt’s problems are very severe – not least because of the political uncertainties brought about by the Arab Spring and the fact that the country has a very large population. But Egypt is far from being the only country in the Middle East and North Africa (MENA) to be facing energy shortages, which generally tend to centre on natural gas.
The great irony is that some of these countries are facing problems partly because they are gas exporters, and committed to supplying gas to other countries under long-term contracts. LNG exporters in the MENA region that already import gas, by pipeline or LNG or both, include the United Arab Emirates and Oman. And this is not a phenomenon restricted to the MENA region – Indonesia and Malaysia face similar difficulties. Egypt, an exporter by pipeline and LNG, is about to join an expanding club.
So why is it that a growing number of countries are caught in this export/import dilemma? It is instructive to look at Egypt as an example.
Decades in the making: Egypt’s gas supply-demand balance problem has been decades in the making. The problems caused by the political revolution have accelerated and exacerbated the sense of crisis, but analysis of reserves, domestic production and demand (domestic plus exports) trends over the past two decades is revealing.
The picture that emerges is that Egypt put itself on a trajectory of fast-growing demand around the turn of the millennium, following several years of spectacular exploration success. So, as well as domestic demand growing rapidly, Egypt embarked on substantial exports by LNG and pipeline.
At the same time, subsidies were leading to very fast demand growth, as elsewhere in MENA, as gas was substituted for oil in power generation – to free up oil for export or to displace oil product imports – and as gas-based industries were expanded. Moreover, there has long been an issue of international investors feeling the incentives for exploration and development were insufficient – an issue linked, of course, to heavily subsidised domestic prices.
Meanwhile, the spectacular exploration success did not continue, which is a major reason for Egypt finding itself where it does today. This is not to say that Egypt has not been finding new gas, just that the success rate is nowhere near what it was in the latter half of the 1990s, partly because incentives were reduced when a new pricing formula was introduced in 2001 by a government anxious to raise more revenue.
Export moratorium: The first real sign of a problem came as long ago as 2008, when the government imposed a moratorium on new exports. That led to cancellation of plans to construct a second train at SEGAS. Mothballing of the first train is a sign of just how serious the supply shortfall has become. The moratorium was to be lifted in 2010 but there is, of course, no prospect of that now. It was pretty clear by 2010 that Egypt was sooner or later going to have to import gas.
Just what Egypt should do is hard to say. One view is that reforming subsidies is the answer – but the political risks are huge.
It is not just the government that is caught between a rock and a hard place – Egypt’s very large population is too. There is the possibility – probability even – of a lot of hardship for a very large number of people, in what in any case is a relatively poor country.
The problems would have been much less intractable if work had begun on addressing them several years ago, before things got so bad – and before the revolution made all the legislative and regulatory structures in the country so shaky.
It would be nice to think that other countries facing gas shortages will learn the lessons of Egypt’s experience. There is little sign of that to date.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.