By Rana Fathi, Basma Tharwat, Anam Al-Adawi, Muhammad Adel
Qatar announced on Monday it is granting five shipments of liquefied natural gas (LNG) to Egypt to help relieve the energy strain on the latter’s industrial sector. The shipments are set to arrive throughout the summer, when peaking demand for electricity results in intermittent outages, forcing many industrial companies to reduce production.
The cargoes will arrive from the Gulf state, a main supporter of post-revolution Egypt, between the end of July and through mid-September; the Egyptian Petroleum Ministry’s statement cited the Qatari Energy and Industry Minister Mohamed al-Sada as saying. The statement did not clarify the sizes of the shipments.
Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani said in April that the emirate will supply Egypt with gas throughout the summer as needed.
Egypt’s natural gas shortage is taking its toll on the country’s industrial sector, with a range of factors pointing towards a looming resource crunch. This includes the onset of the summer production season, with a number of electricity production stations being shut down, in addition to the stalling of negotiations with foreign companies to import reserve quantities from abroad. These factors could coalesce to threaten the sector with collapse, especially considering the government’s desire to further raise the price of gas.
Ahmed Al-Miqani, member of the board of directors for the South Valley Fertilizer Company, stated that lower rates of natural gas distribution to factories throughout Egypt have helped create an additional production crisis. Decreases in the amount of natural gas available on the Egyptian market may require that the company’s production capacity decrease to 1.5 million tons annually, he said.
He went on to explain that South Valley Fertilizer Company consumed 15 million cubic feet of gas per day, and that any failure to provide fuel alternatives for decreases seen in natural gas could permanently threaten the country’s fertiliser sector. Responsibility for the crisis he said fell on the shoulders of government, which he said has failed to take measures to seriously address Egypt’s economic problems.
Faruq Mustafa, Managing Director of the Egypt Beni Suef Fertilizer Company, said that the company consumes 28 million cubic feet of natural gas per day, qualifying however that what they receive in reality is less than 20% of this number. He added that price increases that occur as a result of gas shortages, worker strikes or broken machinery almost always get passed onto customers.
Failure to obtain the required necessary amounts of natural gas has forced many factories to cut their production rates by as much as 50%, a fact which will lead to decreases in supply, and the gradual increase in gas prices over the coming months.
Mustafa further stated that domestic consumption will be most affected by the government’s decision to raise prices, given that gas is the primary fuel for production used for most products. Decreases in the availability of gas will inevitably lead to shortages in fertiliser, which will cause price increases on the local market.
Tamer Bashri, Finance Director for the ALFA Ceramics Company, stated that according to its contract with NATGAS, it is supposed to obtain 20 million cubic metres of gas per year, with any additional fuel consumed provided at the same cost.
He went on to say that the 20 million cubic metres was enough to operate both the company’s ALFA 1 and ALFA 2 factories, enough to produce 43,000 square metres of ceramics per year. He added however that Egypt’s ceramics sector was also experiencing disruption as a result of the government’s recent decision to raise gas prices from $3 to $6 for every million units.
Raising the price of gas he said would inevitably lead to increases in the price of ceramics throughout Egypt, at a time when companies have been suffering from recession for the last several months. This scenario will hurt the ability of Egyptian companies to compete abroad on global markets he said, adding that the government should have instead taken to raising prices gradually, as opposed to announcing the one-time immediate increases.
Increases in the price of gas he said would push the sector’s financial situation closer to critical, forcing companies to suffer huge losses due to differences in the new and old prices of gas. He stated that he was not against the notion of raising the price of gas in order to help address Egypt’s budget deficit, but that such a decision should have been conducted only after its effects were first studied in depth. Any such increases that occurred thereafter should have been implemented gradually, he said.
Doing so would allow companies to continue running their production lines without disrupting their ability to meet the market’s needs or forcing them to increase the prices of their products for consumers in order to combat increases in fuel prices. He warned of the negative fallback such decisions would have on Egypt’s ceramics market, in particular its ability to compete abroad, given that 40% of the country’s production of ceramics usually gets exported.
Walid Abdel Hamid, Planning Director for the company Dream Stone, a subsidiary of the Bahgat Group, stated that its factories did not require natural gas except to produce burned marble surfaces which it sells to Spanish companies. He stated that decisions reached by a number of petroleum companies to decrease the amount of natural gas available on the national market would have a negative effect on production.
Ahmed Shibl, previous Managing Director of Lafarge, attributed decreases in the available supply of fertiliser on the Egyptian market to the inability of factories to acquire enough natural gas to meet their energy needs. He rejected claims that decreases in supply were the result of companies taking to exporting a majority of their products, pointing to the high price of fertiliser in the domestic market compared to prices internationally as evidence of their incentive to sell their products locally.
He added that increases in the cost of production, in addition to natural gas shortages, could both be attributed to imbalances in supply and demand. It has become easy and common, he said, for companies to pass increases in the cost of production onto consumers, especially considering the difficulty of exporting fertiliser abroad, due to its low international prices and with many countries, such as Turkey and Greece, already possessing large fertiliser surpluses.
He went on to say that claims made by production company owners saying that the price of fertiliser had gone beyond its maximum stated rate of EGP 620 per ton was in fact an exaggeration. He said that despite increases in the price of mazut to EGP 1600, compared to EGP 1000 before government increases in fuel prices, that most factories do not obtain their fuel at official prices. He called on the government to take serious steps to provide additional mazut supplies to fertiliser factories operating throughout Egypt.
Salah Abu Bakr, Chairman of the Giza Association for Brick Factory Owners, stated that officials from the Egyptian Natural Gas Holding Company (EGAS) had informed a number of Egyptian companies of their plans to conduct repairs on pipelines located throughout the country. He stated that as of now, this has not led to additional decreases in the amount of gas available in brick factories throughout Egypt.
Despite this, he said that brick factories are still suffering from shortages in mazut, saying that 60% of factories had completely shut down production, while others had decreased their production rates by as much as 50%.
Hesham Qandil, Egypt’s Prime Minister, recently released a decision raising the price of natural gas sold to and used by brick and fertiliser factories from $4 to $6 per one million BTU.
The decision further set the price of sale for a ton of mazut at EGP 1500, with the exception of those companies operating in the country’s electricity sector, for which the price of mazut will remain the same as it was prior.
A number of fertiliser factories, such as Abu Qir and Delta, in addition to those companies operating in free trading zones, such as Alexandria and Helwan called on the government to pump additional amounts of natural gas onto the market, saying that what was available now was only enough to allow factories to operate at 50% capacity, a fact which may lead to a fertiliser crisis during the coming summer season.
These factories called on the government to re-asses their position regarding new prices for natural gas, which totaled $4 per million BTU’s, saying that these prices, when combined with shortages in supply, will inevitably lead many companies to suffer huge losses.
Many fertiliser companies made their acceptance of the government’s new fuel prices conditional on pledges being made by the latter to study and work to address the demands of the former.
Translated from Al-Borsa