Egypt’s Precarious Energy Position

Egypt faces a serious energy crunch in securing the required petroleum and natural gas imports to meet expected summer requirements, Egyptian Oil Minister Sherif Ismail told Reuters on Monday. While keeping the geographic company of hydrocarbon giants, Egypt is a net energy importer and currently relies on regional allies for oil and natural gas shipments. The country has been in a state of political flux since the ousting of Hosni Mubarak in 2011 and the subsequent turmoil has all but frozen the government. The resulting uncertainty in the policy process has hobbled Egyptian energy security, making it difficult for Cairo to ensure sufficient energy supplies for the summer months.

"The first estimate … is that we will need to import petroleum products of around $250 million per month during the four summer months," Ismail said. Last year, fuel shortages caused winding lines at gas stations around the country and sparked protests. To avoid these shortages, Egypt will depend on the continued support of Saudi Arabia, Kuwait, and the United Arab Emirates, which have supplied more than $4 billion in fuel since Mohamed Morsi was ousted last summer.

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The natural gas situation is even more complicated as Egypt's planned liquefied natural gas (LNG) terminal has yet to materialize. Originally planned to be up and running before April, the contract for its construction has experienced delays and it is now unlikely that it will be operational before it is needed most in summer 2014. If sufficient natural gas supplies are not found, Egypt may have to shift to more expensive fuel oil to meet electricity demand.

Recent moves to divert natural gas from export to domestic consumption have taken a heavy toll on international energy firms operating within Egypt. British BG Group took a $1.3 billion impairment on its Egyptian business in January, and PGNiG, a Polish state-owned gas company, decided to pull out of Egypt entirely. Without the help of international companies, it will be difficult for Egypt to further develop its hydrocarbon reserves and ensure that this is not an annual crisis.

The energy situation is also hurting domestic heavy industry, which has enjoyed subsidized energy prices in the past. The anticipated shortages this summer have encouraged the government to open the door [Arabic] for private companies to import natural gas independent of government tenders. However, these companies face considerably higher than subsidized rates. "The cheapest price for the private sector would be around $12/MMBtu as well as the fee that will be paid [to] the government for using its network and other administrative costs. This compares to $6/MMBtu currently paid by the heavy industries," Tamer Abu Bakr, president of the Energy Committee of the Federation of Egyptian Industries, told the Wall Street Journal.

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Egypt is now a perfect example of how energy insecurity can wreak havoc on a country's normal operations-Cairo's inability to guarantee energy supplies is hurting consumers, domestic industry, and the entire Egyptian economy. The upcoming presidential and subsequent parliamentary elections may help ease the uncertainty in Cairo, but they are by no means a cure all. Egypt now faces the unenviable task of reestablishing a functioning government, reforming unsustainable energy subsidies, and rebuilding its energy supply chains. Cairo is quickly realizing that it is impossible to fuel a modern economy without, well, fuel.

By Rory Johnston