If it is not wise to take coal to Newcastle because there is so much of it there, the same is not true for natural gas as major producers import additional quantities to balance their requirements normally or seasonally to cover existing export contracts.
Major producers in Europe and the United States have been doing this for a long time and in our region, the UAE imports gas from Qatar by pipeline and a limited quantity of LNG (liquified natural gas) to cover power shortages in summer. The UAE is even in the process of planning a regasification of the LNG terminal in Fujairah for the future though its natural gas production from new fields is going ahead.
For sometime now, Egypt has been considering a similar approach. Although its gas resources are substantial, with reserves at 2.2 trillion cubic meters (tcm) and reserves to production ratio of almost 36 years, the country is short of gas supplies as domestic demand is increasing and Egypt still has to meet export obligations of pipeline gas and LNG.
Natural gas production in Egypt in 2011 was 61.3 billion cubic meters (bcm), a huge increase from the production in 2000 at 21 bcm. At the same time, domestic consumption has increased from 24.5 bcm in 2000 to 44.6 bcm in 2011. However, production has been stagnant in the last few years and Egypt still uses more than eight million tons a year of fuel oil due to the lack of natural gas.
Egypt’s commitment to exports of natural gas are close to 15 bcm, five in pipeline and the rest in LNG produced in two plants. But in 2011, pipeline exports have been only 1.8 bcm due to the bombing of the line many times, resulting in difficulties in Jordan and Syria. LNG exports were 8.53 bcm as Egypt was forced to divert some quantities to the domestic market.
Deal with Algeria
Egypt already reported that there is an agreement in the making with Algeria to import over five bcm a year, starting in mid-2013. Algerian foreign minister Murad Medelci said “Algeria and Egypt have excellent relations in the field of energy” and that “this deal is of major importance for both countries.”
Negotiations with Qatar, however, were not conclusive when Qatar referred the Egyptians to negotiate with international oil companies holding long-term contracts for Qatari gas, an idea that does not appeal to Egypt because of pricing concerns. Yet, a private company was formed between Egyptian concerns (Citadel Capital) and Qatari investors to import LNG into Egypt from mid-2013.
The joint venture would build and own facilities needed for a floating LNG storage and regasification unit to feed the Egyptian network with imported gas.
Even before these developments and back in 2010, Egypt considered importing gas from Iraq in a reverse flow of the Arab Gas Pipeline supplying Syria and Jordan. The idea is good especially that Iraq is party to the agreement of the said pipeline. But unfortunately, the Iraqi industry needs a lot of work before it can be depended on.
Many years ago, some experts were against exporting Egyptian gas when they argued that the available quantities, as large as they are, will not be sufficient to cover local demand. But things went differently and Egypt should go ahead with what it intends to do, especially now that gas prices are much cheaper than fuel oil prices. But in the long run, Egypt should aspire to increase its reserves and develop its discoveries to balance the domestic market demands. Considerable effort is needed to safeguard Egyptian rights in the Mediterranean Sea against claims from Israel and Cyprus. It is surprising why Egypt is so quiet in pursing its rights here.
Benefits to all
Linking by pipelines with Libya and Algeria is an old idea which can bring benefits to all, especially because pipeline gas is much cheaper for Egypt than LNG. The markets in Syria, Lebanon and Jordan will also be better served and when Iraq gas becomes available, the whole network security will be enhanced for all countries.
At the same time, Egypt should consider buying gas for its clients from LNG suppliers and reduce the capacity of its own LNG plants in such a way as to be able to feed the domestic market. In this way, the contractual agreements can be met and the cost of liquefaction can be saved.