‘Subsidizing profit?’ – A look into the lifespan of energy subsidies for the industrial sector

Last week, residents of the country woke up on Tuesday to find the government had rolled out a price hike on all categories of fuel. The increases represented an unprecedented rise across the board, a 31 percent leap on average, affecting everything from cooking gas to diesel.

The impact has sent a shockwave through the country, reverberating in the cost of public transport, logistical services, and food and drink, pushing up the cost of living for households everywhere.

Explaining its decision, the Petroleum Ministry cited “exceptional circumstances” in global oil markets, a not-so-explicit gesture to the secondary effects that have shaken the global economy as a result of the war the United States and Israel have launched on Iran.

Egypt, as a net fuel importer, is heavily exposed to the shock to energy markets as Iran has targeted energy facilities in the Gulf and effectively closed the Strait of Hormuz — the main trade route channeling fossil fuels from the Gulf toward Egypt and the rest of the world. The cost of the oil and Liquified Natural Gas that contribute to Egypt’s energy mix has sky-rocketed, with immediate ramifications for the government’s fragile trade balance.

Yet, while hiking fuel prices, the government has chosen not to alter the price that industrial consumers pay for natural gas, even though their consumption represents around one-third of total natural gas demand nationwide. Why? 

Mada Masr dives into the background of the government’s policy of subsidizing energy for the industrial sector, speaking to former officials, industry figures and policy researchers to look at how the sector has changed due to liberalization policies over recent years.

What three of the sources, namely a World Bank representative, a Cabinet official and Salma Hussein, a senior researcher at the Egyptian Initiative for Personal Rights, tell us is that the choice to hike consumer fuel prices in response to the war without amending the cost for industrial consumers reflects a clear state bias toward the interests of investors and businesses.

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Of Egypt’s annual net domestic consumption of natural gas, the largest amount goes to generate electricity, around 60 percent of the total. The next largest consumption bracket, at between 20 and 25 percent of the total, is the industrial sector. Within that sector, fertilizers is the most gas-intensive industry and absorbs the largest share in the sector. The petrochemicals and iron and steel industries are also major consumers.

Producing one ton of urea-based fertilizer requires about 37 million British thermal units (Btu) of natural gas. The price that manufacturers pay for a supply of the gas procured by the government is currently set at around US$5.75 per million Btu, according to several industry sources.

But the global price of natural gas amid the war now exceeds $20 per million Btu, as Badawy noted in last week’s conference, with Egypt forced to seek some of its gas at that price from the spot market. Other gas will come from import contracts that were agreed in advance, and a majority of the gas Egypt consumes each year is still supplied by domestic production. This leaves the current average cost of a million Btu at an estimated $9.5, according to an informed government source who describes it as a leap that will leave the government paying much more than it used to in order to maintain fixed gas prices for the industrial sector.

The Petroleum Ministry had already devised a plan at the end of 2025 to gradually liberalize industrial gas prices over the course of three years, according to the Cabinet official, an official at a state-owned fertilizer company and the head of the Chemicals and Fertilizers Export Council Khaled Aboul Makarem, who described the plan to Mada Masr as it was being devised.

The plan was the ministry’s attempt to address the consequences of declining domestic gas production and the ministry’s growing reliance on imports, which was costly even prior to the war, requiring expenditure of around $7.2 billion during the first ten months of 2025 alone, according to the Central Agency for Public Mobilization and Statistics.

But the plan was met with strong resistance from several corners of government, the sources said.

Four sources in the fertilizer sector speaking to Mada Masr also reject the idea of liberalizing the price of the gas they receive, arguing that it would undermine the industry’s competitiveness in global markets.

“We can still export if global urea prices are around $400 per ton, but if they fall to $300, profit margins will shrink sharply,” one of the sector sources says. 

Global prices of urea, a nitrogen fertilizer, stand at around $300 per ton in “normal” conditions, which are still profitable for businesses working from Egypt. They stood at around $487 before the war broke out.

The same source points to regional competitors who enjoy much lower gas prices, such as Saudi Arabia and the UAE, noting that “the highest price they pay is about $3 [per million Btu].”

But these markets do not resemble Egypt’s industrial sector sufficiently to merit such a comparison, according to a former official at the Egyptian General Petroleum Corporation (EGPC) speaking to Mada Masr on condition of anonymity. Saudi Arabia, Qatar and the UAE are among the world’s largest gas producers, with vast gas surpluses and far lower production costs per million Btu. Even when these governments sell gas at low prices, the former official adds, they still generate a profit from their gas production overall — a situation that the source says is not comparable to Egypt’s situation.

Despite this, Egypt, a net gas importer, according to Madbuly, sells gas at the third cheapest rates in the region after Saudi Arabia and the UAE, which are net gas exporters.

The government absorbs about $3 for every million Btu it supplies to manufacturers, says the former EGPC official. “If we keep following investors’ demands, we’ll end up giving them the gas for free.”

Former Public Enterprise Sector Minister Hisham Tawfik agrees, arguing that liberalizing energy prices is both reasonable and inevitable as energy costs continue to rise for the government. Tawfik told Mada Masr that a country increasingly forced to buy LNG on the international market — where prices can be double those of producing gas domestically  — cannot continue subsidizing gas for industry.

He stressed the need to reassess the degree of support given to energy-intensive industries. If the continued existence of an industry depends primarily on subsidized energy prices, Tawfik says, then what the government is really doing is “subsidizing profits.”

The government’s rationale for selling subsidized gas to industry — through the Egyptian Natural Gas Holding Company (EGAS) — was that it would boost industrial production, therefore generating higher tax revenues and creating jobs, according to both Tawfik and former Petroleum Minister Abdallah Ghorab. 

Building materials, petrochemicals and fertilizers remain Egypt’s leading non-oil export sectors. But researcher Mostafa Ouki disputes the link between petrochemicals and fertilizers industries and large-scale job creation in a 2018 paper for the Oxford Institute for Energy Studies. Subsidizing gas prices is often assumed by decision-makers to have a “direct positive labour employment impact on the economy,” writes Ouki. This ignores the fact that most oil and gas projects, and other industries like the production of fertilizers and petrochemicals production, are “capital-intensive rather than labor intensive,” he argues.

The data of Egypt’s major fertilizer producers backs Ouki’s argument in this instance. Misr Fertilizers Production Company (MOPCO) employs around 1,000 workers, while Abu Qir Fertilizers has around 2,500  — a number that declines each year. 

Moreover, many of these key companies are no longer singularly state-owned, meaning that the capital they generate via exports does not necessarily remain in Egypt’s economy.

The fertilizer sector, historically a public-sector industry, now represents significant shareholder value to the Gulf instead. Saudi Arabia and the UAE, through their sovereign funds, together hold stakes exceeding 40 percent of the ownership structure of major fertilizer producers Abu Qir Fertilizers and MOPCO.

The Cabinet source and the former official said the first resistance to any plan to liberalize gas prices will likely come from Gulf investors in Egypt’s largest fertilizer companies. According to the Cabinet source, these investors aim to maintain the profit margins typical for the industry globally, around 30 percent.

The sales were made at the height of Egypt’s dollar crisis after the outbreak of the Russia-Ukraine war in 2022, with the UAE acquiring stakes ranging from 20 to 21.25 percent in MOPCO and Abu Qir Fertilizers for $658 million from the National Investment Bank. Saudi Arabia acquired stakes of 25 percent and 20 percent in MOPCO and Abu Qir Fertilizers, respectively, in deals in the same year.

The UAE later expanded its presence again in 2023 through the Abu Dhabi sovereign wealth fund ADQ, acquiring stakes in three companies, including a 27 percent share in the Egyptian Ethylene and Derivatives Company. The UAE’s National Paints also acquired the entire Paints and Chemical Industries Company (Pachin), after the Chemical Industries Holding Company and Banque Misr exited the company. Pachin was subsequently delisted from the stock exchange.

All these companies benefit, to varying degrees, from subsidized gas prices for industry, and also maintain extensive export operations. According to MOPCO’s financial statement for the first half of this year, 88 percent of its total urea sales were exported. In 2025, Egypt ranked ninth globally in fertilizer exports.

History of gas subsidies for industry, household consumers

The government has subsidized energy prices for industry since the late 1970s, when domestic demand was limited compared to abundant production at the time. Over time, however, the situation gradually reversed, as domestic demand from the electricity sector and industry has grown far beyond the level of output.

Between 2005 and 2015, demand grew at a compound annual rate of 3 percent, making Egypt the largest consumer of natural gas in the Middle East and Africa over the past years.

A gas boom began in 2004, during which period EGAS and major fertilizer producers such as MOPCO were established, part of a host of plans seeking to capitalize on the country’s gas wealth both domestically and through exports. Throughout that cycle, gas prices were subsidized for all industrial sectors to keep them fixed at $3 per million Btu. Under the government of Ahmed Nazif, prices for the fertilizer and petrochemical sectors were reduced to $1.50.

But the boom peaked in 2009, leaving the country in a severe energy crisis after the 2011 revolution, and by 2015, Egypt was a net gas importer again.

With the crisis, the government began raising prices. Prices for fertilizers and petrochemicals production industries were set to $4.50 per million Btu in 2014, and for food industries, textiles, pharmaceuticals, engineering industries, brick factories and other manufacturing sectors, prices were set at $5 per million Btu. 

The increase was steeper for iron and steel, as well as for other metals, glass and ceramic tiles, where prices reached $7. The largest hike applied to the cement industry, where the price of a million Btu rose to $8. Cement producers subsequently abandoned natural gas in favor of coal — despite its environmental effect — after receiving government approval to do so.

The whole boom and bust cycle replayed itself with the discovery of the Zohr field in 2015. After the field’s entry into production at the end of 2017, the government reversed course on prices for industry. Between 2019 and 2021, it implemented significant price cuts for industrial gas, reducing prices to $5.75 across most sectors and to $4.75 for less gas-intensive industries.

Curbing large-scale gas exports and supplying cheap gas to the industrial sector to bolster Egypt’s value-add to exportable products were among a key set of reforms that were called for after the Zohr field’s discovery, hailed at the time as capable of meeting Egypt’s gas demand for decades.

At the same time, Law 196/2017 was issued to regulate gas market activities with the intention of liberalizing Egypt’s gas market and reducing the government’s role in procurement, allowing private-sector companies to import gas and ending the monopoly granted to EGAS under Law 217/1980.

By the end of the first quarter of 2022, as Egypt entered a foreign currency and energy crisis and as domestic gas production began to decline noticeably, the government once again reconsidered its allocations to industrial gas. Gas prices for industry were raised, and, when gas shortages emerged, it was the industrial sector that took the blow first.

Gas imports from Israel to Egypt were interrupted five times during Israel’s war on Gaza, and in most of these cases, the government’s first response was to halt gas supplies to factories and divert all available gas to electricity generation.

During the gas shortages that hit industry following the Israeli supply disruptions, several industrial sectors threatened more than once to import gas themselves. But the former EGPC official and a former Petroleum Ministry official tells Mada Masr that such a step is unlikely in practice, given the vast price gap between market rates and government-supplied gas. While LNG on the international market can cost as much as $15 per million Btu, Egyptian industrial actors currently pay an average of between $4.75 and $5.75.

A senior former official at the Petroleum Ministry tells Mada Masr that when the ministry agreed to industry’s request to import gas, it transpired that the companies planned to import gas shipments, sell them to the government at a profit margin and then have it supply that gas back to their factories at subsidized prices. The ministry refused the proposal.

In his research paper, Ouki argued at the time that the boom in gas production would not be sustainable, and that Egypt could easily revert to being a net importer unless the government restructured, and even curbed, domestic demand by revising the subsidy system, thereby avoiding vicious cycles of surplus followed by shortage.

Egypt has indeed descended once again into a net energy deficit in recent years, starting with declining production at Zohr and compounded by an economic crisis that soured the government’s relationship with international producers and rising demand. 

The country  is now the world’s seventh-largest importer of natural gas. During the first ten months of this year alone, the government imported $7.2 billion worth of natural gas, according to data from CAPMAS.

Egypt’s three main gas supply sources — domestic production, pipeline imports from Israel and LNG — have all become more expensive for the state, while local production has fallen to its lowest level in a decade. Under these conditions, continuing to subsidize natural gas for energy-intensive industries is, as one of the sources puts it, “sheer nonsense” and effectively a transfer of foreign currency from the state treasury into investors’ profits.

Meanwhile, the government has continued to increase household gas prices across all three consumption brackets, with the total increase amounting to around 4,000 percent in 15 years.