Lights off in Egypt to rationalize natural gas consumption

Egypt’s streets are set to go dim for a few hours every night as of this week, in what the government says is an attempt to reduce dependency on the natural gas fueling the country’s power stations, Prime Minister Mostafa Madbuly announced in a press conference last week.

Street lighting on main roads will be reduced, and commercial malls will be expected to abide strictly by summertime power policies, Madbuly said, which include shutting down at 11 pm and setting central air-conditioning thermostats at no lower than 25 degrees celsius. 

Electricity will be shut off at government buildings at the end of business hours, he said, with some exceptions “of course, for departments of a sensitive nature and specialized work.” Even outdoor lighting at government buildings and public squares will be completely switched off, according to the prime minister.  

“There may be other measures to be considered during the coming period that would further rationalize, conserve and reduce electricity consumption,” the prime minister said.

These cuts, according to the prime minister, are a bid to shore up the country’s wavering foreign currency reserves. A combination of the energy saving measures and a gradual increase to the proportion of fuel oil (mazut) used in power stations around the country will help to “rationalize” natural gas resources, said the prime minister, allowing Egypt to secure hard currency by selling the resulting “surplus” abroad.

Egypt’s reserves of foreign currency have been vastly depleted due to capital flight from emerging markets propelled by uncertainty in the wake of Russia’s invasion of Ukraine. In order to try and replenish some of the US$20 billion that left Egypt’s bond market over the first half of 2022 and with some hefty debt repayments looming over the coming year, the government has been seeking foreign direct investment from neighbors in the Gulf, and is in ongoing negotiations with the IMF for further funding. 

And far from being plentiful enough to exchange for foreign currency,  Egypt’s domestic natural gas production, 60 percent of which is used to generate electricity for public consumption, is barely sufficient to meet demand. 

These measures should more accurately be described as foreign currency savings, rather than gains, said an official in the energy sector who spoke to Mada Masr on condition of anonymity, given that the country does not have a natural gas surplus for export at all.

The government will make these savings by substituting mazut for some of the natural gas it previously used to generate power for domestic consumption, said the source. 

Egypt’s natural gas supply 

The state is hoping to reduce the volume of natural gas used to generate electricity by 15 percent, according to Madbuly’s Tuesday statement, during which he noted that the state prices this gas for local consumption at $3 per million Btu, but that it can charge ten times that rate — $30 — when exporting it.

“Were it not for President Abdel Fattah al-Sisi’s keen vision and care that [the Zohr gas field] project be made operational as quickly as possible, the burden of importing natural gas would be piled atop the hard currency bill,” said Madbuly. Thanks to the Zohr field, he continued, Egypt now has sufficient gas for local consumption and a surplus supply for export.  

But the situation is a little more complex than that. Egypt’s consumption of natural gas has risen steadily over recent years, reaching 5.98 billion cubic feet per day in December 2021.

Meanwhile, Egypt’s domestic natural gas output stood at a 17-month low in April, at around 6.39 billion cf/d, according to Peter Stevenson, East Mediterranean editor at oil and gas analysis firm MEES. 

A further 700 million cf/d of Israeli gas enters the country via a firm run by the General Intelligence Services, with Egypt taking in-kind fees for liquefaction and transit to top up its available supply of natural gas, according to sources who spoke to Mada Masr earlier this year.

Though domestic production in Egypt plus imports from Israel add up to around 7 billion cf/d — enough, in theory, to meet domestic demand — the government is not automatically entitled to all of it. A certain amount is reserved for the international companies managing the excavation sites. For example, some of the output from Zohr goes back to Italian firm Eni, and to the other international operators that hold shares in the field.

Egypt uses hard currency to buy back as much as 1 billion cf/d from the private companies’ share in order to ensure the government has sufficient gas for domestic demand, former Petroleum Minister Osama Kamal told Mada Masr earlier this year. Stevenson likewise confirmed that, with the exception of the West Delta Deep Marine project run by Shell and Petronas — with whom the contractual arrangement differs from those of other companies  — “as far as I'm aware, the government buys back all of the gas and either sells it to private entities or uses it domestically.”

During the summer months, when domestic gas consumption is higher, Egypt has a “potential deficit if you minus Israeli imports,” Stevenson told Mada Masr.

Egyptian gas fields are also depleting at a high rate, with Stevenson estimating that, “it’s likely Egypt won't have any surplus whatsoever within a maximum of one to two years” if it does not import more gas from Israel or rationalize power use. 

“It seems the government is trying to save on gas consumption, but not for exports. Rather, they want to avoid blackouts,” Stevenson concluded.

The state began to reduce the amount of natural gas used in the energy mix in October 2021, increasing the proportion of locally produced mazut input at power stations to replace it.

According to the Electricity Utility and Consumer Protection Agency, the amount of mazut used to generate electricity in May 2022 represented a tenfold increase year-on-year, rising to account for 11.5 percent of the total energy generated in the country in comparison to just 1.1 percent in May 2021. Accordingly, dependence on natural gas to fuel power stations decreased by at least 11 percent over the same period.

“The operation of power plants will be reorganized, with priority given to plants that consume less natural gas and produce more electricity,” Madbuly said, citing the three Siemens plants as examples of those that should be made to operate at maximum capacity. 

Egypt’s heavy reliance on natural gas began five years ago, after a number of mega fields were discovered in the country’s Mediterranean waters, raising its hopes to meet local energy demand by relying entirely on its own natural gas. 

“The growing reliance on mazut conforms with the state's strategy to contain the impact of the rise in international prices and reduce pressure on the public budget during the current period in light of the global energy crisis,” economic news outlet Al-Mal reported, citing well-informed sources at the Electricity Ministry.