London - Egypt’s natural gas exports are set to drop by about half this year, undermining the military led-government’s attempts to stabilise the largest economy in north Africa.
Eni and BG Group, international oil companies with investments in Egyptian export terminals, said a policy that encouraged gas consumption at home, capped prices and had left the state owing $6 billion (R60.8bn) to producers, was holding back investment in new fields.
Egypt is set to fall behind Equatorial Guinea to fourth place among Africa’s gas exporters this year, according to data compiled by Bloomberg.
The dilemma for Egypt’s new leaders is that the country’s thirst for cheap gas leaves little scope to pare back subsidies that cost 7.3 percent of gross domestic product. While the state was starting to repay the debt owed to gas producers, the country would find it hard to win new investment into its country’s largest export industry until price limits were raised, Eni chief executive Paolo Scaroni said in an interview this week.
“Certainly if gas prices were higher in Egypt, we could exploit some discoveries we made in the Mediterranean,” he said. The government had promised to start repaying this year some of the $800 million to $900m it owed the Rome-based company, the largest energy producer in Egypt, Scaroni said.
While Egypt’s benchmark stock index has climbed about 19 percent since Mohamed Mursi’s government was overthrown by the army in July, the economy remains in a crisis with both unemployment and the budget deficit near records after three years of political unrest.
Egypt’s daily gas production fell 8.5 percent in the first nine months of the year compared with last year, according to Egyptian Natural Gas Holding chairman Taher Abdel Rehim. The slump had even forced Egypt to consider importing gas from outside the country to meet energy demand during peak summer months and was in talks with Qatar about fuel supplies.
There are signs the government is trying to address the challenges of energy policy. A pledge to start paying back the cash owed to gas producers was a positive step, said Martijn Murphy, an analyst at Wood Mackenzie, an energy consultant in Edinburgh.
Still, cutting the debt would be easier than paring back subsidies that held down energy costs for consumers even though exporting gas could be five times more profitable than selling it in Egypt, according to Christine Tiscareno, an equity analyst at Standard & Poor’s in London. – Bloomberg