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Choking up - Daily News Egypt

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Choking up

By Philip Whitfield Notice the traffic? Given up going out? Carrying a doggy bag on the shopping run? Good news. Nobody will be able to afford to drive soon. Everyone’s money will be spent paying the gas bill and keeping cool in ice baths. Who dares flick on the air-con? Bit chilly? Snuggle up in …

Philip Whitfield
Philip Whitfield

By Philip Whitfield

Notice the traffic? Given up going out? Carrying a doggy bag on the shopping run?

Good news. Nobody will be able to afford to drive soon. Everyone’s money will be spent paying the gas bill and keeping cool in ice baths.

Who dares flick on the air-con? Bit chilly? Snuggle up in a cardigan when the power cuts kick in.

Word on the street is prolonged power cuts as the weather hots up, as happened last summer.

Charging market rates is the answer to fuel shortages and rising demand for natural gas and diesel, according to industry experts.

Paying the oil and gas companies is another. Their receivables are skyrocketing into the billions. The government found $3.5bn of the $9bn owing last year and are committed to paying another $3.5bn in August, but it isn’t enough to keep the peace.

Some oilers are pulling out. Novatek, Russia’s largest independent natural gas producer, pulled the plug first. The Russians pulled out of Al-Arish, citing security concerns. It’s simple mathematics. If you can’t get a return on your investment and the future looks bleak, head elsewhere. If your bonus is tied to profits, tweet your C.V.

There are serious technical challenges in landing oil and gas out of the Mediterranean. Oil and water are mixing up 500 metres under the waves in the West Delta Deep Marine Concession 90 kilometres off the Mediterranean coast. It’s hampering sucking up 4tn cubic feet of black gold.

Observatoire Méditerranéen de l’Energie warns Egypt could become a net importer of gas if the country’s production levels and reserves are not improved dramatically. What’s needed are big discoveries, technological breakthroughs and massive capital outlays, say the French eggheads.

The decline in the supply needs to be stopped, says Shell’s Jeroen Regtien. He says officialdom is short-sighted.

The government-owned Egyptian Natural Gas Holding Company (EGAS) put out a tender to build another liquid natural gas (LNG) terminal on the Med or the Red seas. Their priority: the earliest first delivery date, starting in eight weeks. Sounds like they’ve hit the panic alarm.

The irony is Egypt has total natural gas reserves of 77tn cubic feet, the third highest in Africa, after Nigeria and Algeria. Morsi’s government failed to anticipate the crisis. Or if they did, even worse, they shilly-shallied.

On the one hand they could have prioritised settling the drilling companies’ bills instead of allowing them to pile up.

If they’d summoned the courage to bite the bullet, reduced subsidies and increased luxury taxes, in all probability they could have reached agreement with the IMF for a substantial loan.

They didn’t and now experts such as Angus Blair say Egypt needs US $10bn to dig itself out. Others of similar mind say the IMF is only half as inclined to help now, sceptical of the Muslim Brotherhood’s intentions.

That’s apart from the Muslim Brothers’ jihadist allies’ pre-election bluster. They say Muslim clerics must have their say before striking a bargain. Imagine calling the Vatican before swiping your credit card, or your rector before signing up for a mortgage.

Aside from competence is confidence. Why invest a billion or so with no certainty of being paid?

If Egypt can’t find a way to settle its debts, it will have a hard time convincing foreign investors to stay and bring natural gas production back up, say oil insiders.

By 2011, Egypt’s natural gas production fell back to 61bn cubic metres according to BP. Dana Gas and other leading producers cut production targets, citing political uncertainty.

At the same time, consumption jumped by 10% to 50bn cubic metres, the largest increase in Africa.

One person willing to take a gamble is Citadel Capital’s Ahmed Heikal who’s hoping to make money importing LNG from Qatar. The plan envisages a regasification plant to transmit gas through the national pipe selling it to local high-volume end-users.

Sounds like you and me won’t get lucky. My monthly bill hovers around EGP 5 plus tip.

Importing gas will double the dig-it-out-for-yourself plan. A billion cubic feet a day from abroad would tot up to nearly $4bn a year, according to Bloomberg, who say it would further cause the Egyptian pound to devalue and sink the government deeper into the red.

So, what’s going on in the oilers’ boardrooms?

Here’s one thing: There has been a lot of patience, but it’s coming up to crunch time for investors in this country like Dr Patrick Allman-Ward, general manager of Dana Gas, who’s invested the lion’s share of $2bn in Egypt.

There’s no obvious way investors are going to get a return, he says.

Which brings us round to the Egyptian man-on-the street mantra WIFM: What’s In It For Me?

Answer: Nothing.

Expect pain and booted women walking to work this summer.

Here’s a blip. Egypt is among the top 10 cheapest of worldwide petrol prices, kidding itself it’s up with the major oil and gas producers like Saudi Arabia, Qatar, Venezuela etc.

According to Deutsche Gesellschaft für Internationale Zusammenarbeit who’ve been monitoring international petrol prices since 1991, Egyptians pay half the price Americans, Argentinians and Bangladeshis pay and about a quarter the cost of filling your tank in the UK, France, Italy and Iceland.

Don’t look for an Islamic solution. Turks pay more for a fill up than anyone else.

Here’s how to fix it: Scrap ministerial cars. Give them a day on the cross-town 171 bus. Make them pay the two-pound fare like the rest of us to strap-hang and by lunchtime they’ll clear the streets with an instant fuel tax rise, round up the clunker cabbies and ban semis cutting across the kerbs outside the Semiramis.

Also, adopt the oilmen’s no-go land. They have maps on their walls painted red for keep out, orange for only with security guards, and green where they can play golf.

There are crafty computer gizmos in their autos monitoring every gearshift, twist and turn. Woe betides anyone who exceeds the speed limit.

Guzzling gas gobblers get garaged.

Philip Whitfield is a Cairo commentator

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