In Saudi Arabia, a petrochemicals project has stalled due to a lack of gas supply, Lothian says.
Fuelling projects at a high price
Financial Times
Published: 26/04/2007 12:00 AM (UAE)
In the centre of Helwan town, a 20-kilometre drive south of one of Cairo's more affluent suburbs, a large factory spews huge puffs of grey dust into the sky, making it difficult to distinguish clouds from haze. The Helwan plant was built years ago but new, similar factories have sprung up as economic reforms attract foreign investment.
The cement sector has been one of Egypt's success stories, transforming the country from a net importer to the world's eighth largest exporter in 2005.
The growth of energy-intensive industries has helped boost foreign direct investment to record highs. FDI was $7 billion (£3.5 billion) in the first six months of the current fiscal year, 20 per cent of which was in energy-intensive sectors, says Rachid Mohammad Rachid, trade minister.
The government in Cairo, however, is discovering that the proliferation of such industries is a mixed blessing. The cement industry's environmental impact is worrying and energy-intensive industries are eating up crucial resources - causing the government to rethink how best to allocate its natural gas reserves.
The growth of these industries has coincided with rising domestic demand for gas, putting a huge burden on the treasury as energy subsidies have swelled from 1.2 billion Egyptian pounds ($220 million) to 42 billion pounds, according to figures on a government website.
The government also has to take into account the desire of international energy companies to increase liquefied natural gas (LNG) exports. Groups such as ENI, BG, and BP have invested billions of dollars in Egypt's gas sector, causing production to double to more than 5 billion standard cubic feet per day.
Companies have an understanding with the government that they will increase exports as they develop and discover new fields, one expert says.
Emission limits
Rachid acknowledges the dilemma. "You are forced into a choice: what do you want to use your energy [for]? Do you want to export it as a commodity or do you want really to create some manufacturing value-added jobs and you still export it as a different commodity?"
He says Cairo is putting emission limits on factories and conducting a review to produce an "energy strategy" in the next few months.
The strategy will include a pricing policy for industry for the next 15 years, he says. At present, government subsidies and caps make Egypt's energy costs among the lowest in the world.
In recent weeks - after a temporary moratorium - the trade ministry has approved licences to 25 new cement factories and three steel companies. About six companies, including Australian, Chinese and Canadian concerns, are also seeking to set up aluminium smelters - which are even more energy intensive - in the country. However, a decision on whether to grant licences to those will not be made until after the energy review is completed.
Governments across the Middle East are looking to use their energy resources to attract new industries - often energy-intensive - and diversify their economic base.
Colin Lothian, an analyst at Wood Mackenzie, says the United Arab Emirates, Oman, Kuwait and Saudi Arabia are among those who will have to consider whether they have the proven resources both to fuel new industries and cater for growing domestic consumption.
All four could eventually face gas shortages, according to Wood Mackenzie, as they seek to sustain development plans.
In the late 1990s Oman, believing it had ample gas resources, encouraged the establishment of fertiliser plants and an aluminium smelter, but today faces a supply-demand gap, Lothian says, as development of new gas supplies failed to live up to expectations.
Qatar, which boasts some of the world's largest known gas reserves, recently announced a moratorium on the development of gas projects from its North Field until it completes a review to assess its reserves.
In Saudi Arabia, a petrochemicals project has stalled due to a lack of gas supply, Lothian says.
These countries are reliant on gas for power generation and water desalination plants and many have oil projects that rely on gas re-injection to maintain and increase oil production. Large volumes of gas are also required for gas recycling and extracting high value from the natural gas liquids produced.
Now growing industrial demand is competing for future supply. "The most important factor in this equation is the huge rush by the whole manufacturing world to go to where energy sources are, because of what has been happening in the last three or four years on the energy side," Rachid says.
(TOD Contributor Jeffrey J. Brown writes: "More problems for energy exports.")
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