All Saints …No Devils: Staging Egypt Energy “Crisis” to Profit from Prices!

The paramount pressure of international energy security especially escalating global demand and its geo-political complications leave no room to undermine the ramifications of escalating domestic demand in Egypt. Rushed calls for quick paced solutions should not blind decision makers from the following insights:

1. Including coal in Egypt's energy mix should not lead to the underutilization of its own existing gas reserves efficiently. Pushing Egypt to import and rely on cheap yet extremely polluting coal has a high price tag of cleaning up, public health hazards and contamination. The documentary of German DW-TV March 2014 illustrates the horror of using coal in the District of Ruhr. The clean-up of pollutants from coal took more than 40 years. Pro Coal businessmen in Egypt made fun of the 40 years toll. Their quasi-fascist slogan they used "better to feed them today...let them die in the future" was revealed in an interview on Al-Ahram entitled the war of coal on Saturday April 6th. Shouldn't we learn that no coal can be clean no matter what advanced technologies are used as has been declared in a National Geographic article this March 2014? A Harvard health study on the negative cost of coal published on March 31, 2014 is very alarming (available at Boston.com).

2. It is an illusion to consider coal a solution to all our energy supply problems. In fact the introduction of coal will take Egypt backward to the 19th Century, when coal was the only fuel of the industrial revolution. At a time were the world leading users of coal are phasing it out (Canada/Ontario, and Germany Ruhr), Egypt's focus and effort should be on utilizing renewables and sustainable energy. It should be highlighted that countries using coal has a current public phase out plan, they cannot abruptly stop. Also, they have been phasing out from Nuclear power and put coal as transit phase in the past years. Why do we need to follow the same ugly course in Egypt? Let’s jump start to a better future. Price-wise extensive demand and monopoly of coal trading and logistics will soon bring its prices up contributing negatively to prices of energy. This is exactly what happened with gas when cement companies received it in 2005 at $1.5 (subsidized by Tax payers' money) and today it's about around $4 (also subsidized).

3. Continuous hammering, during the past six months, on using the word “crisis” to describe Egypt energy deficit. “Crisis” is defined with specific characteristic of sudden and unexpected negative results that are caused usually by complex or hard to single out reasons. This is surely not the case of Egypt, local experts, the Ministry of Trade and Industry as well as Ministry of Petroleum had known the situation since end of 2007 and early 2008. Empirically speaking, the total energy consumption of Egypt exceeded total supply in a steady way since 2007/2008; which leave ample time to predict and react with solutions.

4. The domestic energy market should have learned enough not to use the obsolete World Bank-IMF economic model introduced in the 90’s and re-iterated during the period prior to the 25th January, 2011 revolution in which: a. Few (handful) business and industrial people to lead as engine of growth for the entire economy. The model never worked internationally or in Egypt. 12-15 leading business men cannot lift up an economy of 90 million people. b. In the absence of reliable socially accepted network, eliminating subsidies will lead only to instability. The Focus on subsidy elimination while preaching that economic benefits in the hands of few in the top can trickle down to the poor did not materialize.

Questions that beg careful examination are:

1. Why now more than ever? The scale and intensity of the media campaign on energy issues are enormous for the past six months. The campaign sponsored by 4 key cement companies (out of 22 operating companies) and their gradual aggressive attack on the Minister of Environment for NOT permitting the use of coal in cement or any other application has attracted public attention to the nature of challenge. Would the invisible hand, once coined by the economist Adam Smith to secure market stability drive crisis to profit from prices? Would continuous electricity cuts be a way to introduce panic?

2. Why the Ministry of Petroleum (specifically the Egyptian Natural Gas Holding Company - EGAS) does not permit gas import? The fuss made by the cement sector indicates their desperate need for energy ...of course legitimate. But why insist on coal as the only solution? Cement companies claimed that shifting for coal is not for its price advantage but due to the lack of gas availability promised by government. They are pushed to seek coal as a substitute from international sources such as South Africa and the US (where the coal market is sluggish, “Fortune Magazine March 2014 Is Coal America Next Toxic Export.”

Cement companies are victims of a promise made in 2005 by the government (group of Ministries led by Minister of Trade and Industry at that time) to provide gas at subsidized price of $1.5 per 1 million BTU, which has been difficult to fulfil. The fact that cement industry is an oligopoly gave them good advantage of high profit margin until energy deficit came to expose them to extreme financial pressure to operate and generate profits owed to one or two main equity fund management as indicated on Citadel Capital website and interviews on CBC Lamis Hadidi 2013, March 2014 and Ibrahim Essa, Jan 2014). These interviews coupled with careful content analysis of companies reporting highlight that in absence of low-priced energy source like coal will lead to suppressed operation profile of newly structured cement companies such as ASEC Holding-owned by Citadel Capital, ready to launch intended to produce 10 million tons by 2016).

Tangling the tripod energy market:

The equity fund/s investing in cement are major shareholders in the only project-to-be for floating Re-Gasification platform which is essential to enable LNG gas import to these cement companies. Mr. Mohamed Shouieb, the competent former Head of EGAS is now on board of Citadel for this investment, ready to support the future operation. The deal/project, which has been on hold for some time, was negotiated with two international companies from the US and Norway (US-based Excelerate Energy and Oslo-headquartered Hoegh LNG) with ability to respond fast to Egypt needs. Also, the same equity fund has investments in mining coal in South Africa. It is worth noting that in this tripod situation of no gas import, no sustained energy for cement production, and halted coal import it is the tug-of-war for those equity fund executives where they can loose on all three market segments simultaneously: Cement, gas, and coal. This explains in a way the race for coal!

Proposed solution:

Given the complexity and urgency of response to the issue of securing gas, some Egyptian analysts are calling for the military economic unit/s to play an active role in outsourcing and operating the much needed measures in the coming 3 month compensating for the 35-45% of gas used in power plants better than coal.

1. CNG (Compressed Natural Gas) technology similar to the one used in modified cars. CNG technology is available and well operated by companies such as Canadian based Sea-ng Company. The cost is cheaper than carrying LNG.

2. Re-Gasification platform or platforms needed to reverse the LNG imports to its gas state to be used. This proposition can save the current tug of war in the energy market among cement companies aiming to get coal at any environmental and health cost and those concerned with our sustainable decent livelihood. LNG import requires a floating Re-Gasification plant (not available in Egypt unlike LPG (which is the gas used in Cylinders at household requiring different process).

3. Deploying military engineering unit/s can introduce renewables, such as solar towers and wind farms, to the equation in a fast pace by end of 2014.

In addition to establishing the hardware and infrastructure for renewables, the military core of Engineers can begin aggressive capacity building program for civilian human resources, on a massive scale, in two key needed areas sustainable/renewable energy and in up-dates of Oil/Gas activities such as ultra-Deep Offshore drilling and Seismic data mapping of reserves, both are monopoly of few international companies.

It is worth noting that in worst case, force Major, scenario of the Prime Minister making a coal supporting decision despite all the social and environmental adverse ramifications of using coal in cement and/or other activity then there must be a safeguarding measures (note: exporting coal is allowed by Egyptian law but using it requires environmental approval). In this respect, treating coal as hazardous material operated and traded by specialized military unit/entity responsible of delivering it safely to industrial buyers. Equally important, is to play the economics right, assigning polluter tax not less than 40% higher than the price of gas prices. The 40% to cope with the 40 years cleaning efforts need to clean coal (see DW-TV documentary on Coal, last week of March 2014.

It is always hard to make decisions on behalf of our children and grand - children so it is good to ask: Do you think God will forgive me?

Contributed to Gulfoilandgas.com by
Tarek El-Baz
Independent Energy and Development Advisor

The author is a Gulfoilandgas.com contributor. The opinions expressed are those of the writer.

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