Search

 

Cablegate: Egypt's Energy Strategy, and Concern Over Gas

VZCZCXYZ0000
PP RUEHWEB

DE RUEHEG #1359/01 1821323
ZNR UUUUU ZZH
P 301323Z JUN 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 9700
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHAM/AMEMBASSY AMMAN 1936
RUEHTV/AMEMBASSY TEL AVIV 1732
RUEHJM/AMCONSUL JERUSALEM 1038

UNCLAS CAIRO 001359

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/IPA, ENERGY FOR ERICKSON AND SPERLE

E.O. 12958: N/A
TAGS: ECON ENRG EPET PGOV EG IS
SUBJECT: EGYPT'S ENERGY STRATEGY, AND CONCERN OVER GAS
EXPORTS

REF: A. CAIRO 959
B. CAIRO 419
C. CAIRO 1146
D. CAIRO 190
E. AMMAN 1567

SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY.

1. (SBU) SUMMARY: Determined to satisfy rapid growth in
domestic demand and position Egypt as a regional hub for
energy distribution, the GOE recently adopted a fifteen year
national energy strategy, according to Ibrahim Saleh, special
advisor to Finance Minister Yousef Boutros-Ghali and former
head of the Egyptian General Petroleum Company (EGPC). He
said that Egypt will address the burden posed by energy
subsidies by aggressively reducing fuel subsidies for
industrial customers while maintaining a safety net for the
poor. Saleh asserted that Egypt will not renege on existing
long-term natural gas export deals but will not enter into
new export arrangements for at least three years in order to
reevaluate domestic needs. END SUMMARY.

LOOKING AHEAD: GOE'S FIFTEEN YEAR ENERGY STRATEGY
--------------------------------------------- ----

2. (SBU) Ibrahim Saleh, special advisor to Finance Minister
Yousef Boutros-Ghali and former head of the Egyptian General
Petroleum Company (EGPC), briefed econoff on the 2008-2022
national energy strategy on June 25. He said the GOE was
driven to develop a long-term strategy to address rapid
growth in domestic energy demand from industrial customers
and households and in order to restructure the entire energy
sector to alleviate the burden of subsidies and to facilitate
privatization. The GOE based the strategy on the assumption
that the economy would continue to grow at a minimum of 7%
per year through 2022.

3. (SBU) Under the new national strategy, the GOE revamped
the High Energy Council to facilitate coordination between
relevant ministries. Through gradual privatization, the GOE
intends to pare its role in the energy sector down to that of
a regulator. Saleh said that the GOE is trying to make Egypt
as attractive as possible to oil and gas producers to
increase investment in infrastructure and exploration and to
convince producers to sell as much of their product as
possible domestically. (Note: Saleh confirmed that natural
gas producers are currently paid $2.65 per MMBTU, well below
recent prices in regional trading and the NYMEX average of
$12-13 in June. Industry contacts tell us that due to rising
production costs both on and off-shore, they are considering
exporting more of their product unless the GOE raises the
purchase price. End Note.)


DEMAND IS GROWING QUICKLY
-------------------------

4. (SBU) According to the American Chamber of Commerce's
Energy Committee, electricity demand rose 30% from the
mid-1990's to the present due to population growth and the
burgeoning heavy-industry sector. The financial press
reported that Egypt produced 8.6 million tons of diesel in
2007 and had to import another 1.6 million to meet demand.
AmCham contacts noted that Egypt might have to import natural
gas as well within 5 years if demand continues unabated.
(Note: The Ministry of Petroleum does not publish statistics
on a regularly and has not provided 2007 figures. End Note.)

5. (SBU) Saleh said that Egypt will continue to be a net
importer of petroleum products and added that the GOE intends
to address the growing gap between production and consumption
by developing nuclear energy (Refs C and D) and renewable
sources, with a goal of deriving 20% of energy production
from renewable sources by 2022. He said that the GOE would
face an uphill battle in promoting efficiency and
rationalizing the consumption of energy in a society where
consumers have long treated oil and gas as inexhaustible and
cheap resources.


GROWING OPPOSITION TO NATURAL GAS EXPORTS
-----------------------------------------

6. (SBU) Under Egyptian law, natural gas exports are
limited to 25% of reserves. While there has consistently
been vocal opposition to the Eastern Mediterranean Gas (EMG)

consortium's deal to export gas from Egypt to Israel via the
El Arish-Ashkelon pipeline (Ref B), the skyrocketing price of
natural gas in world markets has recently led to widespread
concern that Egypt's other long-term gas export contracts
were disadvantageous. (Note: Egypt negotiated a higher price
for an additional billion cubic meters (BCM) of natural gas
to Jordan when the original agreement was expanded this
spring, per ref E. End Note.) In a recent meeting with CODEL
Baird, Minister of Petroleum Samy Fahmy confirmed that the
GOE is currently renegotiating its deals with several
customers, including Spain and France. On June 30 Fahmy told
the press that his goal in revisiting these contracts was to
ensure that the GOE obtains a price higher than the cost of
production and higher than local prices in Egypt.

7. (SBU) Saleh confirmed that the GOE will honor existing
gas export contracts, whose average length is 20 years, but
it will not pursue new export deals for the next two-three
years to assess its domestic needs. Saleh noted that the GOE
did not adequately prepare the public for a gas export deal
to Israel and that it needs to develop a better outreach
strategy on controversial economic measures. He acknowledged
that the GOE is mired in an outdated mindset of central
control of energy prices and supply and is slowly adapting
itself to the rapid shifts of the natural gas market.

THE THIRD RAIL OF LOCAL POLITICS: ENERGY SUBSIDIES
--------------------------------------------- -----

8. (SBU) The GOE devoted over 70 billion LE (just over USD
13 billion) to energy subsidies in 2007, comprising
approximately 7% of GDP. The objective of the energy
strategy is to maintain the safety net for the poor
indefinitely through subsidies on electricity and fuel, and
aggressively reduce subsidies for industrial customers in the
short-term.

9. (SBU) Saleh said that the GOE and World Bank are
developing an energy pricing structure to better target
subsidies and intend to submit it to the Prime Minister and
cabinet for review by October. He confirmed that the May
price hike raised the cost of natural gas to the
energy-intensive industries from $1.00 to approximately $3.00
per MMBTU. Saleh noted that the GOE purchases gas directly
from local producers and does not incur transport and other
hefty charges, therefore it is not compelled to mark up
prices for industrial consumers to regional or world levels.

COMMENT
-------

10. (SBU) Per Saleh, the energy strategy was produced by the
ruling National Democratic Party's energy committee and was
submitted directly to the ministries for implementation after
the President's concurrence. While the lack of public and
parliamentary consultation is no different from usual
procedure, growing public and opposition restiveness about
domestic gasoline and diesel prices, natural gas export
prices and politically sensitive issues such as gas exports
to Israel, may force the GOE to be more transparent about its
energy policy and other bread and butter economic issues.
SCOBEY

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC