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Cablegate: Update On Egypt's Natural Gas Infrastructure

VZCZCXRO5231
PP RUEHDE RUEHDIR
DE RUEHEG #2257 3010510
ZNR UUUUU ZZH
P 270510Z OCT 08
FM AMEMBASSY CAIRO
TO RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0719
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY

UNCLAS CAIRO 002257

SENSITIVE
SIPDIS

ENERGY FOR ERICKSON AND SPERLE
NEA/ELA FOR SCHALL

E.O. 12958: N/A
TAGS: ENRG IR EG
SUBJECT: UPDATE ON EGYPT'S NATURAL GAS INFRASTRUCTURE

REF: A. CAIRO 1359 B. CAIRO 1855 C. CAIRO 2055 D. BAGHDAD 3239 E. CAIRO 2141 Sensitive but unclassified. Please handle accordingly.
1.(SBU) SUMMARY: According to the Ministry of Petroleum, Egypt is moving quickly to upgrade and expand its natural gas network and distribution systems across the country and plans to add one liquefied natural gas (LNG) train at Damietta in the near future. Construction is underway on a pipeline to connect the major cities of Upper Egypt to natural gas networks in Lower Egypt. Egypt is trying to position itself as a gas hub for the region and will continue to press Iraq to participate in an Arab gas network. END SUMMARY. INVESTING IN NATURAL GAS INFRASTRUCTURE ----------------------------------------

2.(SBU) Ismail Karara, First Undersecretary for Gas Affairs at the Ministry of Petroleum, recently discussed Egypt's plans to expand its natural gas infrastructure with econoff. He described the government's efforts to spur industrial development in economically-challenged Upper Egypt through the Upper Egypt pipeline, connecting the cities of Upper Egypt to gas networks in lower Egypt. Karara said that the GOE, with some financing from Kuwaiti sources, is spending 5 billion LE (approximately $900 million) to build a pipeline from Beni Suief to Aswan and estimated the project will be completed by late 2009. He stated that the ministry was in discussions with British Petroleum and ENI to build a second liquefied natural gas (LNG) train at the port of Damietta "soon," and intended to build four more trains at Idku. Karara said that the Ministry is currently renegotiating all of its gas export contracts in order to "protect both buyer and seller" from extreme price fluctuations but he did not clarify whether Egypt was seeking to peg the price of gas to oil or a specific price floor. He said that 29-30% of Egypt's natural gas production is currently exported and all existing export arrangements would be honored.

3.(SBU) According to Ibrahim Saleh, former chairman of the Egyptian General Petroleum Company (EGPC) and currently an advisor to the Minister of Finance, Egypt's energy infrastructure has been hampered by Petroleum Ministry Fahmy's insistence on public financing for most projects, including the Upper Egypt Gas Pipeline. Saleh noted that the economic ministries have clashed with Fahmy repeatedly over his reluctance to consider private investment in the energy sector. Saleh, a member of the ruling NDP party's energy committee, touched on recent internal debates within the NDP and the party weighing the economic benefits and costs of natural gas exports, in light of skyrocketing domestic demand for electricity (refs A-C). Since Egypt started exporting gas early in the decade, it diverted gas resources away from electricity generation. Saleh said that nearly 30% of power for electricity generation comes from imported fuel oil, at a cost of $2 billion per year to the GOE. WORKING WITH IRAQ AND OTHER REGIONAL PARTNERS --------------------------------------------- -

4.(SBU) Karara said that Egypt wants to position itself as a natural gas hub in the region and is particularly interested in cooperating with the government of Iraq on oil and gas infrastructure and services. Egypt envisions a two-way flow of gas from Egypt or Iraq, to supply the current network from Egypt to Jordan and Lebanon and eventually to Lebanon. A delegation of officials from the Ministry of Petroleum visited Iraq shortly after FM Aboul Gheit and Petroleum Minister Fahmy's visit in early October (ref D-E) and Egypt will continue to encourage Iraq to join an Arab gas network. SCOBEY

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