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One of the most pressing crises faced by the Egyptian economy was the natural gas crisis, resulting in supply cuts to factories and frequent electrical outages. Natural gas is one of the most important inputs in Egypt’s power generation infrastructure. According to the International Energy Agency, in 2013 natural gas accounted for 51.5 percent of the total primary energy supplied in Egypt and produced 76.8 percent of the electricity generated. This reliance on natural gas was never a problem when Egypt was producing a surplus. According to the 2015 BP Statistical Review of World Energy, domestic production of natural gas peaked at 6.06 billion cubic feet (bcf) of gas per day in 2009, when consumption averaged only 4.11 bcf per day. However, by 2014, domestic gas production had fallen by 22.3 percent to 4.71 bcf per day.
The problem was the rapid growth of population, leading to more usage of consumer electronics and air conditioning. It was not helped by the dip in the production of natural gas, with the government also halting new exploration contracts. This lead to the nullification of natural gas surplus and of Egypt’s stature as a net gas exporter. Currently, the demand is growing by 1.77 bcf per day and the supply is falling by 1.2 bcf per day. So, the case here is of the demand increasing and the supply falling at different rates. (Increase in Demand > Decrease in Supply) However, three important developments can turn this around, which will be discussed in the next case. b) Increase in Demand > Increase in SupplyCertain steps needed to be taken to tackle the crisis, and so the effect of the changes on the demand and supply of natural gas form this case.
In addition to buying gas directly, Egypt has also agreed to allow cement and iron factories to import some of their natural gas needs through the FSRUs, paying for half of their gas consumption at the government contract rate and the rest at global market rates. While this may increase consumption of natural gas overall, it will reduce the pressure put on Egypt’s already limited supplies of domestically produced gas.
These developments have led to an increase in the supply of natural gas, although demans are still increasing with more intensity.
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