Egypt seeks to double its power generation capacity

Newspaper Title: the National

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Saturday - 21 March 2015

Egypt wants to double its current power generation capacity of about 30,000 megawatts by 2020 – a target that is seen as key to support ambitious economic growth plans. It may need more gas to get there.

To meet it, the government is seeking to draw on the expertise of global and regional players from Siemens and General Electric, to the UAE’s Taqa and Saudi Arabia’s Acwa Power.

The country’s power generation sector relies on natural gas for 68.7 per cent of its electricity production, according to the Egyptian state-owned Information and Decision Support Centre (IDSC).

From conventional power generation using natural gas and coal, to renewable energy schemes using wind and solar, some of the industry’s biggest names have pledged to invest more than US$20 billion.

According to consultancy Frost & Sullivan, the majority of new power projects will use natural gas as a feedstock.

Frost & Sullivan power analyst Anup Barapatre said that natural gas and coal would total 84 per cent of the new capacity. That poses another dilemma for the country’s already strained economy.

“Egypt will have to import more gas,” said Mr Barapatre, who estimates current gas production to be 4.7 billion cubic feet per day. However, the country will require an estimated 700 million cubic feet of additional gas per day to cater to the electricity needs in peak seasons,” he said.

Egypt sits on an estimated 77 trillion cubic feet (Tcf) of proven natural gas reserves, up from 2010 estimates of almost 59 Tcf. However, much of the potentially large gas discoveries in deep offshore areas such as the Mediterranean are undeveloped.

Because the drilling is more complex and therefore, more expensive in such blocs, exploration companies are reluctant to commit investment.

Egypt pays foreign companies US$2.65 per million British thermal units, which can make drilling these costly deepwater assets uneconomical.

The government has said it would consider paying more to help with the development, but to date there has not been a change in the price.

Last year Egypt produced 56.1 billion cubic metres of natural gas, a 7.7 per cent decrease from the previous year, according to the BP 2014 Statistical Review.

BP renegotiated its 2010 agreement for the $12bn West Nile Delta project, which includes its latest Atoll discovery.

A company spokesman said that this discovery, in addition to the Salamat find in 2013, would form a good starting point for another development. However, more appraisal and development planning is needed and “this will take some years”.

The spokesman said: “Any eventual agreement with the government will take account of the commercial challenges.”

Frost & Sullivan said that the country was in discussions with some key players to get more financial help. Egypt is talking with the International Monetary Fund, and countries such as the UAE, Saudi Arabia and Jordan are keen to support the [natural gas] feedstock,” Mr Barapatre said.

Sharjah-based Dana Gas revised its contract with Egypt to offer an alternative payment method that the company said would ultimately increase its investment in Egypt.

The firm signed an agreement with the Egyptian government that allows Egypt to barter its portion of the natural gas profit, putting it toward monies owed.

“The fact that we signed the agreement means we’re now accelerating investment into the country,” said Robinder Singh, investor relations director at Dana Gas.

“The import replacement has an economic value of at least a couple of billion dollars – it’s a sizeable boost,” said Mr Singh.

Although official import figures have not been released, Egypt expects to increase natural gas imports this year – a necessity in providing the feedstock needed by planned additional power plants.

Acwa views Egypt as a very important market, but it also hopes to help diversify the country’s energy mix to generate a more sustainable and reliable power solution.

“It’s a key driver in looking into efficient energy solutions,” said chief executive Paddy Padmanathan.