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Viewing cable 08CAIRO1359, EGYPT'S ENERGY STRATEGY, AND CONCERN OVER GAS

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Reference ID Created Released Classification Origin
08CAIRO1359 2008-06-30 13:23 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Cairo
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