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