Egypt’s Break with Qatar Could Contribute to Scorching Summer for Country’s Residents

When Egypt’s military ousted President Mohamed Morsi last summer, it also broke political ties with the Islamist leader’s chief financial patron and a key energy partner, the gas-rich Persian Gulf state of Qatar. Now the fallout from that diplomatic split is exacerbating authorities’ struggle to run the country’s power plants as temperatures begin to soar.

Egypt’s scorching summer heat and dwindling natural-gas supplies are expected to trigger nationwide blackouts at about the same time that Abdel Fattah al-Sissi, the popular former defense minister who led the coup against Morsi in July, is widely anticipated to assume the presidency after elections this weekend. In a bid to avoid a crisis, Egypt’s government has raised the price of natural gas, which generates at least 70 percent of the country’s electricity, and has urged consumers to conserve energy.

But Sissi’s new Persian Gulf benefactors — oil giants Saudi Arabia, Kuwait and the United Arab Emirates, all Qatari rivals — don’t have the gas exports that Egypt needs to keep the lights on and potential instability at bay. Some analysts say Sissi’s decision to shift allegiances could come back to haunt him in a country where poverty and instability have led to the popular removal of two leaders since 2011.

“The main issue here now is Sissi’s legitimacy, and whether or not he has the ability to competently deal with the energy crisis,” said Justin Dargin, an energy expert at the University of Oxford.

The country’s energy relationship with Qatar, he said, “was an ideal marriage; it was precisely what Egypt needed.”

It was, however, a short interlude in a historically rocky relationship. Former autocrat Hosni Mubarak, who also was backed by Saudi Arabia before being toppled in 2011, viewed the Qataris and its Al Jazeera network as regional troublemakers.

But when Morsi was elected in 2012, Qatar supported him and the Muslim Brotherhood to project influence in Egypt and in other countries where Islamists were on the rise. That spoiled Morsi’s relationship with Saudi Arabia and the UAE, historic opponents of the Brotherhood. After the coup last summer, the current military-backed government again spurned Qatar.

International relations souring

The coming electricity crunch is not the only quandary confronting the military-backed government partly as a result of that split.

It has prompted the Egyptian security apparatus to arrest and imprison journalists working for Al Jazeera, which authorities call a mouthpiece for the Brotherhood. But the trial of three reporters from Al Jazeera’s English-language news channel on terrorism charges has drawn widespread international condemnation, including from the United Nations and members of Congress.

Egypt has also seen its relations with international oil companies sour. Under agreements with Egypt’s state-run energy companies, foreign firms exploit and produce the country’s gas reserves. Because Egypt heavily subsidizes the gas it distributes to domestic consumers, international oil companies send some of the gas they produce in Egypt to the more lucrative global market, where they can recoup costs by selling for much higher prices.

But the Egyptian reserves have been steadily declining and are now insufficient to generate power and also supply the foreign firms.

To shore up support for Morsi’s government, Qatar provided the companies with the liquefied natural gas (LNG) they needed to fulfill export contracts.

As Egypt’s energy needs grew — and because the country still lacks the infrastructure to import LNG — the government in recent years began diverting almost all the gas produced by foreign oil companies to domestic consumption. The Qatari cargoes had previously compensated the firms for the government’s appropriation of gas, but Egypt has now racked up billions of dollars in debt to the companies.

Mohamed Shoeib, who served as the chairman of Egypt’s state-owned natural gas company from 2011 to 2012, said in an interview that he thinks the government owes foreign companies as much as $8 billion.

Shoeib now heads the energy division at the Cairo-based investment firm Citadel Capital, where in 2012 Qatari investors signed a now-defunct deal to supply Egypt with a terminal capable of importing LNG. Qatar also would have provided Egypt with as much as 10 percent of its gas needs.

The government last week granted a tender to Norwegian firm HOG-Energy to anchor a similar LNG unit along Egypt’s Red Sea, but experts say the terminal won’t start operating until the fall.

Summer could bring blackouts

The Egyptian electricity ministry said it will be able to cover more than 85 percent of the country’s electricity needs this summer. But energy analysts say Egyptians are likely to suffer through the worst blackouts in years.

“If there are significant power outages in the hot summer months of Ramadan, people are going to be really irritable,” Oxford’s Dargin said. The Islamic holy month of Ramadan, during which Muslims refrain from eating or drinking from sunrise until sundown, falls in July.

“It’s going to be hot, there won’t be any air conditioning, people won’t be eating,” he said. “It’s a very combustible mixture, and [Sissi] has to do something.”

Saudi Arabia, Kuwait and the UAE are poised to either consume their own gas supplies or import natural gas as demand rises. So, the Saudi-led alliance working to bolster Sissi has showered about $6 billion in petroleum products on Egypt since last summer.

The diesel and fuel oil shipments are likely to ensure that there are no gasoline or butane shortages this summer, analysts said. But only a handful of Egypt’s power plants run on a fuel other than natural gas.

“It’s vital assistance,” Dargin said of the Gulf’s petroleum aid to Egypt. “But there is limited utility in terms of power generation.”

For all the risk of the scorching summer ahead, analysts said it may be just as politically dangerous for Egyptian leaders, including Sissi, to reconcile with Qatar.

In March, Egypt’s Gulf backers pulled their ambassadors from Qatar because of the latter’s apparent support for the Brotherhood. They have since resolved the dispute, but Egypt’s ambassador to Qatar, who left Doha in February, remains in Cairo. And the state-sanctioned vitriol against Qatar that is aired in Egypt’s media has seeped into the street, making the tiny gulf nation public enemy No. 1 after the Brotherhood.

The government “has no plans yet” to solve the energy crisis, said Ibrahim Zahran, an Egyptian energy analyst.

But the government would be loath to strike another deal with Qatar, Zahran said. “It would be politically unacceptable.”

Source: The Washington Post

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