Qatar Promises Free Fuel To Egypt

Qatar promised Egypt five free cargoes of liquefied natural gas this summer after a meeting of representatives from the two countries’ governments in Doha, giving the cash-strapped country a reprieve from worsening energy shortages.

The gas cargoes are intended to help Egypt generate more electricity so it can avoid wider power outages as energy demand peaks in the hottest summer months.

However, one Egyptian official said that as part of a broader agreement with Qatar reached Monday, his country may have to pay higher-than-hoped prices for subsequent natural-gas supplies.

Egypt has faced a natural-gas and diesel shortage since last year, which has led to rising food costs, long lines at filling stations and electricity blackouts.

The energy-supply problems have deepened popular discontent with Egypt’s ruling Islamist government and exacerbated broader economic difficulties there.

The agreement came after Qatar’s crown prince, Sheikh Tamim bin Hamad al-Thani, gave directives “to provide all sorts of support to the people of Egypt,” said the country’s oil minister, Mohammed al-Sada.

The five free cargoes of Qatari LNG, which will be shipped in large oceangoing tankers, come as “a gift to the Egyptian people during the summer months, with the first of these shipments beginning at the end of July,” and continuing until mid-September, the Egyptian petroleum ministry said on its website.

The five cargoes, however, fall short of the supply Egypt needs to fully solve its domestic energy shortages.

Each cargo would hold around 3.2 billion cubic feet of natural gas, said Tarek el-Barkatawy, the head of state-owned Egyptian General Petroleum Corp. Mr. Barkatawy was part of an Egyptian delegation that was in Doha on Monday to complete the gas agreement.

Egypt consumed five billion cubic feet of natural gas a day in 2011, according to data on the website of the U.S. Energy Information Administration.

Gas-rich Qatar agreed in April with the Egyptian government to supply between 18 and 24 LNG cargoes to the overseas customers of two companies currently exporting gas from Egypt—BG Group PLC and Malaysia’s Petroliam Nasional Bhd, or Petronas.

Those companies would, in turn, supply an extra 500 million cubic feet a day of domestically produced natural gas, which would otherwise have been exported, to Egypt’s government.

“The gift we got today from Qatar basically gives us more room and time to finalize swap deals with them and other producers,” Mr. Barkatawy said.

Of the five free LNG cargoes, some will head directly to Egypt and others will be used to compensate the foreign partners that have supplied extra domestically produced gas to Egypt, Mr. Barkatawy said.

The first cargo from the April gas-swap deal was scheduled to be shipped in May, but a disagreement over the price Egypt would pay for the gas held up the agreement, people familiar with the talks said Monday.

The Egyptian government had told Qatar it can pay only $8 per million British thermal units of natural gas, or BTU, while the Gulf state was “adamant on $13,” these people said.

Egypt has now agreed to pay a higher price, but, “we can afford [to pay] the price Qatar wants because overall the free cargoes come as a discount over the total swap deal,” Mr. Barkatawy said.

“We have not decided yet whether we will go for 18 or 13 cargoes, but basically we will pay according to where the natural gas is heading. So if it heading to U.K. customers it will be around $10 [per] BTU and if it is going to Asia, it would be around $13 [per] BTU,” he added.

Egypt is a significant gas producer, but it consumes much of its output domestically.

Last year, it began reining in exports after a slowdown in oil and gas exploration because of unrest over the past couple of years led to a fall in domestic production.

The delay to the gas-swap deal with Qatar comes as Egypt struggles to complete oil-supply agreements with Iraq and Libya aimed at easing diesel shortages.

The country has been unable to provide acceptable bank guarantees, people familiar with the talks said last week.

Egypt’s government is short of funds and has been negotiating with the International Monetary Fund over a $4.8 billion loan, which analysts and investors say is critical for the country.

IMF officials left Cairo in April without agreeing on the terms of the loan.

Wall Street Journal