The Growing Appreciation of the Natural Gas Opportunity Across Egypt and the Middle East

Eng. Khaled Abu Bakr. Photo courtesy of TAQA Arabia.

This past June saw industry representatives from all over the world meet in Washington, DC for the 27th World Gas Conference. During my time there I had the opportunity to meet with Eng. Khaled Abu Bakr, Executive Chairman of TAQA Arabia, Chairman of the Egyptian Gas Association and Regional Coordinator for the Middle East and Africa for the International Gas Union (IGU).  We discussed the state of the natural gas sector in Egypt and across the two regions he monitors for IGU. Here is an excerpt from our conversation.

Tim: What role does natural gas play in your country’s energy mix and in the Middle East/Africa?

Khaled: In 1989-1990 I completed my Master’s degree in Canada. My graduation thesis at the University of Montreal focused on natural gas as a replacement for fuel oil in the Egyptian market. At that time, I had two case scenarios, a lower case and a higher case for future consumption of natural gas. The lower case estimated the use of natural gas at around 6 billion cubic meters per year, and the higher case used a 14 billion cubic meters per year figure. Today, Egypt consumes 62 billion cubic meters per year, almost five times more than my original higher case prediction. Today, natural gas represents 55 per cent of Egypt’s primary energy needs. 91 per cent of power generation is provided by gas. This really shows the importance of the natural gas industry in Egypt!  

Tim: How did this happen so quickly?

“Today, gas represents 55 per cent of Egypt’s primary energy needs. 91 per cent of power generation is provided by gas.”

Khaled: Over the years we worked with the government and other stakeholders to install proper gas pipelines, to get everything serviced, and to develop good relationships with consumers and industry, as well as marketing and promoting natural gas as the most clean, reliable and sustainable energy solution available. We knew we had to have the proper funding, infrastructure and orientation with the business community and potential stakeholders, in order to become effectively established. Having a government and other institutions that support our industry helped drive natural gas use in the region.

Tim: Is it fair to say it is the same situation across the Middle East and Africa?

Khaled: I oversee two regions, the Middle East and Africa, and they operate in completely distinct ways. The Middle East is rich in oil and in natural gas, but historically dependent on oil.  However, natural gas is increasingly becoming the fuel of choice. For instance, countries in the Middle East like Kuwait, Dubai and Abu Dhabi are looking to switch their power generation to a mixed fuel supply, with natural gas being the primary source.

Africa is a little different because there are only a few producing countries – places like Nigeria, Algeria and Egypt. Algeria and Egypt have adopted policies that prioritize using natural gas produced in the region. Nigeria on the other hand has historically exported most of the natural gas they produce. Over the past five to six years, however, we have witnessed significant political reform and more talk of energy efficiency and with it, gas utilization. Today, Nigeria is using more and more of its natural gas for domestic use.

Tim: Sounds like there is a growing appreciation of the natural gas opportunity across the region. What are the challenges? The growth has been pretty extraordinary, but do you expect it to continue with the challenges currently facing the industry?

Khaled: We have witnessed some challenges because our market is mostly state owned. Regulators are also not independent. When the market fluctuates, somebody has to take the hit, so it is either the government or it is passed on to the consumer, which isn’t ideal, but does happen. The fluctuations in prices that we have witnessed in the last five years – from $120/barrel of oil down to $28/barrel – has also affected the price of natural gas. Fluctuating natural gas prices have had an impact on our commodity and in turn the cost of living for consumers and the cost of doing business. That said, we are developing more systems to relate our local market to international prices. Our second challenge is external. More and more, global policies surrounding environmental issues are unnecessarily affecting our market and the way people perceive our industry. Consumers want to have access to natural gas because it is affordable and reliable and offers a higher quality of life. However, new global environmental policies are affecting the natural gas sector. As an industry, we have to take our responsibility in hand, and position ourselves vis-à-vis these new global trends. Of course, our societies would like to improve the environment and overall quality of life.  But we do not believe environmental consciousness means depriving yourself of economic growth and the extraordinary value proposition of energy sources like natural gas. We want to encourage energy use in a way that is respectful of the environment, while maintaining our economic opportunity. I believe it is necessary for us to position ourselves and our product locally as well as internationally by showcasing the benefits of natural gas and its positive impact on consumers and society at large.

Tim: You touched on the fact that there are global policies that seem to suggest the value proposition for natural gas is not appreciated. Those policies are often environmental, as you noted. Is there domestic opposition, or is that mainly from an international audience – Europe or North America – that’s coming into your market?

“Consumers want to have access to natural gas because it is affordable and reliable and offers a higher quality of life.”

Khaled: It is not so much environmental pressures that we see, but rather pressures for the use of alternative energy source. To be blunt, in many cases people are advocating for the use of alternative technologies (such as solar or wind) and they are arguing against natural gas. There is a lot of misinformation about the attributes of natural gas. To that end we have to stand up and properly communicate the importance and value proposition of our product, as well as the benefits that natural gas brings to our lives. Our energy should be seen as viable in its own right, and as a sustainable partner for other renewable energy sources.

Tim: Africa is a region that is on the cusp of dramatic economic development, similar to what we have seen in parts of Asia. What is the connection between energy poverty, and natural gas?

Khaled: This is a very important question. In the last 15 years or so, many regions in Africa have started to come out of poverty. Compared to the rest of the world, Africa’s middle class is growing at the fastest pace. The people within this region are now seeking a better quality of life. Of the top 10 fastest growing GDPs in the world, six of them are in sub-Saharan Africa. Not only are these countries getting out of economic poverty, they are also working to get out of energy poverty. These two go hand in hand and in order to do this they need readily available energy at an affordable price, and they need security of supply. We cannot tell them in this economic transition phase that they have to pay a higher cost for more unreliable sources of energy, such as a wind farm that produces energy only 35 per cent of the time, or solar energy that is only 45-50 per cent efficient. Bear in mind that the heritage of knowledge and technical expertise that we have about renewable energy at this time compared to the gas knowledge and heritage, is still very little for these regions. In our industry, we know before even installing the first pipeline in the ground how much it will cost yearly, monthly and even daily. This accumulation of knowledge makes it easier to plan our costs properly.  Perhaps in the future, when the renewable energy industry proves itself to be more resilient and is clearer on the costs and other concerns, we may see increased use of these technologies.

Tim: You talked about the depth of knowledge and expertise in our industry. A key driver for our industry in building that knowledge and expertise has been a focus on innovation. Can you comment on the opportunity for innovation in Egypt with our fuel and our industry? Is innovation a priority for you?

“We have to stand up and properly communicate the importance and value proposition of our product, as well as the benefits that natural gas brings to our lives.”

Khaled: In 1988 I visited Fort McMurray and at that time the cost of extracting oil was twice the cost of what it is today. That was because the technology was not as developed. Today, new technological advancement has allowed companies to produce a barrel of oil at significantly less cost. The same goes for the natural gas industry. Companies are making significant investments in research and development bringing to market cleaner, more reliable and cost effective technologies. Take the liquefied natural gas (LNG) industry for example. 30 years ago, there were only six producers, and five importers. Today, there are 28 producers and close to 50 countries worldwide that import LNG. This is due in part to the flexibility and advances in LNG technology such at storage capabilities, improved gasification units and new small scale LNG. Another fantastic example of technological advancement has been in the field of transportation. Natural gas in its compressed form (CNG) is an ideal solution for on-road vehicles to reduce emissions and cut cost for our transportation fleets. We are also studying the prospect of LNG for marine applications. Every day, ships and carriers pass along the Nile River carrying goods inland. These ships mostly use diesel and other polluting fuels, but by switching to natural gas it would help reduce emissions.  We know that the technology needed to implement LNG as a marine fuel is proven and commercially available and offers great opportunities for our marine sector. We are also seeing notable technological advancement in district cooling. In Egypt several office buildings are cooled by one district cooling station, instead of having a unit in every window.

We have a very robust gas industry due in part to the highly trained professionals and exceptional talent working in this field. The expertise that we have built in our industry has allowed us to get where we are today.

Tim: You serve as Regional Coordinator for the Middle East and Africa in the International Gas Union (IGU) – how has that experience helped you in your industry?

Khaled: In my view, the International Gas Union is a very important center of knowledge, a hub because of its diversification of cultures, diversification of experiences and expertise, and diversification of knowledge. It is a place where industry leaders and experts from around the world can gather and share ideas and knowledge in order to advance gas as an integral part of a sustainable global energy system. This platform has allowed us to learn from other organizations and improve our own systems. For example, in Egypt we believed that we had the leading CNG industry but then we realized Argentina is a lot more advanced. Bangladesh is also doing very well in this regard.  Learning from others is for me one of the most important benefits of the IGU.

“Natural gas in its compressed form (CNG) is an ideal solution for on-road vehicles to reduce emissions and cut cost for our transportation fleets.”

Tim: You are a great advocate for the industry and a great advocate for international cooperation in the industry. You were a candidate for the presidency of the IGU in the last round. China won that particular round. Many thinks that, given the extraordinary growth of the industry in your region, it would be timely to have a representative from Africa running the IGU. Would you run again?

Khaled: Right now I am really focused on my work. We distribute over 5bcm/year with an expansion capacity of 8bcm/year, we also serve over 1 million customers in Egypt and they are our main focus because we want to make sure that we provide them with the best quality of service possible. For now, it is too early to think about running again. If there is a gap or a vacancy we will step in and try to help to fill the gap and to work with the rest of the members.

Tim: Any final thoughts?

Khaled: Yes definitely – I would like to note that I will always have very fond memories of my time in Canada. I learnt so much about the gas industry while I was there. The Canadian gas industry’s knowledge and expertise is very important and it is key to advancing the benefits of gas globally. I look forward to working with you and your industry down the road.