Egypt's cement production drops 20% because of gas shortages

A shortage of natural gas in Egypt and subsequent constraints in electricity supply over the last four months has forced the country's cement industry to reduce production by 20 per cent. Peaking electricity use in the summer months is expected to aggravate the decline.

An even steeper drop in production capacity of 25 per cent was incurred by Arabian Cement Company (ACC)'s Suez plant after the operator was struggled to come to terms with unforeseen gas and power shortages. The cement company, which produces 10 per cent of Egypt's cement and is owned by Spanish Cementos La Union, anticipates production shortfall to reach up to 50 per cent in the summer.

The main reason for Egypt's acute gas shortage is that reduced domestic gas production cannot meet rising power demand, while the government's subsidy system for gas and power prices disincentivises the use of gas for power generation and favours exporting as LNG to global markets instead.

To cope with the acute energy shortage, ACC has applied to the Egyptian government to switch 100 per cent of the plant's gas-fired generation to coal and RDF-based generation, with 70 per cent of generation to come from coal. The cement producer needs to make the switch to reduce its gas needs by 378Mm3 per year.

The company applied for the necessary government permits on 14 March 2013. It has since asked the government for swift issuance of an environmental permit and the removal of the operation licence fees, which were originally imposed for the use of natural gas.

Industry players have called on the government to remove operating fees for the new generation and consider incentivising the businesses for the costs associated with replacing natural gas generation or heavy fuel oil with coal.

Since 2010, the Egyptian government has encouraged industry to invest in power sources other than natural gas, but has recently intensified its request to switch to coal generation. In 2010, almost all of Egypt's electricity production came from domestically-produced natural gas. Representatives of Egyptian General Petroleum Company (EGPC), a national oil company of Egypt owning 70 per cent of Egyptian Natural Gas Company, have said the country has plans to cut natural gas exports during the current energy shortage.