By Reem Hosam El-dein

The prices of petroleum products have recently changed after the latest government amendment to the energy subsidies in June of this year, increasing fuel prices by at least 50%, according to the ministry of electricity statements. The government’s aim by the increase is to reduce the total amount of petroleum products subsidies to EGP 110 billion in fiscal year (FY) 2017/2018, according to an earlier statement by Tarek El Molla, the Minister of Petroleum.

In July, a month after the increase of prices of petroleum products, local consumption of diesel fuel dropped by 0.9%, to reach 1.165 million tons, compared to 1.176 tons in July 2016, according to the data by the Central Agency for Public Mobilization and Statistics (CAPMAS). A further figure from the Ministry of Petroleum, indicates that diesel consumption has fallen by an average of 15%.

This market response can indicate that increase in diesel fuel prices may have reduced citizens’ daily consumption of diesel. However, as the vehicle and end user consumption of natural gas is increasing at a high pace, the decrease maybe a natural result to the substitution process between both fuels.

Market Production and Consumption of Diesel

Currently, the daily consumed amounts of diesel by Egyptian citizens are estimated to range from 40 million liters to 45 million liters, Hossam Arafat, Head of the petroleum products division at the Federation of the Egyptian Chambers of Commerce, told Egypt Oil and Gas, adding that the state imports 25%-30% of its diesel needs.

As for diesel production, it increased to 627,000 tons in July 2017 from 556,000 tons in July 2016, by 12.77% year-on-year (Y-o-Y), according to the information published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

The Growing Appeal of Natural Gas

Natural gas, on the other hand, remains a relatively cheaper more eco-friendly fuel alternative for vehicles in Egypt, where the price difference between a cubic meter of natural gas and an 80-octane gasoline is EGP 1.65, while the price difference between a cubic meter of natural gas and 92-octane gasoline is nearly EGP 3, according to market figures.

The new difference of prices between petroleum products fuel and natural gas, which followed the government’s recent subsidies amendment, would encourage more citizens to switch their vehicles to become gas-operated, especially taxies, said the First Undersecretary for Gas Affairs at the Ministry of Petroleum, Mohamed Radwan.

The Egyptian International Gas Technology Company (Gastec) witnessed an increase in the number of cars converting from diesel and gasoline to natural gas, where the number jumped from 10 cars per day before the government’s decision to increase fuel prices, to 35 per day following the decision, with a 250% increase in demand, the Chairman of Gastec, Hesham Radwan, told Al Mal News. It only requires the customers four hours to convert the car’s system from running by fuel to natural gas through adding to the car the necessary parts to start operating using natural gas, Radwan explained.

On the other hand, commenting on the attractiveness of natural gas to consumers Arafat told Egypt Oil and Gas that each type of fuel, whether petroleum products or natural gas, comes with a bundle of eventual costs, The conversion of a car’s system to one that operates with natural gas comes with a hefty price, for example, ranging from nearly EGP 8,000 to EGP 12,000.

A Market Shift or a Decrease in Consumption

“The decreasing demand on petroleum products is not necessarily linked to the allegedly growing demand rates of natural gas at the present time. Everything comes down to consumers’ purchasing power at the end of the day. Egyptians are generally learning to rationalize their consumption of fuels, including petroleum products as well as natural gas,” Arafa explained.

The usage of diesel as a product is not limited to vehicles or end consumers, it is also used by small scale manufacturing and for different heating purposes. Rationalizing consumption by a different array of users maybe a key reason behind the change in figures; however, the rising potential of natural gas could also be the main driver of the decline in consumption; another possibility remains the mixture of these two influences, or a series of others. The question will become clearer as further subsidy cuts take place in the coming year.