Industry Demands Solution to Egypt’s Gas-Coal Problem

The huge load of black coal sitting on the docks in Alexandria last October was laden with symbolism.
Lafarge, one of Egypt’s largest cement multinationals, imported a shipload of coal into Alexandria without prior approval from the government. The environment ministry initiated legal proceedings soon after—a fine is likely, according to officials. “Uncovered, and barely separated from the surrounding, densely populated residential neighborhood by a flimsy sheet of metal, the coal pile freely scattered its ashes and hazardous particles into the air,” Louise Sarant then wrote in Mada Mas. The image of this “giant mountain of coal” reflects growing environmental concerns, delays, and frustration over Egypt’s gas-coal issue.

The controversial debate between using natural gas in Egypt or importing coal has only grown. And clearly impatience is growing too.

At first, coal can certainly seem an attractive choice. Egypt’s cement industry is pushing for a more reliable fuel source than natural gas, as Egypt struggles to manage its resources and financial dues owed to international companies and investors. Gas consumption has doubled in Egypt over the past 10 years, while production has been in decline since 2009. This has had an adverse effect on cement production in particular, which currently relies on natural gas, and in some cases has turned to burning waste to fuel production.

Costs are another vital consideration. According to state-owned newspaper Al-Ahram, investment required to switch fuel sources could cost somewhere between USD 6-8 million while using waste, or a renewable source as fuel, could cost USD 8-12 million. Importing coal could also take potential incomes away from the national economy in the future. The main thinking behind these options is driven by the need for a quick fix, caused by the fuel crisis, over a more environmentally sustainable and long-term renewable choice. But with the fuel crisis already eating into profits and raising costs for Egyptian businesses (Suez Cement has claimed it was forced to cut production by around 30% last year), the push for a quick and cheap solution will drive decision-making.

Political instability also means new investors are less likely to turn to Egyptian natural gas, demonstrated by Russian producer Novatek’s hasty exit from the market due to last February’s violence and instability in Port Said, Suez, and other Canal cities. The spread of jihadism and armed violence in the Sinai Peninsula is of course a growing concern. In September, Islamist militants targeted a Chinese-owned cargo ship passing down the Suez Canal with rocket-propelled grenades.                   Hopes for future exploration and contracts in the fuel-rich region will have to take into account risks to investments and workers alike. Without stability, US National Defense University’s economic professor Dr. Paul Sullivan recently told Egypt Oil & Gas, “all other policies could prove to be just background noise.”
But what are the downsides? Egypt has Africa’s third largest unproven gas reserves, amounting to some 77.2 trillion cubic feet, according to US Energy Information Administration figures. Gas discoveries have not dried up either. In September BP unveiled a new offshore discovery. There are also positive signs that deeper drilling in the Nile Delta could prove a lucrative exercise, according to Reuters.

And yet there are inherent problems with coal imports too—chief among them, concerns about the environment.
When industrialized countries started negotiations to tackle greenhouse gas (GHG) emissions in the 1990s, news channels regularly ran with shots of coal-burning chimneys billowing black smoke into the sky. For many campaigners, conservationists and increasingly members of the public, coal has negative associations, emblematic of an outdated form of industry that conjures images of industrial revolutions as well as modern-day climate change.

Perhaps as a result, government officials are increasingly nervy. The environmental affairs ministry is still to make a decision on whether to allow imports, while industry and trade officials are pushing for a solution. Egypt’s fuel crisis means this is not simply about applying environmental idealism in a business context—of course, politics comes into the debate.

Weeks before his overthrow on July 3rd, Mohamed Morsi voiced his support for importing coal to support the Egyptian cement industry. A Morsi-era environment minister, Khaled Fahmy (who was appointed by Prime Minister Hesham Qandil last January), was also a vocal proponent of using clean coal, a form of power generation that mitigates CO2 and GHG emissions from coal burning. On leaving his post, he made a series of recommendations to his successor to follow up on clean coal, Egypt Independent reported at the time.

And yet now, new minister Dr. Leila Eskander has weighed in on the opposite side of the debate, urging businesses to avoid coal imports and look for alternatives. This comes despite cement companies looking for ministerial permission to start importing coal—a frustration which can occasionally extend to intransigence, as seen with the stockpile of coal imported by Lafarge at Alexandria last year.

The government’s international commitments to reducing emissions are a factor—by 2005 Egypt had both signed and ratified the Kyoto Protocol. A 2010 report by McKinsey & Company found Egypt contributed 0.7% to global emissions, with cement and construction industries among the highest producers. Meanwhile, analysts forecast the global emissions percentage from business to decrease, of which cement and construction contribute over 20%. But the environment ministry appears reluctant to reverse that trend. Government officials may also be reticent to relinquish a source of national profit to foreign companies through an import system.
The Doha talks, which failed to reach a concrete deal over the “second Kyoto commitment period” between 2012-2020, nevertheless pressed for “national measures” from signatory states—that would include “new and renewable forms of energy” and “enhancement of energy efficiency in relevant sectors of the national economy,” Dr. Ted Christie noted in Independent Australia. The second point is of particular significance to the current Egyptian debate: clean coal would represent an “enhancement” as opposed to bog-standard coal fuel, but would it not also represent a step backwards away from more renewable forms of energy in the economy?
Views like Eskander’s are starting to take hold within the cement industry, though. A number of hugely profitable companies, including CEMEX Egypt and Suez Cement have started turning to more environmentally-minded policies with regards to coal, natural gas, and cement production.

Egyptian civil society has also taken up the call for alternatives, in attempts to soften the binary debate between gas and coal. The Egyptian Center for Economic and Social Rights (ECESR) issued a report last summer strongly condemning “the move to use coal as a source of energy in the cement industry” and to consider “alternatives at hand, in order to overcome energy problems without causing health and environmental degradation.”

Isabel Bottoms works on environmental issues for the ECESR.  “We don’t have a blueprint for the alternatives…[but] we don’t feel there’s been much attention brought to this.” Bottoms says that while the debate is suffering from a “wasteland of information,” not enough is being done to explore the alternatives.
Clearly the narrative is not as simple as some have made out. Some cement companies are looking elsewhere for fuel, just as government officials are not convinced avoiding coal imports is the answer. But whatever the solution to Egypt’s gas-coal problem, key players must factor in the environment alongside business decisions.

By Tom Rollins


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