A disagreement over pricing is delaying a gas swap deal between Egypt and Qatar intended to ease domestic energy shortages that have exacerbated the North African country’s broader economic problems, people close to talks between the two countries said Monday.
Gas-rich Qatar agreed in April to supply gas to the overseas customers of two companies exporting gas from Egypt–BG Group PLC (BG.LN) and Malaysia’s Petroliam Nasional Bhd, or Petronas–who in turn would supply an extra 500 million cubic feet a day of domestically-produced natural gas to Egypt’s government.
The four-month swap deal was intended to increase the amount of natural gas available within Egypt and so reduce the regular power outages that have deepened discontent with the country’s ruling Islamist government. However, the first shipment under the deal wasn’t dispatched in late May as planned because the two countries couldn’t agree a price, the people said.
The delay comes as Egypt struggles to complete oil supply agreements with Iraq and Libya aimed at easing diesel shortages. The cash-strapped North African country has been unable to provide acceptable bank guarantees, people familiar with the talks said last week.
The Egyptian oil ministry said last month Qatar would send 18 to 24 cargoes of liquefied natural gas to BG and Petronas, but Egypt won’t pay for these shipments immediately in order to preserve its foreign currency reserves.
The natural gas deal “was expected to be sealed weeks ago, with the first shipment from Qatar reaching the customers of BG and Petronas last week of May, but we have not overcome the first hurdle which is the gas price we can pay,” an official involved with the talks told the Wall Street Journal.
Egypt told Qatar it can only pay $8 per million British thermal units of natural gas, while the Gulf state, “is adamant on $13,” another official said.
“The reason we were given is that Qatar’s customers are already paying $13 and they cannot offer the LNG for less for others,” the official said.
“Once we can come to a suitable price for both parties we can proceed with other financial matters related to the deal, like payment method and credit terms,” the official said.
Egypt’s oil ministry said it had a delegation in Qatar Monday to resolve the gas pricing issue. Attempts to reach Qatari officials for comment were unsuccessful.
Egypt is a significant gas producer, but consumes much of its output domestically. Last year it began reining in exports after a slowdown in oil and gas exploration due to unrest over the past couple of years led to a fall in domestic production. It is in talks with Russia for gas supplies, and approached Algeria, which said it could only start negotiating natural-gas deals next year, after it boosts its own domestic production from new fields.
Egypt has faced a natural gas and diesel shortage since last year, which has in turn led to rising food costs, long queues at filling stations and electricity blackouts.
In an effort to resolve the diesel shortages, neighboring Libya agreed in March to supply Egypt with up to 1 million barrels a month of crude oil, with a generous credit term of up to a year. In the same month Iraq offered 4 million barrels of oil a month to Egypt, with payment deferred for three months with no interest incurred.
Egypt’s inability so far to secure those oil supplies underscores the weakness of its public finances and could deepen discontent with the government as energy shortages continue to disrupt daily life, analysts said.
The fuel crisis has compounded broader economic problems in the country, which in 2011 overthrew the government of Hosni Mubarak in a popular uprising, paving the way for the electoral victory of Islamist President Mohammed Morsi.
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.
Source: Dow Jones & Zawya