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Egypt's gas strategy

New natural gas coming on stream will boost the country's economy, in the short term

A few metres from a Maserati showroom on the busy fringes of Cairo a crowd of men and women were trying unsuccessfully to flag down mini-buses carrying commuters into the capital. Nearly all the buses appeared to be full. Behind the luxury-car showroom stood several blocks of flats, grimed by smog, plaster peeling off. Their inhabitants are not the buyers of the Maseratis.

For millions of Egyptians, daily life is, at best, a slog. During recent summers it has been even worse. Frequent power cuts have prevented the effective use of air conditioning and fans. As President Abdel-Fattah el-Sisi is aware, nothing is likely to spark social unrest more than stifling summer nights in overcrowded cities. Industry has also been affected. As researcher Capital Economics pointed out in a February report "persistent blackouts have hampered economic activity for much of the past five years".

Today, new pylons are being erected across Egypt and new supplies of natural gas are being delivered to keep power stations alive longer. Zohr is starting to play a significant role in this—and in the recovery of the Egyptian economy as a whole. "The 350m cubic feet a day [of natural gas from Zohr] that we're now producing can save us from buying three cargoes of liquefied natural gas, which means we can save $60m per month—about $720m a year," oil minister Tarek el-Molla told reporters in early February. "By the end of 2018, when the country reaches self-sufficiency [in natural gas], it will be able to save $250m a month."

Capital Economics points out, too, that the "start of production from Zohr, combined with the onset of production from a number of other gasfields, will provide a sizeable boost to GDP growth over the next few years".

But even with Zohr giving Egypt a leg up, the country's economy will struggle to meet the demands of a fast-growing population and rising demand for energy in all sectors. "Investment into the gas sector will need to be raised further if these gains are to be sustained beyond the next five years," says Capital Economics.

At the same time, although the government—at the behest of the IMF—has started to lift energy subsidies, there's still a long way to go and more pain for the public to suffer. Capital Economics' senior economist Jason Tuvey told Egypt Today the "one disappointment is that the authorities have made limited progress in cutting the large subsidy bill. Regulated energy prices were hiked in November last year. However, the 50% drop in the [Egyptian] pound against the dollar raised the cost of imported fuel products in local-currency terms."

So, while Zohr will bring some relief to the macro-economy, the hassles in getting to work faced by those Egyptians living near the Maserati showroom look set to continue.

This article is part of a report series on Egypt. Next article is: The Zohr effect

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