February 8, 2023

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Even though Egypt is hosting the climate summit, selling fossil fuels is a priority

CAIRO — When Ahmed Ali recently walked home from the restaurant in downtown Cairo where he works late at night, he did a double take: Tahrir Square, home to the famous Egyptian Museum and several revolutions, was almost completely dark.

Usually it oozed golden light. But that night, practically the only illumination came from the red subway stop sign.

Was there a power outage? Mr. Ali asked his fellow waiters. No, they said.

In August, at the height of the Egyptian summer, the government ordered authorities, stadiums, hotels and shopping malls to turn down air conditioning and turn off lights to save electricity. The natural gas savings would be sold to Europe at a hefty premium, helping Egypt weather an economic hurricane and Europe surviving an energy crisis caused by Russia’s invasion of Ukraine.

“The more we export to Europe, the more we will have electricity shortages here,” said Mr Ali, 21. “It’s good for Europe, but not very good for us.”

For the government in Cairo, however, a Europe that suddenly needs natural gas is a very good thing.

And even as Egypt hosts the annual United Nations conference on combating climate change, known as COP27, this week, selling fossil fuels is one of its top priorities.

Critics have questioned Egypt’s eligibility to host the summit over other aspects of its environmental record, including lackluster emissions-reduction targets and massive infrastructure projects that are destroying green spaces across Cairo and sucking water from the already-stressed Nile, its main water source.

But gas is in the spotlight.

While Egypt is desperate for cash as the fallout from the Ukraine war hits its debt-ridden economy, Europe is desperate for natural resources after spurning Russian energy over the war.

Enter Egypt and its two gas liquefaction export plants – directly across the Mediterranean from Europe.

Since Egypt began producing gas from the vast Mediterranean gas field called Zohr in 2017, the country has attempted to position itself as a major energy hub. By January, the company hopes to be selling $1 billion worth of natural gas per month, some it owns, some imported and liquefied for re-export.

A direct gas pipeline from the southern Mediterranean to Europe is impractical, experts say. This means that natural gas pumped from other parts of the region must first be piped to Egypt for liquefaction before being re-exported by ship north to Europe.

“The financial situation we are in has put us in a ridiculous position, cutting off the Egyptians’ energy to sell to the Europeans,” said Ahmed El Droubi, Greenpeace’s Middle East regional campaign manager.

But for Egypt, the benefits of positioning itself as an energy hub go beyond the financial.

Egypt is already using its geopolitical influence on two other major problems, illegal migration and terrorism, which Europe has promised to help tackle. Energy has given it a new card to play in the face of Western scolding over its human rights record.

Egypt is also benefiting from LNG shipments through the Suez Canal, for which the government recently levied fees, said Richard Probst, the Egypt representative of the Friedrich Ebert Foundation, a German social-democratic political foundation.

“With Europe in trouble, not many will fight back,” he said.

The European Parliament voted in July to label natural gas as a ‘green’ fuel, opening the door to a flood of new investments. Western energy companies are signing gas deals with governments across Africa to supply Europe.

European Commission President Ursula von der Leyen has said that a deal between Israel and Egypt in June to export a steady stream of natural gas to Europe would “contribute to our energy security in the EU”.

Egypt has dismissed warnings from climate experts that no new gas fields should be opened if the world is to have any chance of limiting warming to 1.5 degrees Celsius, the level experts say is needed to mitigate the worst effects of climate change impede.

Egypt’s Petroleum Minister Tarek el-Molla recently called gas “the cleanest hydrocarbon fuel” and said it will continue to play a key role in the energy mix.

However, environmental groups warn that gas investments risk locking developing countries into decades of fossil fuel dependency.

“Rather than dumping these really expensive large-scale investments into dead-end projects, they should be shifted to clean energy projects,” which would ultimately cost far less than fossil fuels, said Rachel Cleetus, director of climate and energy policy at the Union of Concerned Scientists.

“But richer countries are in no position to wiggle their fingers,” she added. They, too, are expanding investments in fossil fuels. “And it’s a much harder challenge for low-income countries to make that transition.”

However, there are serious doubts that Egypt can continue to meet its own gas needs, let alone Europe’s.

“The talk that Egypt can supply Europe with plenty of gas is, for lack of a better word, a myth,” said Peter Stevenson, editor for the Eastern Mediterranean at MEES, an oil and gas analysis firm.

Even if Egypt’s two LNG plants were operating at full capacity, they could only export about 11 percent of what Europe used to get from Russia – assuming Europe can afford every drop of Egyptian gas, most of which goes to the world’s highest bidder.

But the power plants were operating well below capacity, pointing to a deeper problem: Despite the cash spurt from the Mediterranean gas field, Egypt has little of its own surplus gas to sell.

Domestic demand for electricity has risen nearly 35 percent since 2015, driven by a rapidly growing population, while gas production has declined steadily since last fall, driven in part by over-drilling.

To fill the gap and free up more gas for sale, Egypt is fueling some of its power plants with masut, a low-grade fuel oil that burns dirtier and shortens the lifespan of the power plants, said Mohamed El Sobki, a professor of power engineering at Cairo University. Thanks to Masut, Egypt’s electricity sector has started emitting carbon dioxide at steeply higher rates.

“It’s really a double-edged sword,” said Professor el-Sobki. “We’re improving the economic prospects for natural gas, but we’re also harming the environment.”

Egypt was able to export two shipments of LNG to Europe in August after increasing gas imports from Israel and burning more mazut domestically. Without such action, however, Egypt would have nothing to sell and would even risk power outages, Mr Stevenson said.

Ordering power cuts in the August heat, when domestic demand normally peaks, may also have helped.

But the rush to make Egypt a gas hub seems to have diverted attention from its huge clean energy potential, which requires more investment and better government regulations, analysts say.

Despite its vast deserts, windswept coastlines and year-round sunshine, just 4.9 percent of Egypt’s electricity came from renewable sources last fiscal year, well below its target of 20 percent by 2022.

The Climate Action Tracker rates Egypt’s pledges to reduce emissions, which until recently did not even include a numerical target, as “highly insufficient”.

Some energy experts agree with Egypt that as long as fossil fuel investments are quickly phased out, gas can play a crucial role in keeping lights on and homes warm as the world moves toward clean energy. In the long term, Egypt is geographically well-placed to export clean energy to Europe from the renewable-rich Middle East.

As some African countries have pointed out, Egypt and other developing countries can hardly be blamed for trying to capitalize on when wealthy nations first got rich off fossil fuels.

There is an “increasing tension between developed and developing countries that will be on full display at the climate conference,” said Jason Bordoff, co-founder of the Columbia Climate School. “Low-income countries say, ‘We didn’t create the problem, but you’re telling us not to industrialize in the same way developed countries could.'”

Ahead of the climate conference, Egypt’s investments in clean energy have increased, with Mr Sisi recently saying that green projects now account for about 40 percent of total public investment. Egypt plans to unveil a national strategy at the summit to produce green hydrogen, a clean-burning but energy-intensive fuel made from renewable sources.

At the moment, gas is king.

Mr el-Sisi was due to meet Ms von der Leyen of the European Commission at the summit on Monday, although the meeting was later cancelled. On the agenda: Gas for Europe.