Mar 13, 2014 | 17:54 GMT

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Egypt's Natural Gas Dilemma

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Egypt's Natural Gas Dilemma

Egypt has a natural gas problem. For years, the North African country produced a surplus of natural gas, but domestic consumption has surpassed production. Increased consumption was fueled by a rapidly growing population and by generous government subsidies. From 2009 to 2012, consumption rose 24 percent while production declined by 3 percent. The Egyptian Petroleum Ministry believes that by July 1 natural gas consumption will exceed production at a rate of 1.74 billion cubic meters per year.

This has left Egypt looking for import agreements. For a while, Cairo received some liquefied natural gas shipments from Qatar, which was the lone member of the Gulf Cooperation Council to support the Egyptian Muslim Brotherhood. But when the Muslim Brotherhood was removed from power, Egyptian-Qatari relations soured, and Doha later stopped sending shipments.

With insufficient aid from Gulf states, Egypt has only two unattractive options to resolve its natural gas problem. One option is to import natural gas by pipeline from Israel. However, this would be dangerous, complicated and politically unpopular for whoever presides over Egypt after the upcoming elections. Otherwise, Cairo could lease a floating LNG import terminal. But even if the government could afford one, it would not be installed before summer, when Egypt is expecting sever power outages.

Ultimately, the incoming government has the same dilemma its predecessors did. Cairo will have to decide whether it will decrease domestic natural gas consumption to fulfill its export obligations or pump more gas into a heavily subsidized domestic market to forestall summer outages — and thus curry favor with the public. Both options have significant ramifications on the country's struggling economy.

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