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Egypt's Cement Firms Overcome Gas Shortages

Source: Reuters 11/5/2014, Location: Egypt

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Several of Egypt's major cement producers have begun retrofitting their plants to run on energy from imported coal, beating high gas prices and energy shortages that have curbed industrial output this year.

Egypt has been suffering from an energy crisis in recent years as supply from state-owned Egyptian Natural Gas Holding Company (EGAS) has been intermittent and power blackouts commonplace.

The government has targeted energy-intensive cement companies for cutoffs while its priority has been to preserve gas for power generation, which would avoid blackouts and public unrest.

Cement companies began petitioning for permission to use coal instead, and the cabinet approved the industrial use of coal in April. Companies still must petition for individual licences to burn and import coal.

Some have already retro-fitted their plants to run on coal.

"Most of Egypt's cement producers have been working towards fuel switching because of unreliable gas supply and high prices. Some have already started importing coal," said Jens Zimmerman, an energy markets analyst for Wood Mackenzie.

Permits are required particularly those for plants located near Cairo and other urban areas. Environmentalists say extensive use of coal as energy would be catastrophic for Egypt, which already has high air pollution levels.

Arabian Cement has already started a gradual switch to coal and has imported 700,000 tonnes so far this year, mostly from South Africa, Ukraine and Spain, Investor Relations Manager Haitham El Shaarawy said. It expects to bring in another 200,000 tonnes by the end of 2014, he added.

He said the decision had been largely a financial one, with coal prices around 30 percent cheaper than gas prices.

Gas shortages in April, May and June also had cut Arabian Cement's first-half clinker production, a first step in producing cement, by almost 20 percent compared with the previous year.

Lafarge Cement Egypt, which has one cement plant in Egypt, has already converted it to coal and has applied for a permit to import coal, a spokeswoman said.

Suez Cement, which has five cement factories, began testing coal use at its Kattameya plant in September and will begin testing at its Suez plant by year-end, the company said in its quarterly earnings statement last week.

Zena Spinelli, a communications manager for Suez, added that factories near population centres will have to undergo more rigorous evaluations before the Egyptian Environment Ministry clears them for licenses to use coal.

The Kattameya plant is located in the suburbs of Cairo.

Earlier this year, an Egyptian minister said government estimates had found that burning coal in cement plants alone would save 450 million cubic feet of gas per day.

Coal is attractive because global prices are hovering around five-year lows. Output is rising from countries including Australia, Indonesia and the United States, while demand growth has been slowing due to sluggish economies and environmental concerns.

Coal traders have noted the emergence of Egypt as a market, but demand from its cement companies alone is too small to reduce much of the world's surplus and affect prices, Wood Mackenzie's Zimmerman said.

"(Egypt's) Demand for coal will be small to start with but could rise significantly once power producers start using it," he said.

Egypt's cabinet said on Sunday that 38 local and international companies had recently applied to build power plants using coal or renewable energy.

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