Current Practices and Future Trends in the NGV Sector The Experience in Egypt

1
Current Practices and Future Trends in the NGV
Sector The Experience in Egypt

• Shell Compressed Natural Gas Egypt
• Gas Express

2
The Business Environment

•  
• The CNG business in Egypt was established inline
  with the Government strategy to encourage the
  switch from petrol to gas use in vehicles,
  freeing oil or refined products for export, in
  addition to the environmental impact.
• This strategy is backed up by the increase in
  Egypts proven gas reserves (62 TCF).
• The government is the sole supplier of the gas in
  Egypt, and the sole owner of the supply grid
  nationwide.
• The end consumer price and margin are regulated.
• Conversion is undertaken only by the CNG
  companies.
• Cost of the conversion kit is fixed at 5000 LE
  (800 USD) on cash basis.
• Conversion loans were offered through CNG
  companies till mid. 2003.

3
Commercial Strategies

• Support for the industry higher margin,
  sufficient differential.
• No possible competition with Diesel under current
  pricing structure except in Government operated
  fleets.
• The relatively high kit price and the price
  differential between CNG and Gasoline enables a
  reasonable payback (two years) only at high
  mileage.(Taxis)
• Pricing
• CNG subsidized to the marketing company. (WACOG
  vs. selling price)
• Gasoline is subsidized in terms of opportunity
  cost of export. (Local supply sufficient plus
  some export)
• Diesel is heavily subsidized.(Local production
  insufficient, increased reliance on imports)

4
Subsidy and marketsustainability

• Subsidies were introduced in the cost of Natural
  Gas to the Marketing Company.
• The subsidy is recovered with a margin, through
  the export of refined products in foreign
  currency. Thus the sustainability of the subsidy
  is not burdening the government current account
  at any scale of the business.
• End consumer price is set at 50 of the price of
  the lower grade of Gasoline, which is the
  differential sufficient to sustain the business.
• Gas export will not provide a more economical
  alternative to the government compared to
  consuming it locally in replacing liquid fuel, as
  under the current supply arrangements to the LNG
  plants (under construction), the opportunity cost
  of exporting refined products remain higher.
• Subsidy in diesel is severely affecting
  Government current account and putting pressure
  for diesel conversion.

5
Current Status

• In 1996 two CNG companies were established,
  government controlled.
• The two companies enjoyed additional forms of
  subsidy (free connection to the grid and access
  to prime sites for marginal fees)
• In 2003, additional three companies were
  established, privately owned to help fulfill
  government strategy.
• Regulations issued governing inter distances
  between stations and linking conversion figures
  to station approvals.
• No subsidy other than product is offered to all
  the players.
• Almost 50,000 converted vehicles.
• 74 refueling stations nation wide.
• Consumption reached 21MLN SCM per month.
• Conversion financing is done through a commercial
  bank, with no money down by the customer.
  Repayment is done through a premium on Gas price.

6
Conversion Market Development
7
Gas Sales MLN SCM
8
Market Characteristics

• Market has been growing circa 30 per year in
  refueling.
• On average 9000 vehicles are converted per year.
• Average daily sales per station 10000 SCM
• Average daily consumption by vehicle per day 14.5
  SCM
• CNG market currently represents 8 of the total
  Gasoline industry.

9
Market potential

• Government strategy is to have an additional
  500,000 vehicles converted in the next ten years
  and a total of 500 CNG stations.
• Egypt has a population of 2MLN passenger cars,
  out of which 300,000 are taxis.
• Introduction of CNG to city transit systems
  started in 2002.
• Legislation underway to ban use of diesel in M.
  Busses. (represent an additional 200,000
  vehicles).
• Reduction of kit price, increase of Gasoline
  prices (fixed since 1993) will add a large
  customer segment to the market.

10
Challenges

• Devaluation.(Company returns)
• Conversion Kit price.(Market Growth)
• Speedy network growth. (Effect on Conversion
  rates)
• HSE and technical integrity.(Sustainability)

11
Enablers

• Government support, and the establishment of EGAS
  and the CNG Policy Committee.
• Tax holiday.
• Supply grid, coverage and reliability.
• USAID financing for station equipment.
• Capture of the conversion income and not the
  receivables.
• Legislations that are under way.
• Gas Card System.
• Full control over conversion standards.
• Reduction in kit cost due to customs elimination,
  local manufacture of some components.