Egyptian drivers switch to gas as economy falters

With black smoke belching from battered vehicles on the congested streets of Cairo and the sickly smell of exhaust hanging in the air, Mohamed Daoud's taxi glides quietly along on cheap, clean fuel.

His black and white cab is part of a growing fleet of roughly 100,000 vehicles that have been converted to run on cheap natural gas after the Egyptian government pushed for more reliance on greener energy.

Compressed natural gas (CNG), which produces fewer harmful emissions than petrol or diesel, is catching on in the smog-shrouded northern cities and demand may grow further as the fuel becomes more widely available across the country.

But it is the tough economy, not the environment, that is leading a growing number of drivers to make the switch as the cost of even heavily subsidised petrol rises beyond what many Egyptians can afford.

The most populous Arab country is one of the Middle East's least well-endowed in energy reserves. Egypt has 1.2 per cent of the world's gas and 0.3 per cent of its oil.

"I am interested in the environment. But it [CNG] is also cheaper," said Daoud, who switched his taxi to run on natural gas five years ago. "I can bring in more profit."

"In these conditions, we can't use petrol," he added as he waited for his taxi to be worked on at a bustling CNG service station, the first in Africa and the Arab world.

The Egyptian government, hit this year by inflation and a larger-than-ever bill for bread subsidies for the poor, slashed petrol subsidies in a lightning move in May to cover the cost of pay rises for civil servants.

Long accustomed to cheap petrol, consumers woke to prices that had risen by up to 57 per cent overnight for the highest grade of petrol. Popular 90-octane fuel surged 35 per cent to EGP1.75 (Dh1.17) per litre, expensive by local standards but still well below free-market prices. An equivalent amount of CNG sells for a quarter of the price.

ENERGY CRUNCH

Worried about an energy crunch in coming decades, Egypt wants to diversify its resources. That includes developing renewable energy such as wind and nuclear power.

Lending urgency to the drive for alternative energy is Egypt's limited supply of fossil fuels, especially crude oil. Experts say Egypt's proven oil and gas reserves will last for roughly three more decades.

Egypt wants to generate 20 per cent of its electricity from renewable sources by 2020, according to the country's New and Renewable Energy Authority. It already gets significant hydroelectric power from the Aswan High Dam. It also wants to build several nuclear power stations and has secured US backing for the project, for which it is seeking Russian expertise. But it is also encouraging other forms of greener energy. Wind farms dot the country's Red Sea coast, and one of Egypt's largest industrial firms, El Sewedy Cables, launched a wind energy subsidiary in October to build turbines. It expects sales of €435 million (Dh2.01 billion) by 2011.

Egypt has more gas than crude, with reserves of about 76 trillion cubic feet, making natural gas an attractive and somewhat greener alternative to petrol. With the cost of energy subsidies eating up nearly a fifth of the budget, the government is expected to keep raising fuel prices on a regular basis, possibly annually, although recent falls in global oil have eased some pressure.

"I think they are logically going to wait until next year when inflation is down to single digits again… possibly in the second half of 2009," said Reham El Desoki, senior economist at investment bank Beltone Financial.

EXPANSION PLANS

State-owned natural gas holding company Egas expects the number of natural gas vehicles in Egypt to rise sharply to 300,000 by mid-2012 as investors enter the market, although it calls that goal "ambitious".

The number of fuelling stations will more than treble in the same period to 390, and natural gas will be available up and down the populous Nile Valley and in the Sinai peninsula, Egas said in a statement.

Drivers rushed to natural gas after the cut in petrol subsidies, with the number of conversions per month surging to several thousand, according to Egypt's leading conversion and refuelling firm, Cargas.

About 70 per cent of Egyptians who have converted their vehicles are taxi drivers, many of whom ply the streets in battered fuel-guzzling vehicles for cross-town fares ranging from EGP5 to EGP10. They operate on razor-thin margins. Conversion costs around $1,000 (Dh3,673) and drivers can pay in instalments.

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