East African Business Week: Oil and Gas Production: Subsidising the oil industry

A recent report showed Egyptian LNG (Liquefied Natural Gas) supplies have suffered due to the government’s program of subsidisation.

Before examining why this is happening lets explore the term subsidisation within the petroleum industry. When a government implements a fossil fuel subsidy it will generally produce a lowering of production and consumer costs in the form of tax breaks, price controls and reduced loan agreements.

On the face of it, subsidies seem like a good idea especially in new or stagnant markets. However they are not without risk or consequence. In Egypt the result of lowering the cost of gas has resulted in a huge increase in consumer demand.

Wonderful I hear you say, customers get a cheap supply of gas, companies make more money on sales and the government acquires a positive image, but when local demand outstrips contractual export requirements then we have a problem.
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