* Government, firm see terminal operational by third quarter
* Expert calls timeline ambitious
* Gas badly need for power generation, industry
(Adds Hoegh statement, context on Egypt energy crisis)
By Maggie Fick and Joachim Dagenborg
CAIRO/OSLO, May 12 Egypt has secured a means of
importing liquefied natural gas (LNG) that will help it address
an energy crisis, although the LNG import terminal to be
provided by a Norwegian firm will not be in place in time to
ease painful gas shortages this summer.
Egypt's oil ministry and Hoegh LNG said on Monday
they had reached an agreement for Egypt to use of one of Hoegh's
Floating Storage and Regasification Units (FSRU) for five years.
Hoegh Chief Executive Sveinung Stoehle told Reuters the firm
had signed a contract including "the main details of the
agreement, but there are still some details that need to be
Egypt can export LNG but cannot import it without the
terminal, and a worsening gas shortage has caused power cuts
that are set to become more acute during the hot summer months.
The tender process to find a company to provide the terminal
began around 20 months ago, well before the army toppled
Islamist President Mohamed Mursi last July. It continued to run
into hurdles under the interim government that replaced Mursi.
The terminal will not be ready for the summer, when the
country's next president will take office and face the challenge
of power cuts and fuel shortages - issues that helped spur mass
protests against Mursi.
But once the terminal is operational, it will enable Egypt
to secure badly needed supplies of gas, needed for power
generation for households and industry.
The state-run gas company said last week it had reached
deals for 12 shipments of LNG from Russian and French firms,
without giving details on pricing arrangements.
Hoegh said the FSRU was set to start operations in the third
quarter of this year. The ministry said the terminal would be
moored off of the Red Sea port of Ain Sokhna from Sept. 1.
Giles Farrer, senior analyst on Wood Mackenzie's LNG team,
said that although it was feasible to have the terminal in place
by September, technical issues such as connecting it to the main
networks made the timeline "look ambitious."
Farrer said the announcement was an encouraging step, but
added specifics of how payment - both for the terminal and for
gas imports - would be structured were still unclear.
Despite more than $12 billion in loans, donations, and free
fuel aid from Gulf oil producers to Cairo since Mursi's ouster,
Egypt's finances are still precarious.
Energy problems are likely to worsen in the next fiscal year
beginning in July, when consumption will outstrip output for the
first time, according to the government.
Gas is in short supply due to declining domestic production,
forcing the government to cut into LNG earmarked for export.
Though paying for imported natural gas is less desirable for
Egypt than contracting with foreign firms to exploit domestic
reserves, violent unrest since the 2011 uprising that ousted
autocratic President Hosni Mubarak has hurt investor confidence.
Companies have been wary of developing reserves, and the
government's promises to offer more appealing terms to reassure
them have not yet resulted in new contracts.
Oil and gas firm BG Group warned earlier this year
that turmoil in Egypt would hit its 2014 output. The government
owes foreign energy firms including BG at least $5.7 billion, a
top state oil executive said last month.
Egypt's energy problems are unlikely to be solved until the
government tackles the root cause - a wasteful, decades-old fuel
subsidies system that drains foreign currency reserves and keeps
consumption unchecked. Mismanagement of the sector has also
contributed to the shortages.
Successive governments have failed to develop a sound
strategy to tap major natural gas reserves even as an exploding
population boosted demand for the fuel. In the absence of
investments, the government is prioritising imports.
Oil Minister Sherif Ismail told Reuters in February the
government was aiming to get LNG import facilities in operation
by the summer but said that if the problem was not addressed
this year, it would be "at least for the years to come."
Reuters reported in the same month that Hoegh had pulled out
of the deal to install the terminal, citing sources with
knowledge of the talks between Cairo and Hoegh.
Hoegh said on Monday the deal was "on good commercial terms"
and it was "very pleased," without providing details.
The oil ministry said the platform had a storage capacity of
170,000 cubic metres and was undergoing final testing in South
(Additional reporting by Tom Perry in Cairo and Gwladys Fouche
in Oslo; Writing by Maggie Fick; Editing by Jason Neely and Mark