Jordan joins the shale revolution

Could the answer to Jordan’s economic problems lie within a rock? The kingdom’s authorities will certainly be hoping so
By Massoud A. Derhally
Sun 30 Sep 2012 09:08 AM

For a country that has no natural resources, imports all of its energy, and is battling Israeli efforts to undermine its plans of attaining nuclear energy, the answer to Jordan’s energy needs may rest in a rock.

The kingdom has the world’s fourth-largest reserves of oil shale, an organic-rich, fine-grained sedimentary rock from which liquid hydrocarbons (shale oil) can be produced. Shale oil is a substitute for conventional crude oil, and the oil can also be burned directly for power production similar to coal.

“For a country like Jordan, which has no resources of conventional oil, this is a substantial energy resource that could potentially cater to a significant percentage of Jordan’s energy requirements for many years to come,” says Andres Anijalg, project director of Estonia’s Enefit, which is operating in the kingdom. Jordan’s import bill for fuel accounts for about 20 percent of gross domestic product (GDP).

The biggest oil shale reserves are located in the US, China, Russia, Brazil and Jordan. The countries that already use oil shale as an energy source include Estonia, Brazil and China. Estonia has used its oil shale resources for oil production and power production for almost 100 years. In the US, significant research and development with regards to oil shale is ongoing, while other countries with large oil shale deposits are also currently studying the feasibility of utilising their oil shale resources. Oil shale was utilised in northern Jordan prior to and during World War I. However, intensive and active exploration and studies of Jordan’s oil shale resources and potential uses only started in the 1970s and 1980s. Oil shale represents a significant resource in Jordan — approximately 60 percent of Jordanian territory contains oil shale deposits, which amount to an estimated 40 -70 billion tonnes of oil shale available in the kingdom, says Anijalg.

“Suffice to say that if Jordan was to fully leverage its oil shale resources, it would not only be able to satisfy its domestic energy needs but would also be in a position to become a net exporter of energy to neighbouring countries," says Anijalg.

The most important deposits are located in the west-central region of Jordan within 20 to 75 kilometres (12 to 47 miles) east of the Dead Sea. In addition to the west-central deposits, the Yarmouk deposit located near Jordan’s northern border is another important location. A third oil shale region lays in the Ma’an district in the southern part of the country.

For a country that imports 96 percent of its fuel needs (the daily equivalent of 100,000 barrels of a oil a day), and until recently was dependent on Egypt for its gas supply, which has caused its public debt to soar, the prospects from the oil shale are very promising.

“It’s not wishful thinking — we could far exceed 100,000 barrels a day” says Yusuf Mansur, managing partner of EnConsult and former CEO of the Jordan Agency for Enterprise and Investment Development. “It will have a fantastic impact.”

“The impact would be a great relief to the government budget, it would reduce the trade deficit and the need to import fuel, as well as reduce pressure on the dinar,” adds Mansur. “The investment will create great revenues for the government, which would be part-owner and receive royalties which wasn’t available before. It would also reduce dependence on aid, and would generate FDI in the hydrocarbon industry and its derivatives.”

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Jordan traditionally finances its budget and current-account deficits with foreign investment and grants from the Gulf states, the EU and the US. The kingdom’s public debt-to-GDP ratio increased to about 64 percent by end-2011. Its fiscal deficit could rise to JRD2.93bn ($4bn) this year if economic conditions in the country do not improve, the Jordan Times recently reported, citing Minister of Finance Suleiman Hafez. The kingdom’s debt would rise to JRD17.5bn by the end of the year from JRD14.3bn.

The overall budget deficit has increased to about six percent of GDP in 2011 as a result of commodity subsidies, other social spending and borrowing by the government on behalf of Jordan’s National Electric Power Company to cover more costly imported fuel oil used during extensive periods of interrupted natural gas supply when saboteurs attacked pipelines in Egypt over the past year and a half.

The government accumulated over JRD2.8bn in debt because it had to produce electricity from fuel rather than gas as a result of the disruption of supply from Egypt.

“Jordan remains highly dependent on commodity imports like oil and grains, tourism receipts, remittances and FDI flows, and external grants,” the International Monetary Fund said in a report in April. The kingdom “is also facing risks from a further deterioration in its terms of trade, unrest in neighbouring countries, and the prospect of further disruptions to natural gas pipeline flows from Egypt,” it added.

Jordan’s economy is forecast to grow 2.8 percent this year from an estimated 2.5 percent in 2011, while inflation is projected to rise to 4.9 percent from 4.4 percent last year, according to the IMF. Government subsidies in total account for about JRD2.386bn annually. The treasury incurs JRD40m a year for every $1 above the price of $100 per barrel of oil.

Multiple attacks on a pipeline that supplies gas from Egypt to Jordan and Israel disrupted imports and increased the kingdom’s energy bill. It has also pressured the country to speed up ways to find alternatives that would make it less dependent on importing of its energy needs.

Estonia’s Enefit is involved in two oil shale projects in the kingdom, an oil shale-fired power plant and a shale oil production plant. According to current plans, the power plant is at a more advanced stage and will become operational by the end of 2016. It will have a capacity of approximately 460MW and will provide Jordan with a cheaper method of generating electricity. According to current energy costs, the project will reduce the kingdom’s expenditure on the import of oil products for power generation by more than $500m annually.

The $1-$1.5bn project is being implemented in line with local and international partners, without the need for local government capital or construction risk support. The EPC tendering process for constructing the oil shale-fired power plant will be completed by the end of this year. Project financing will begin at the beginning of 2013 and construction is expected at the end of 2013 while operations will begin by the end of 2016.

The project “will increase Jordan’s energy security by providing an abundant and storable domestic fuel source that removes overseas involvement in the fuel cycle,” says Anijalg, adding 3,000 construction jobs and another 1,000 permanent jobs will be created in the process.

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The second project is a shale oil production plant with an expected capacity of approximately 38,000 barrels of daily output, thereby reducing Jordan’s dependence on imported liquid fuels. The project is expected to entail inward capital investment into Jordan of about $5bn and annual service procurement of around $110m. This project will be implemented over two stages. The testing and engineering for the first stage, which will have a capacity of approximately 19,000 barrels of daily output, will be ready by mid-2015 after which construction can start. The shale oil production plant will have the capacity to cover approximately 40 percent of the current daily energy needs of Jordan, representing a saving of an estimated $1bn a year in foreign energy purchases.

The profits from the project will be shared with the Jordanian government. If the oil price rises, so will the profits, thus allowing the Jordanian government to acquire an even larger shsare. The government will be able to earn up to 65 percent of profits in addition to 5 percent of revenues as royalties.

“Both these projects will have a multiplier effect on the local economy and represent one of the largest single investments in Jordan to date,” says Anijalg.

In September, Jordan signed a preliminary agreement with Global Oil Shale Holdings of Canada to produce 50,000 barrels of shale oil in the kingdom over a 25-year period as part of a $32bn mega-project in central Jordan to provide the country with up to 25 percent of its energy needs, the Jordan Times reported.

In tandem with its oil shale ventures, the kingdom is considering a bid by a consortium led by French firm Areva and Japan’s Mitsubishi and a proposal by Russia’s Atomstroyexport to build the country’s first nuclear plant.

Efforts to speed up the country’s quest to establish a nuclear programme that would help Jordan, which has one of the smallest economies in the Arab world, to become fuel sufficient, are being undermined by Israel, Jordan's King Abdullah told Agence France-Presse (AFP) in an interview this month.

“Strong opposition to Jordan’s nuclear energy programme is coming from Israel,” the monarch told AFP.

“When we started going down the road of nuclear energy for peaceful purposes, we approached some highly responsible countries to work with us. And pretty soon we realised that Israel was putting pressure on those countries to disrupt any cooperation with us,” King Abdullah said. “A Jordanian delegation would approach a potential partner, and one week later an Israeli delegation would be there, asking our interlocutors not to support Jordan’s nuclear energy bid,” he added.

The two countries signed a peace treaty in 1994, however relations have been strained at various junctures because of the protracted peace process and a right wing government in Israel headed by prime minister Benjamin Netanyahu, which has refused to halt the construction of settlements.

To put things in context, one need only look at how Estonia derives its energy needs. The Baltic state generates about 90 percent of its power from using oil shale, though the size of its deposits are smaller than Jordan’s. Aside from what Estonia consumes locally, the country also exports electricity to neighbouring countries. That Jordan could some day soon become a net energy exporter is no longer a pipe dream.

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