Oil Terminal Bolsters Energy Security

Jordan's pre-qualification of firms for a planned oil terminal signals the country is serious about its push to firm up energy security in the wake of supply disruptions and budget pressures. Jordan is targeting unconventionals, nuclear and renewables as part of an ambitious effort to become energy self-sufficient by 2020. However, in light of the realities on the ground, for now, we view the most realistic strategy for Jordan is continuing its push to secure more reliable sources of imports at lower costs where possible, and at working to reduce its reliance on imports over time with alternative sources of energy.

Jordan has pre-qualified a handful of firms for a key energy sector project, the Aqaba Oil Terminal (AOT). The US$120mn development will include a 817,000 barrel storage facility that will allow for the import and distribution of crude and refined products. With domestic production negligible, Jordan is dependent upon imports for meeting domestic demand which averaged around 109,000b/d in 2012 according to the US Energy Information Administration (EIA).

Arab Spring Leaves Jordan Short On Gas : Jordanian Imports Of Dry Natural Gas, bcm

However in the wake of disruptions of gas imports from traditional supplier Egypt, Jordan has increased its consumption of crude based products for power generation. Supplies of gas via pipeline provided around 90% of the feedstock for Jordan's electricity needs. The financial impact of using more expensive crude based products for power generation has been exacerbated by generous fiscal subsidies offered to consumers.

Product Imports Rise On Gas Shortage
Jordan Diesel & Fuel Oil Imports (b/d)

In order stem the losses from interrupted supplies and subsidies which were fuelling Jordan's deficits, the government announced over the course 2012 a series of measures that -while positive for the budget- resulted in price increases for end users:

  • May 2012 - The government raised the price of gasoline (from JOD0.795/litre to JOD1.0/litre, equivalent to US$1.41) and electricity (by 150%) for major mining firms, hotels and banks, in a preliminary attempt to offset the losses of the state-owned National Electric Power Company (NEPCO);

  • August 2012 - Electricity prices were raised by another 15% for businesses, in a move likely to trigger another spike in producer price inflation ( see 'Electricity Tariff Hike Risks Fuelling Discontent', July 29 2012);

  • November 2012 - The government removed general subsidies on fuel products, introducing a targeted cash transfer scheme and adjusting domestic fuel prices on a monthly basis in line with international trends.

Helping The Budget But Provoking Protests
Jordan - Government Expenditure Components, JODmn (January - May)

These measures have already been beneficial from an expenditure perspective, with the government's spending on subsidies reduced considerably compared to the same period in 2013. However the government has taken more broad based action in order to address its energy insecurity. In the wake of the Arab Spring, Egypt appears to be an increasingly unreliable source of supplies given a tightening supply-demand picture that has already seen volumes intended for exports re-directed to the domestic market. Egypt's unreliability also stems from an absence of security along the pipeline route itself that has made the line subject to more frequent attacks.

The development of greater storage capacity at the port of Aqaba will enable to Jordan to better manage its own energy supplies. With added storage the government can set about making longer term decisions in regards to managing oil consumption and supply. The new capacity could see Jordan purchase crude and products on a long term basis potentially at better rates or increase purchases in times of weaker prices globally. Added storage would also enable the country to respond better in times of unplanned supply disruptions or higher than anticipated demand.

Energy Plans Go Beyond Oil

Mindful of its vulnerability, Jordan's new energy strategy extends to plans to soon add regasification capacity. A number of contracts have already been awarded for the floating liquefied natural gas (FLNG) terminal Jordan hopes to have online by 2015. Given the facility will have total capacity of 7.6bn cubic meters, if contracts are secured to support a high enough utilisation rate Jordan could significantly reduce or potentially eliminate the need for imported gas from Egypt. This could come at a cost, with the potential LNG prices could be higher than those sourced via pipeline, but would serve the benefit of reliable delivery.

BMI's Global LNG Project Database
Name Location Status Type Capacity (mn tpa) Capacity (bcm) Start-Up Date
Aqaba LNG Aqaba Planned FSRU 5.5 7.6 2015
Source: BMI

In light of the significant discoveries of gas in the Mediterranean, Egypt may not be the only option for pipeline gas. Jordan is among the destinations being considered for proposed gas exports via pipeline from Israel, which is set to become a net exporter by 2017 according to our current forecasts. If politics allow, this could see offer another stable source of imports which could have the added benefit of further political cooperation between the countries. Securing imports from Israel could prove to be Jordan's most attractive options should the politics allow given geographic proximity, existing infrastructure and the potential for cost-savings.

Changing The Mix As Well

Jordan plans for energy security extending beyond better managing its import burden, officials hope to use a combination of renewables, domestic resources and nuclear power to curtail the amount of energy its required to source abroad. Although has significant oil shale deposits, and has signed a number of agreements with firms - including Royal Dutch Shell - as part of an effort to tap its domestic resources, the upside form the country unconventional potential is long-term and uncertain.

The outlook for Jordan's nuclear energy plans are equally uncertain, with the financing and regional politics of the issue complex, and making it likely that such plans will advance far more slowly than the government had hoped. Jordan was planning that by 2020 a combination of oil shale, gas and nuclear would make the country energy self-sufficient.

However, given the technical, commercial and financial challenges this would entail, we view such a time frame as unrealistic but do note that there has been tangible progress on renewables even though we retain concerns over the government's ability to sustain financing for similar future projects ( see, 'Financing Indicative Of Renewables Push,' October 4). In light of the realities on the ground, for now, we view the most realistic strategy for Jordan has continuing its push to secure more reliable sources of imports at lower cost where possible, and at working to reduce its reliance on imports over time with alternative sources of energy.

This article is tagged to:
Sector: Oil & Gas
Geography: Jordan

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