BMI View: Jordan Petroleum Refining Company (JPRC) is set to raise additional capital and revaluate its strategic plans as it seeks to take advantage of the planned of the Iraq-Jordan pipeline. The 1mn barrel per day (b/d) pipeline will help to alleviate the current strain on Iraq's export infrastructure while offering Jordan some 150,000b/d of stable crude supplies that will support downstream investment. With civil war in Syria and deteriorating Baghdad-Ankara relations, we see scope for Jordan and its port of Aqaba to becoming an increasingly important part of Iraq's energy strategy.
The Jordan Petroleum Refining Company (JPRC), operator of the 90,400 barrel per day (b/d) Zarqa refinery, received approval from shareholders to raise the firm's capital holding by 25% to JOD50mn (US$71mn). According to chief executive officer Abdul Hadi Alawin, the new funds would help support continued expansion and reflected a need fo r the organisation to 'reconsider its priorities [ .. . ] in light of the recent changes, especially' the Iraq-Jordan pipeline project currently under development. Alawin express ed confidence that the new pipeline would make the Zarqa refinery a more attractive investment destination and that plans must now be updated to consider the new opportunities presented by the coming link to Iraqi crude.
|JPRC Poised To Gain On Pipeline|
|Jordan Petroleum Refining Company Share Performance (JOD)|
Under the terms on an agreement signed by Amman and Baghdad, a US$18bn 1680km pipeline is due to be constructed from mega-fields in Iraq's south to Basra and then onwards to the Jordanian port of Aqaba. A gas pipeline will also be developed along the oil line. Officials are moving swiftly toward their goal of bringing the 1mn barrel per day (b/d) link online by 2018 with Iraq set to shortly reveal a list of prequalified firms cleared to bid on construction.
Promisingly, interest has been show not only in construction of the major infrastructure project but also in financing. Citigroup is reported to be among a number of international banks seeking to finance the project according to Iraqi officials. While Iraq will construct the link from southern oil fields to Barsa on its own, the second phase which will run from Haditha to Aqaba is planned as a build-operate-transfer scheme. Tender for second phase is due in Q114.
In addition to the benefits Jordan will receive from the port of Aqaba serving as an oil hub and an estimated US$3bn in annual transit fees generated by the pipeline; JPRC is in line to see a boost to its fortunes as well. A sub-line to the refinery will be constructed with some 150,000b/d sent the refinery for processing. This would be a sizable jump in current imports from Iraq, with trucks delivering around 15,000b/d of crude to Jordan presently under a preferential pricing agreement of around US$18 per barrel.
At 150,000b/d crude from Iraq will be in excess of current consumption needs, which have ranged averaged just over 100,000b/d over the past decade. Oil and gas offered by Iraq, will go a long way toward slashing the country's import bill and supporting state finances which have been under pressure in recent years from rising import and subsidy bills. The new pipeline will also offer supply security, with unreliable flows from Egypt in recent years pushing the country to launch a plan to develop liquefied natural gas (LNG) import infrastructure ( see, 'Supply Insecurity Fuels Scramble For Alternatives,' May 7).
|Pipeline Could Meet Demand And Then Some|
|Jordan Oil Consumption ('000b/d)|
Iraq will also see benefits from opening up a new export route via Jordan. Around 80% of current crude exports are sent to the south via Iraq's port of Basra, where a major upgrade of infrastructure is underway to boost capacity . However, trade continues to be regularly interrupted by bad weather and technical problems, undermining Baghdad's ability to maintain stable flows of its crude to market. For example in June loading operations completely halted for several days in June as a result of 'high winds.'
|Baghdad Hopes New Pipeline Can Relieve Squeeze|
|Iraq Monthly Oil Production, LHS ('000b/d) & % Change, RHS|
With Iraq targeting a major boost in crude production as mega-fields ramp up their output, ensuring crude can reliably reach markets requires the development of alternative routes to market. With a proposed Iraq-Syria pipeline off-limits given the ongoing civil war , we expect Iraq to prioritise development of the Jordan pipeline. The link is critical given m ajor investment plans underway by operators in Iraq will only offer adequate returns if Baghdad makes progress in addressing longstanding concerns regarding its infrastructure.
We see scope for Jordan to become an increasingly important energy partner for Baghdad given relations between Baghdad and Ankara are set for further deterioration . This is the result of Turkey's continued effort to pursue relations with the autonomous region of Kurdistan independent of Iraq's central government. With Turkey and Syria waning in attractiveness, we may well see Iraq channel further investment into Jordan and a way from Turkey and its port of Ceyhan. In short, the port of Aqab a may become an increasingly important route for Iraqi cr ude should political relations worsen.
Finally, the northern export route via the Kirkuk-Ceyhan or Iraq-Turkey pipeline highlights a final key risk to watch. The pipeline, already in need of repair, has been subjected to more frequent attacks and sabotage over recent months. With Iraq-Jordan pipeline due to pass equally restive regions, we note the risk disruptions from attac ks will be high.