Shale Oil Could Ease Heavy Import Burden

BMI View: Jordan is targeting underexplored areas in an effort to attract investment into its upstream segment. It is hoped that investment in domestic production could ease the country's significant import burden, which is growing heavier due to high prices and supply disruptions. Political uncertainty and high production costs have, thus far, created obstacles to output. Yet, with per capita energy consumption set to double over the coming decades, incentivising shale oil E&P would help support efforts to reduce a reliance on imports.

Jordan is attempting to boost investment in the country's hydrocarbon resources, with the authorities hoping the underexplored country may contain enough resources to ease its import bill. The country's Energy and Mineral Resources Minister, Alaa Batayneh, told the Middle East Oil and Gas Exhibition in October that the country was working to attract investment in its 'untapped' potential.

Unlike many of its resource-rich neighbours in the Middle East, Jordan lacks significant oil reserves and, according to the EIA, produced just 88 barrels per day (b/d) in 2011 - leaving it with an import burden of 114,000b/d. With the EIA further estimating reserves of just 1mn barrels (bbl), boosting domestic production would require significant exploration if the country is to increase this small reserve base.

Troubled Region, High Costs Add To Jordan's Woes

Yet, given the Jordan's limited existing production volumes, and the high sulphur content of the country's shale resources, specialist exploration company Global Oil Shale Holdings (GOSH) estimates that reaching daily output of 50,000 bbl day would require some US$32bn of investment over 25 years. Jordan Energy & Mining (JEML) and Royal Dutch Shell are currently set to explore for shale oil across the Kingdom.

Developing domestic resources is important for Jordan given the high cost of imports, which has led the government to consider placing unpopular tariffs on electricity supplies. Moreover, continued disruptions to gas volumes delivered via pipeline from Egypt have increased the country's reliance on more expensive oil imports to meet demand. The government recently raised gasoline and diesel prices by 10%, as the country's fiscal outlook has deteriorated on the back of higher energy import costs and the worsening economic climate. Furthermore, the regional security environment has worsened as the Syrian crisis has played out.

BMI Oil Prices - Historical Data And Forecasts
2010 2011 2012f 2013f 2014f 2015f 2016f
Source: BMI
Crude Benchmarks
Brent 80.26 111.05 110.00 102.00 99.00 98.00 96.00
WTI 79.51 95.05 95.00 92.00 91.00 91.00 92.00

Jordan has been forced to introduce an austerity package, which raised taxes on companies in the mining and industrial sectors, which - along with continued political uncertainty - could further slow plans to develop the energy sector, increasing reliance on imports in the future. With 96% of the country's energy needs met by oil and gas imports, the country has embarked on a US$15bn investment programme targeting renewable and nuclear energy.

The Kingdom hopes nuclear power will meet 30% of its energy needs by 2035 - an ambitious target. Developing domestic energy will be critical, given that the Energy Ministry predicts per capita consumption will double by 2030 - placing a heavy import burden on the country. Increased investment in shale oil production could ease the financial strain, while the commitment of funding for exploration and production, as well as the jobs created in the process, could help support the economy.

Given the high costs of shale oil production, a stable and attractive business environment and fiscal incentives to make production economical will be required if Jordan is to tap into its shale resources.

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

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