Searching for gas: Finding alternatives for imports has become a priority

In an effort to supplement increasingly disrupted supplies of Egyptian liquid natural gas (LNG), Jordan is urgently seeking alternative import solutions. Securing new sources of gas is of vital importance in the short term, given that the government is having to spend billions of dollars per year on diesel and heavy fuel in order to make up for the Egyptian shortfall.

But in the longer term as well, the national energy strategy envisages that natural gas will still contribute 29% to the country’s energy mix in 2020, only marginally reduced from the 36% in 2010. Jordan currently relies on gas for around 85% of its electricity generation. While renewables, shale combustion and nuclear energy are all set to link up to the national grid over the coming decade, Jordan’s gas needs will still increase, given that the demand for generated electricity is growing by an average of 7.4% per year. Part of the demand for gas will come from five newly constructed independent power plants, which are being funded and operated by foreign private investors.

IMPORTS: At present, the most feasible option is the import of natural gas through the port of Aqaba. The most likely supplier looks to be Qatar, according to a statement by Quteiba Abu Qura, the minister of energy and mineral resources in January 2012. That month, Abu Qura visited Qatar to discuss the technical and financial feasibility of the construction of an offshore terminal at Aqaba and several reception terminals in Jordan. Reports shortly followed that a tender for the construction of an offshore terminal would be issued by June 2012. Jafar Hassan, the minister of planning and international cooperation, told Qatar’s Al Sharq newspaper that Jordan is hoping to receive gas by 2013.

“We are exploring two primary options with the Qataris: a permanent terminal and a floating ship,” said Mahmoud Al Aes, the director of planning at the Ministry of Energy and Mineral Resources (MEMR). “The floating ship is cheaper and faster to set up,” he said, although it would have to be rented out at $100,000 per day. However, this is still considerably cheaper than the JD4m-5m ($5.8m-7.25m) Jordan is paying to use diesel and heavy fuel. It is also possible that a ship could be installed as a short-term stopgap before the construction of a permanent offshore terminal, which will take three years and cost $300m, according to officials.

FOREIGN INTEREST: As with many of Jordan’s energy developments, the government is seeking foreign investment. International firms, such as Royal Dutch Shell, British Petroleum, and France’s General Electric, have expressed interest. Turkey’s GAMA Energy, which is currently developing the Disi water conveyance project, is also potentially interested in the offshore terminal. In an interview with CNBC Arabic in mid-March 2012, Hassan said the government is also in formal discussions with Russia over the construction of the terminal.

The government will be keen to finalise plans quickly, given the issue of national security. In January 2012, Qatar and Jordan formed a technical committee to assess prospects for importing Qatari natural gas. The committee includes Navigant Consulting, the UK-based law firm Trowers and Hamlins, and Belgium-based Tractabel Engineering. The committee’s recommendations are to be revealed in the first quarter of 2012.

It is not yet certain that Qatar will agree to ship its natural gas to Jordan. The Gulf state has imposed a moratorium on further development of its main North gas field, which is not expected to be lifted until 2014 or 2015. This could upset Jordan’s plans in the short term. If Qatar does agree to re-open its gas reserves to new markets, it may choose to supply the likes of Kuwait and Bahrain, who have long wanted Qatari gas.

STABILITY: Yet there also factors acting in Jordan’s favour. At a time of regional political unrest, Gulf states will be keen to ensure that Jordan’s energy crisis does not represent a threat to the country’s political stability. Given that the GCC has announced a $2.5bn aid package for Jordan at the end of 2011, it is conceivable that further financial support could be provided.

In addition to the Qatari venture, the government is looking at other options in the region, foremost amongst is Iraq. Formerly a key source of Jordanian imports of crude oil, Iraq may begin supplying natural gas. In March 2012 Abu Qura announced the Jordanian and Iraqi governments were engaged in discussions over the establishment of a gas pipeline between the two countries. The pipeline would be around 500 km in length and take five years to construct, the minister said.

While attempting to source alternative gas imports, Jordan is also looking to boost production at home. The local Risha Gas Field, operated by the National Petroleum Company, has produced around 18m-20m cu feet per day over the past three years, contributing to around 4-5% of Jordan’s electricity needs, according to Al Aes. Expansion plans are afoot. The government granted British Petroleum (BP) a concession in 2010 to enhance production capacity at the field. The exploration and appraisal phase will last for three or four years and involve a minimum of $237m in investment. If the project then proceeds to the development phase, it is expected to see investment of $8bn-10bn from BP.

There are no guarantees yet, but BP’s investment could boost production at the field to 300m cu feet per day, which would account for 45% or more of national electricity needs. “BP has completed the data acquisition and is preparing its studies. It should start drilling later in 2012,” said Abdel Qteishat, the exploration manager at the National Petroleum Company (NPC). NPC is working with BP on the expansion project.

With diversification strategies still very much in the early stages, Jordan remains hopeful that the disruptions to the Egyptian pipeline will be short-lived. For normal gas flows to resume, however, Egyptian officials said in March 2012 that Jordan will have to pay more for the gas. Amman and Cairo have been in negotiations over revisions to the tariff since the middle of 2011.

Under the new agreement Jordan may pay $6 per 1000 cu feet, up from the current rate of less than $2, according to some local press reports. At the same time, it would also stipulate compensation from Egypt in the event of supply disruptions. Negotiations over the details were continuing at the time of writing, and the parties have yet to announce the results.

However, even if the attacks cease, Jordan is likely to find it increasingly difficult to secure enough gas from Egypt. Even before attacks on the Egyptian gas pipeline began in 2011, increased demand in Egypt saw a 27% drop in gas exports to Jordan – from a daily average of 300m cu feet in 2009 to around 220m cu feet in 2010. The drop came in spite of the agreement between the two countries that Jordan would receive a daily average minimum of 250m cu feet.

From wherever Jordan secures its gas, it is likely to be expensive: the International Energy Agency predicts the Middle East will see 20% of global gas demand between 2011 and 2016. This comes at a time when public finances already cover the largest expenditures on energy in the kingdom’s history. Yet the country also has reason to be optimistic. With a strong track record for attracting foreign investment in its energy sector, as well as the support of the Arab and international community, Jordan can hope to ride out the turbulence.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Jordan 2012

Energy chapter from The Report: Jordan 2012

Cover of The Report: Jordan 2012

The Report

This article is from the Energy chapter of The Report: Jordan 2012. Explore other chapters from this report.