Egypt’s recent decision to halt gas supplies to Jordan and the kingdom’s subsequent decision to lift fuel subsidies has placed the country’s already difficult energy situation under an added level of stress. However, the decisions also highlight the need for Jordan to create its own alternative forms of energy import and production, a process that is already under way.
Due to a series of maintenance operations and an uptick in local demand, at the beginning of October, Egyptian officials suspended all natural gas pumping, cutting Jordan off from its main source of energy imports. The Egyptian government’s claims appear to have merit – despite its energy exports to Jordan, the country remains a net energy importer, and officials told local media that Egypt’s priority is to meet domestic consumption levels.
The loss of energy supply remains a critical issue for Jordan, which imports about 96% of all its energy needs and relied on the gas pipeline from Egypt for more than 80% of its electricity generation needs. This dependency was especially apparent after Egyptian saboteurs in Sinai attacked the pipeline between the two countries during the events of the Arab Spring. Gas exports from Egypt to Jordan, which amounted to 220m cu feet in 2010, plummeted to 80m cu feet as a result.
With the gas supply from Egypt now shut off completely, the government decided to lift subsidies on fuel effective November 14, which has led to widespread protests in Amman and provincial towns. The price rises include a more than 50% increase in bottled gas for cooking, a 33% rise in diesel and kerosene, and a 14% increase in lower-grade petrol.
The government is aiming to reduce a mounting budget deficit, which is expected to rise to $3.5bn by the end of the year, Prime Minister Abdullah Ensour told state television. He did not add how much money would be saved by cutting subsidies. The country had been spending $2.3bn annually on fuel subsidies, about a quarter of its annual budget.
While cutting subsidies may improve the kingdom’s bottom line now, there is still the matter of where to source the energy previously imported from Egypt. “Outside of limited Egyptian gas supplies and Iraqi oil, Jordan is not receiving any energy supplies at favorable prices,” Alaa Batayneh, the minister of energy and mineral resources, told local media. “We are subject to international market prices, and this has proven costly.”
The energy situation has the possibility to turn into a crisis, with the government reportedly weighing emergency measures, such as timed blackouts and restrictions on the number of vehicles on the road at any one time, local media has reported.
The situation has also shown the importance of Jordan’s own attempts to develop alternative forms of energy supply, and, indeed, a number of initiatives are proceeding apace. One such initiative is a gas terminal to be located in Aqaba, on the coast of the Red Sea, allowing the kingdom to begin importing supplies of liquefied natural gas (LNG) from a variety of sources, with Qatar expected to be the major provider.
Jordan is also proceeding with a number of initiatives designed to help it exploit its most promising form of domestic energy – shale oil. The kingdom recently signed a memorandum of understanding with the Canada-based firm Whitehorn to begin exploiting shale oil reserves.
The agreement, valued at around $1bn, will see operations begin immediately and continue for a 12-month period, followed by a feasibility study for longer-term development. Whitehorn expects to extract some 9500 barrels per day (bpd) of oil from shale oil, with that number to rise to approximately 50,000 bpd in the more mature stages of extraction.
Similarly, the Jordanian government looks set to finalize a deal for a full-scale shale oil plant by the end of 2012. The agreement, to be completed with Enerfit Energy, an Estonian-Malaysian firm, will see a 450-MW, oil shale-fired thermal station built in central Jordan, which could meet around 16% of the country’s annual 3000-MW energy demand. The station would be expected to come on-line by the end of 2016, and a second, 900-MW plant, is set to be added to the kingdom’s grid by the end of the decade.
Speaking at a press round table on the agreement, Suleiman Hafez, the minister of finance, told reporters, “This agreement will be one of the biggest steps towards the country’s energy independence.”
While an agreement with Qatar to import natural gas could help keep the country running in the short term, continued exploration into shale oil reserves should make Jordan far more self-sufficient in the long term.
Oxford Business Group