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Jordan eyes Iraqi crude for expanded refinery

The country has approved in principle a plan for a pipeline to import Iraq's oil

The Jordanian authorities are pressing ahead with plans for a 20% expansion to the capacity of the Zarqa oil refiner—from 100,000 barrels a day to 120,000 b/d. Actual production is around 80,000 b/d. Last year, Honeywell UOP was contracted to supply technology and equipment, and KBR has signed an engineering agreement for the residue hydroprocessing unit.

Jordan has to import nearly all its energy needs, so the $1.6bn (£1.1bn) refinery expansion project is necessary to meet rising demand for petroleum products—compounded by the presence of more than half a million Syrian refugees. Jordan Petroleum Refinery Company chief executive Abdul Karim Alaween said fuel demand was rising at an average of 3% a year. The big question, though, is from where Jordan will source the extra crude oil. At present, most of its oil is imported from Saudi Arabia.

During the Saddam Hussein era, Jordan received Iraqi oil at a discount price. The crude was trucked across the border en route to Zarqa. Even in those days there was talk of a crude oil pipeline being built to link the two countries. In 2013, a detailed agreement was signed that envisaged a pipeline running from Basra westwards through Anbar province and then south to Aqaba on Jordan's Red Sea coast. A spur line was to transport oil to the Zarqa refinery. Completion was set for mid-2017. But the Islamic State (IS) insurgency in western and northern Iraq the following year put paid to that scheme.

Instead, new plans were drawn up for a pipeline to run, again from Basra to Aqaba, but staying close to the border with Saudi Arabia to avoid Anbar. A spur line would run to the Zarqa refinery. The capacity of the pipeline would be 1m b/d, with 150,000 b/d for Jordan and the rest for export. A separate pipeline would transport 258m cubic feet a day of natural gas.

The Jordanian cabinet this month gave its approval in principle to the scheme. But a government statement didn't say how much it would cost, how the financing would be arranged and when the project might begin. Earlier reports spoke of the venture costing around $15bn, proceeding on a build-operate-transfer basis.

Even though security in Iraq has improved following the military defeat of IS, potential private investors are likely to think twice before committing to a project that would be vulnerable to sabotage. In any event, it's rare these days for cross-border oil and gas pipelines to make the journey from the drawing board to the land or sea. Numerous natural gas pipeline projects in the Gulf have failed to materialise for a combination of political and economic reasons—the exception being the Dolphin pipeline that transports Qatari gas to the UAE and Oman.

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