Energy deficit in Jordan creating problems for kingdom
Jordan has escaped much of the region's turmoil, but a dearth of energy supplies is causing political problems
Nestled between oil-power house Iraq and the emerging gas-rich eastern Mediterranean countries, Jordan has plenty of reasons to rue its lack of conventional petroleum resources. Significant shale reserves in the kingdom may change that picture over time. But, for now, Amman imports 97% of its energy.
IMF has identified energy subsidy reform as crucial to fixing the country's energy deficit and made the award of a $2 billion loan in 2012 contingent on Jordan making progress on removing subsidies. But for the kingdom's rulers, the political price of subsidy reform makes that a tough nut to crack.
In a country where resources and infrastructure are increasingly pressured by the flood of refugees from Syria, anti-government protests at subsidy reform have been at the heart of major political change. Put simply, the cost of living is one of the most sensitive issues for the government as it tries to contain popular unrest.
IMF officials have rightly described energy as the Achilles heel of the Jordanian economy. It is a huge vulnerability. And the fiscal cost of disruption to Egypt's gas supplies is all too evident: reduced flows of Egyptian gas have cost an extra $2bn per year in diesel imports. Jordanian industry is concentrated in a north-south corridor within reach of the Arab Gas Pipeline that runs from Aqaba north to Rihab.
The collapse in Egyptian gas imports forced power generators supplying these companies to burn diesel - at a price around four times that of imported Egyptian gas. In turn, this means power generators are recovering only 40% of the cost of generation in electricity tariffs.
Jordan's experience proves just how hard it is to be located at the end of the figurative pipeline in the Middle East and North Africa (Mena) region. While Mena's major producers have also resisted reforming energy subsidies, they at least have the excuse of being major hydrocarbon producers, unlike Jordan.
With the exception of small-scale gas production from the Risha field in the far northeast, Jordan relies on imports of crude oil and products, from Iraq and more recently from Gulf countries, as well as the unreliable imports of Egyptian gas.
Iraq's plans for a new oil pipeline from Haditha to Aqaba port by way of the Zarqa refinery, just north of Amman, would secure Jordan's oil needs. But Iraq, stung by Saudi Arabia's appropriation of the Ipsa pipeline that once linked the two countries, has learnt from the historical sequestration of its pipeline assets and will no longer finance and build such infrastructure on its own. Iraq wants the new 1 million barrels a day pipeline built under a build-own-operate-transfer scheme. Yet without a defined and guaranteed supply of crude and the legal agreements to go with it, private participation here will take years to put together.
Jordan's gas picture is equally uncertain. With Egyptian imports sharply reduced since 2011 and now running at around 100 million cubic feet per day (cf/d) versus the contracted volume of 250m cf/d, Jordan is looking to lessen its reliance on expensive diesel-fired power by importing liquefied natural gas (LNG). But, here again, the complex commercial structures proposed by Amman make delay inevitable. Jordan has been in discussion for many months with potential LNG suppliers but the gap between what Jordan is prepared to pay for LNG and what suppliers like Qatar want has been so far impossible to bridge.
On a more positive note, Amman is making headway on its plans to develop shale oil, where the resource base is estimated 40bn-70bn tonnes in place. Bids are in for Jordan's first shale oil-fired power plant and once contractors are selected, construction of the 500 MW plant is due to start in 2014.
The government has also recognised the potential contribution that renewable energy could make and streamlined the investment process for small and medium-sized solar and wind projects. Unlike in Jordan's well-endowed neighbours, the incentive to push hard on building up the indigenous alternative energy sector is strong.
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