Jordan’s Efforts Towards Energy Security
The disruption of the gas flow from Egypt to Jordan forced the Kingdom to import expensive fuel products for electricity generation. What are the measures taken by the Kingdom to reduce its expensive energy bill?
It is not easy to shift from one energy generation mode to another. The disruption of the supply of gas from Egypt put a tremendous strain on Jordan. Two days ago, our Prime Minister, as he was addressing the Parliament, said that the Government of Jordan is spending almost 1.5 billion USD in subsidies for electricity generation. 99% of Jordan’s electricity is generated from either oil or gas, 96% of which is imported. The actual thrust to move away from an energy dependence and reduce energy cost was prompted before the disruption of the flow of Egyptian gas. The US-led invasion of Iraq in 2003 exposed the oil supply vulnerability of Jordan and provoked official efforts to diversify energy imports and develop domestic energy resources (Jordan was getting half of is oil for free and half for USD 9 per barrel from Iraq). When the oil from Iraq was disrupted, Jordan started looking at ways to diversify its energy supply mix. In January 2007, a Royal Decree was issued by His Majesty King Abdullah to form an advisory committee for the energy sector, headed by His Royal Highness Prince Hamzah Bin Al Hussein, to work on reviewing and updating the national energy strategy in the light of several changes, including the increasing rise of oil prices and the growing demand for energy. King Abdullah met with the royal committee for the energy sector on 9 December 2007. The committee stressed the need to begin implementing projects that meet the energy needs of the Kingdom and increase reliance on alternative and renewable energy sources. Oil shale, natural gas, renewables and nuclear will constitute together a diversified portfolio of indigenous resources that will allow the Kingdom to move away from its dependence on imported energy.
Natural Gas and Oil Shale
The first game changer for Jordan is a project led by Estonia's Enefit to finance, construct and operate a 430 megawatt oil shale fuel power station by the end of 2016 and output from the Risha gas field. Jordanian officials hope intensive exploration and drilling at Risha will lead to the discovery of extensive recoverable gas reserves. Royal Dutch Shell has invested $100 million to explore for oil shale in Jordan's eastern and northern regions. BP has invested $260 million on the Risha field. They are expecting anywhere between 300 million cubic feet per day up to one billion. There are huge amounts of oil shale in Jordan, as they can be utilized commercially either by the direct burning to produce electricity or by the cracking to produce crude oil.
Solar and wind
Jordan has large solar power potential as it has long hours of sunshine and high solar levels. There is further potential to be explored in wind and biogas. Within the Kingdom's energy strategy, the Government seeks to boost solar and wind energy’s contribution to the national energy mix from 1 to 10 per cent by the end of the decade, a goal that requires up to $1 billion in investment. The Government passed a new law promoting the use of solar energy and wind. These projects will help Jordanians save on their electricity bills and ensure a clean and constant source of domestic energy and constitute a part of efforts to ease the Kingdom’s ongoing energy crunch. However, I don’t believe that solar and wind energy’s contribution to the national energy mix will exceed 6%.
Jordan’s nuclear efforts were driven by its almost total dependence on oil and gas imports for energy generation and a domestic energy shortfall estimated to reach 6.8GW by 2030. Nuclear reactors would contribute in achieving that goal and constitute a hedge against the cyclicality of oil prices. Additionally, they will allow the Government of Jordan to better manage disruptions to the current account as well as support its capability to fight inflation and sustain a stable currency exchange rate. Jordan is estimated to have 65,000 tonnes of uranium oxide resources in the central part of the country and an additional 100,000 tonnes found in phosphates.
How will Jordan secure the funding of the two nuclear reactors?
We are working with Deloitte on different financing mechanisms. We plan to build the reactors on a PPP model (Public–Private Partnership) which involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the Government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by removing guaranteed annual revenues for a fixed time period. We are requesting that the exporting country will provide an equity share partner of 49% as a strategic partner (investor and operator of the project). This will reduce some of the financial burdens on the country. We are are in talks with a consortium of national and regional international investors (namely the UAE and Saudi Arabia ) and we have provided them with feasibility studies. We are also considering a partnership with the private sector: The Social Pension Fund expressed an interest given its appetite for infrastructure projects in Jordan, namely energy and water. Another possible model pursued today in some international markets like Turkey is the BOO: In a BOO (Build, Operate and Own), the ownership of the project remains usually with the project company. Therefore the private company gets the benefits of any residual value of the project. A BOO scheme involves large amounts of finance and a long payback period. Turkey has adopted this financial arrangement to build its 4 nuclear reactors. The Government of Turkey is not taking any responsibility in terms of soliciting capital investment. The Russian company Russatom is taking the full responsibility of the funding in collaboration with the Russian Government. The Government of Turkey is offering the purchase of electricity through a power purchase agreement at a pre-agreed price for at least 15 years. We are consulting Deloitte and Herbet Smith Freehills to find a model that will suit us best. There are also other models such as the IPP model (Independent Power Producer which is which is not a public utility, but which owns facilities to generate electric power for sale to utilities and end users).
When do you expect these projects to be completed?
There are different timelines for each project. The development of oil shale is expected to reach production phase by 2017-2018. The production of natural gas is expected by 2020-2021. As for the nuclear power plan program, we expect to complete it by 2020-2021 on the condition we are successful in soliciting the funds this year.
Are you confident they will allow Jordan to achieve energy independence?
I am confident that as long as our efforts are consistent, Jordan will achieve energy independence in the next decade. A growing population and industrial development are affecting Jordan. The Kingdom has limited access to natural resources (especially water and energy). Therefore, I truly hope that by developing its indigenous resources, Jordan will benefit in a number of ways:
Balance of payments
Jordan pays USD 5 billion on its energy, half of which is allocated for electric power generation. To put it in perspective, Jordan’s total budget is equivalent to USD 10 billion. Its national energy bill is almost 22% of its GDP. By reducing/ eliminating the energy imports, Jordan will reduce its energy bill and enhance its fiscal position.
Jordan was hit by two major energy shocks, the first one was in 2003 when the US invaded Iraq and the second was in 2011 after Mubarak was forced from office. Energy dependence made Jordan vulnerable to political instability. The main motivation behind the various energy projects undertaken by the Kingdom is the achieve energy security.
Price of electricity
Today the Government is subsidising 50% of the price of electricity. The price of electricity has been raised last year and the year before. Jordan is also preparing a hike in electricity prices in June. The competitiveness of the industrial sector is suffering as a result as well as other sectors such as tourism and commerce. A reduction in electricity prices will be of a great relief. Jordan is currently producing energy at 26 cents per kilowatt-hour and selling it to the consumer at an average of 14 cent per kilowatt-hour. When we start developing our own resources, production cost will be reduced to 14 cent per kilowatt-hour.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.
Follow Karen on Twitter: @karenayat
Dr. Khaled Toukan is Chairman of The Jordan Atomic Energy Commission, Chairman of Higher Ministerial Nuclear Steering Committee and served previously as the Minister of Energy and Mineral Resources (2011),
Dr. Toukan was the President of Al-Balqa Applied University (1997-2001), Jordan; he also held the position of Dean of Faculty of Engineering & Technology and Professor of Industrial Engineering at the University of Jordan; Research Scientist at Kernforschungszentrum Karlsruhe, Germany; and Associate Research Scientist at the University of Petroleum and Minerals, Saudi Arabia. He is a Member of the International High Level EFA Group, a member of H.M. King Abdullah II Economic Consultative Council and presently is Director of SESAME and serves also as Chairman of the Board of Trustees of University of Jordan.