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Jordan: Recharging the energy sector

2012 began with a particularly hefty reckoning for Jordan when the government received the largest energy bill in the Kingdom's history: JD2.75bn ($3.87bn). Jordan relies heavily on imports for its energy needs - some 98% - and in 2011, energy amounted to 26% of total Jordanian imports. Yet cooperation with other regional states may hold the answer to the Kingdom's current energy supply challenge.

According to the minister of planning and international cooperation, Jaafar Hassan, 88% of government spending goes to current expenditure. As a result, Jordan's economic hardships directly affect revenues and the budget, "which today is in trouble," said Hassan when speaking with JRTV (Jordan Radio and Television).

The rising budget outlay on energy has increased pressure on the Jordanian economy, placing additional burdens on the budget by further weighing down the country's debt load.

Rising demand and costs are not the only problem facing the Kingdom, however. The amount of natural gas it is importing from Egypt has been dropping. In 2009, Jordan imported 300m cu ft per day of natural gas from Egypt. Natural gas imports fell to 220m cu ft per day in 2010, hitting a nadir of 80m cu ft in 2011.

The drop is attributed to the gas pipeline from Egypt to Jordan experiencing no less than 10 instances of sabotage since early 2011, a by-product of the on-going political changes in Egypt.

Indeed, the Arab Spring has had a knock-on impact on energy instability in Jordan. The Kingdom relies on the pipeline from Egypt for more than 80% of its electricity generation needs. Jordan's Electricity Regulatory Commission ( ERC ) has estimated its daily losses over the drop in Egyptian gas supplies last year were $4m. As a result of this shortfall, the country lost around $1.42bn in 2011, according to the ERC .

Thus, for Jordan, when the gas bill goes up and the gas supply becomes limited by external factors beyond its control, the internal stakes are high. Energy is now becoming more than simply a budgetary issue.

Yet while question marks hover over how the Kingdom will pay its current energy bills and acquire stable supplies of energy in the near future, in the longer term the picture may be rosier.

"There are no magic fixes in the immediate short-term, but I think in the medium-term, there are plenty of possible options in energy," Hassan said, adding that he sees opportunities for energy partnerships with GCC states.

Three such partnerships are already beginning to make news. The first potential partnership is with Qatar. To make up for the decline in Egyptian natural gas supplies, Jordan is reportedly considering shifting its imports from Egypt to the gas rich Gulf state.

According to a report in the Jordan Times, Qutaiba Abu Qura, Jordan's minister of energy and mineral resources, visited Doha in early January. Qura stated that he and the Qatari minister of energy, Mohammed Bin Saleh Al Sada, had formed a technical team to explore the possibility of Qatar supplying gas to Jordan. After the meeting, the ministers told reporters, "We believe the possibility of supplying Jordan with Qatari gas is quite promising."

Additionally, on January 16, Farouq Hariri, the secretary general of Jordan's Ministry of Energy (MOE), said that MOE officials had been in contact with Iraq regarding an agreement that would see the country supply Jordan with natural and liquefied gas. An agreement could be signed later this year.

The next day, an Armenian newspaper announced the country is considering a nuclear energy project with Jordan. Armenia is planning to build a new power plant to replace its existing facility, with construction expected to begin in mid-2013. The new plant is currently slated to have one power block with 1000 MW of output. The project is estimated to be worth between $5bn and $6bn.

The partnership, if it comes to fruition, would see Armenia and Jordan cooperating in the construction of nuclear energy blocks. In addition, Jordan would gain experience in nuclear-waste processing and preservation, research and training, and the use of nuclear materials in medicine, agriculture and industry. Jordan's energy agency would partner with the Armenian Ministry of Energy and Natural Resources in this project. Both states were clear that any nuclear cooperation would adhere to UN principles of nuclear non-proliferation.

Jordan may have a tricky year ahead as it negotiates its debts while securing future energy needs, but it seems clear that the Kingdom is actively searching out partnerships in a serious effort to improve energy diversification and security over the long-term.

© Oxford Business Group 2012