Hidden treasure: Untapped resources could turn the kingdom into a key energy player

Despite being regarded as energy-resource-poor, Jordan purportedly has vast reserves of oil shale, which can be processed into synthetic crude oil or burned directly for electricity production. Extraction is comparatively expensive, but global energy prices are making production of resources economically viable, and three oil shale concessions are now in place in the country. More look set to follow, with eight memoranda of understanding (MoU) for preliminary studies of other deposits also in place, and the country is planning to construct at least two oil shale-fired power plants.

ENORMOUS RESERVES: According to the Ministry of Energy and Mineral Resources (MEMR), Jordan holds the fourth-largest oil shale deposits in the world, with an estimated 75bn tonnes of near-surface deposits (equivalent to around 4bn tonnes of oil) and many times more deeper underground. Known surface and near-surface quantities of the resource are spread across 18 deposits, according to the National Resources Authority (NRA), of which six are thought to be exploitable on a commercial scale.

Raw oil shale can be burned directly to produce electricity, or it can be processed to produce synthetic crude oil, which, as with conventionally extracted crude, can then be refined to create petroleum products. One of the key disadvantages of the resource over crude oil is that its extraction and processing is much more expensive. However, with the global economy having entered a period of high long-term oil prices, and with the price of oil shale extraction technology falling, use of the resource as an energy source has become economically viable. As a result, the Jordanian government aims for around 14% of energy consumed in the kingdom to be derived from oil shale by 2020.

CONCESSION STRUCTURE: Companies interested in extracting oil shale in Jordan must first enter into an MoU with the NRA, during which the firms undertake feasibility and conceptual engineering studies. The MoUs have a duration of two years, though this can be extended if the firm has completed most of the work agreed to under the MoU. At the completion of the MoU, the NRA makes an evaluation of the work done and takes a decision on whether to award the firm a concession, should it wish to enter into one.

Concessions for surface and near-surface reserves follow a standardised structure of a four-year pre-development phase, which offers more detailed versions of the studies done in the MoU phases conducted under the government, followed by a 40-year development phase, which can be extended by a further 10 years.

“Such huge projects entail a lot of risks; the pre-development phase is a way of minimising that risk,”

Hazim Ramini, director for petroleum and oil shale at the NRA, told OBG. However, he explained that the authority is also constantly looking at ways to modify and improve the agreement structure in order to reduce difficulties faced in their implementation. “It is a learning process,” he said. At the moment, the NRA has proposed altering the structure of the process in order to combine the MoU period and pre-development phase into a single period, with government oversight coming in mid-way through the process, in order to shorten it, or alternatively of reducing the MoU period to 12 months in some cases. “It is not feasible for companies to have money tied up for seven or eight years; furthermore it can take a long time for concessions to be passed into law,” said Ramini, explaining the rationale for shortening it. At the time of writing, however, it was not clear if the authorities would adopt the proposal.

FISCAL REGIME: The fiscal regime for oil shale production is based on a combination of taxes and royalties. Royalties are tied to the international price of oil; for the early stages of a project they will be imposed at a rate of 1% and will remain there when the price of oil is below $60 a barrel, rising to up to 5% at an oil price of $120 a barrel or more. Tax is based on the ratio of revenues to costs, starting at 15% for a ratio of 1.25 or below and reaching up to 65% for a ratio of 4 or above.

Ramini told OBG that Jordan had looked at a number other countries’ models when structuring the fiscal system for the sector, but that precedents were lacking due to the emerging nature of the sector and the fact that government companies dominate in some countries. “So far there is little free market. Jordan’s fiscal regime is the first of a kind,” he noted.

AGREEMENTS IN PLACE: As of December 2012 eight MoUs were in place, all for surface retorting projects, as well as three concessions – two for surface retorting and one for the evaluation of deep-seated reserves. MoUs in place include an agreement with a consortium made up of French energy major Total, Brazilian energy major Petrobras and Jordanian firm Kawar Group, focused on an area called Wadi Al Majar. Another recent example of an MoU is that signed in September 2012 by Global Oil Shale Holdings of Canada regarding the exploration and development of deposits in the Attarat Um Ghudran and the Isfir Al Mahatta oil shale blocks in central and south Jordan. The company hopes to achieve production of 8000 barrels per day (bpd) within two years and of 50,000 bpd within 10 years.

The two concessions for surface retorting in place are held by Jordanian Oil Shale Energy (JOSE), which is owned by Estonian firm Enefit and its partners YTL of Malaysia, Near East Energy of Jordan, and Karak International Oil (KIO), owned by the UK-based Jordan Energy and Mining. JOSE is operating under a concession agreement ratified by parliament in September 2010 for part of the Attarat Um Ghadran deposit, for 2.5bn tonnes of oil shale. The project is set to produce 20,000 bpd of crude oil by 2017 and 38,000 bpd by 2019, using Enefit280 technology developed by Enefit and German firm Outotec. Enefit calls itself the world’s largest oil shale processing company and currently processes around 1.6m tonnes of oil shale at its Enefit140 plant in Estonia, which is currently one of the worlds’ leading shale oil producers and generates 90% of electricity from its oil shale.

FINANCING: KIO’s concession agreement, which covers a deposit in the Al Lajjun area, was ratified by parliament in August 2011. The company is using Alberta Taciuk Process technology and aims to achieve production of 4500 bpd by 2015, to rise to 20,000 bpd by 2018. KIO is currently at the start of the front-end engineering and design stage of the project and in November 2012 appointed Investec bank to help it raise the $40m of financing for this work. The company aims to invest $500m in the project by 2016 and plans to refine all of the oil produced from the project itself, according to Munther Akroush, Jordan director of KIO, using an onsite refinery that will be integrated into the oil shale processing plant and which he said will be ready by 2019.

The project faces few technical challenges or major risks. “This is will be the third semi-commercial application of the technology,” Akroush said. “Jordan’s oil deposits are in low-risk environments – that is deserts, with no water and no people,” he added. “The project uses low-quality brackish water from a deep aquifer nearby so we are not in competition with people or plants for water.” Furthermore, oil prices would have to fall a long way before risking the financial viability of the concession. “Any price of oil above $60 a barrel will sustain the project,” he said. In addition to the two firms with surface retorting concessions, Jordan Oil Shale Company (JOSCO), a wholly owned subsidiary of global oil major Royal Dutch Shell, has had a concession in place since August 2009 to evaluate the country’s deep-seated oil shale reserves, which are thought to be far greater than its near-surface reserves – “millions of barrels,” according to Ramini of the NRA.

The concession began with an area of 22,270 sq km, though the company will gradually relinquish territory during the course of the project, until it reaches a final concession area of 1000 sq km. As JOSCO relinquishes parts of its concession with data, the NRA plans to attract other firms to look at them. JOSCO completed the first phase of its project (“assessment” phase) on May 16, 2013 and will target to complete the “initial appraisal” period of the “appraise” phase of the project by mid-2015, according to the MEMR. JOSCO will take a final decision in whether to invest in the project on a commercial basis in the late 2020s; should it go ahead, it will use its proprietary in-situ conversion process technology to extract the deposits.

POWER PROJECTS: Plans are also under way for the use of oil shale in domestic electricity production. Agreements are in place for the construction of two plants. In 2010 the government and JOSE signed a development agreement for the construction of a 450-MW oil shale-powered plan in Attarat Um Ghudran, due to enter into operation in 2017. In late 2012, Enefit said that construction of the plant would begin in 2013, once financing was in place. On April 17, 2013, Attarat Power Company, the Jordanian-Estonian joint venture developing the power station, announced it had received bids from six foreign firms to build the plant.

In November 2012, a new agreement was signed for a feasibility study regarding the construction of a second energy facility, namely an oil shale-fired plant with capacity of 600-900 MW by a consortium that includes Chinese firm HTG and the Jordanian group Al Lajjun, following the signing of an MoU for the plant in 2011.