Supply and demand challenges: Tracking efforts to diversify energy sources in the wake of rising prices

Energy represents one of Jordan’s key economic and strategic challenges. The issue has transformed into a political problem, with recent fuel subsidy cuts and consequent price rises sparking protests against a backdrop of regional unrest. The government is considering measures such as rolling blackouts and restrictions on driving to deal with the country’s energy deficit in the short term. However, in the longer term the authorities are working to develop various domestic resources, including oil shale, domestic oil and gas exploration, and renewables. Efforts are also under way to diversify supply through the launch of nuclear energy and the construction of liquefied natural gas (LNG) import infrastructure, in addition to developing energy efficiency policies to curb consumption growth.

PRESSING CONCERN: The total cost of energy consumed in the kingdom in 2011 was JD4.04bn ($5.68bn), or 20% of GDP, according to the Ministry of Energy and Mineral Resources (MEMR). This was up from JD2.6bn ($3.66bn), some 13.2% in 2010, as a result of rising global prices and the kingdom’s increased use of fuel oil for electricity generation, rather than low-cost Egyptian natural gas. The rise represents an economic problem for the kingdom, putting pressure on state finances as well as the country’s trade balance. Furthermore, energy demand is set to grow considerably. The MEMR expects primary energy demand to go up at an annual rate of 5.5% between 2008 and 2020, in which it forecasts primary energy demand to reach 9.06m tonnes of oil equivalent (toe) by 2020, up 21% from 2011 consumption, and electricity demand to hit 30,846 GWh, almost double (an increase of 91%) demand in 2011.

SHORT-TERM PAIN: The government has been tackling such problems in part through price rises. In November 2012 it removed most subsidies on fuel, leading to price rises including a 50% increase in the cost of bottled gas, a 33% hike in the cost of diesel and kerosene, and a 15% rise in the cost of 90-octane petrol. The rises followed a 20% jump in the price of 95-octane petrol in May and a 12.9% increase in the price of 90-octane petrol the following month, and sparked protests. While the primary rationale for lifting subsidies has been to address the deficit, it is also expected that higher prices will encourage more efficient consumption.

The government was also considering a plan to raise electricity tariffs by 5% in 2013 and a further 13% in 2014 in order to reduce subsidies there, too. Generation costs for the National Electric Power Company are 188-189 fils ($0.03) per KWh, but it sells electricity at an average cost of 72 fils ($0.01) per KWh, with the government making up the difference. In early June Prime Minister Abdullah Ensour was due to take his plans for tariff increases to parliament, where he was expected to meet stiff opposition from Watan, the largest bloc in the lower house. Protests were also planned in several cities against the proposed hikes. At the time of press no decision had been made about new tariffs.

In order to further reduce short-term pressure on supplies and the deficit, the government in October 2012 was reported to be planning measures such as alternate driving days for cars, reducing street- and road-lighting, limiting electricity supply to government institutions and, in a worst case scenario, rolling blackouts. In January 2013, the then minister for energy and mineral resources, Alaa Batayneh, said that the government would likely have to go ahead with the blackout plans, despite plans for price increases and even if supply of cheap Egyptian gas resumed (which it has).

LONG-TERM GAIN: The authorities are also taking measures to secure supply through diversification. In May 2012 the cabinet approved a plan to import LNG, elements of which include the construction of an import jetty at Aqaba that will be connected to the Arab Gas Pipeline, which runs close to the port city, to transport the gas north. The government has allocated $65m for the construction of the jetty, which will have a capacity of 500m cu feet a day, and onshore infrastructure.

The terminal is due to enter into operations in the first half of 2014. LNG will be sourced from global markets, with contracts to be put in place within a year of the agreement. The plan also includes the lease of a floating and storage regasification vessel (FSRU).

STRATEGY: To address longer-term challenges, Jordan has adopted an energy strategy for the period 2007-20. The key aims include: to raise the proportion of locally sourced energy in the kingdom’s energy mix and to reduce reliance on imported energy; to diversify the sources and forms of energy used in the country; to improve energy efficiency; and to preserve the natural environment. The strategy also seeks to develop local energy resources – in particular oil shale and natural gas – while also diversifying the sector via the development of nuclear energy; the expansion of the use of renewables; an energy efficiency programme; strengthening regional energy linkages; and increased private sector involvement in energy infrastructure projects.

RENEWABLES & ENERGY EFFICIENCY: The strategy envisages 1200 MW of wind-generated capacity and 600 MW of solar capacity in place by 2020. A major step towards the development of the segment was the passage of the Renewable Energy and Energy Efficiency Law (REEL) in 2012 (see analysis). The National Energy Research Centre (NERC), which is part of the Royal Scientific Society, is also undertaking activities to help develop the segment in the kingdom, such as working with the government on a renewables and energy policy – including having worked on the development of the REEL – as well as to facilitate private investment in the renewables segment by, for example, taking wind measurements, implementing renewable energy pilot projects (such as the country’s first concentrated solar power project, which is due to be up and running in 2013) and undertaking energy audits.

PROJECTS: Research projects currently being worked on by NERC include boosting the efficiency of solar water heaters and generating biofuels from farm waste, for which a pilot project is also under way. The body is also supervising a 1000-rooftop photovoltaic (PVs) system in the southern town of Tafilah, with Walid R Shahin, a director at NERC, noting that such systems are likely to be expanded to more cities in the future. The REEL also makes it easier for companies to install PV units and connect to the grid. “With renewables we have the first law in the region that allows for direct proposal submissions by the private sector, giving the government the mandate to directly negotiate with private sector without a tendering process,” Malek Kabariti, the minister of energy and mineral resources, told OBG. “In the past few months I have signed 30 memoranda of understanding for solar and wind projects, which will total 500 MW of wind and 500 MW of solar energy.” Additionally, new buildings built over a certain meterage will be required to install PV units to heat water.

The government’s strategy aims to improve energy efficiency, with reduced energy intensity levels of 210 kilogrammes of oil equivalent (kgoe) per $1000 of GDP in 2010 and 2011 to $180 kgoe per $1000 by 2020 (in constant prices). The current average for industrial countries is $130. As such, the MEMR and NERC are collaborating on a national energy efficiency action plan, which Shahin says should be ready by mid-2013.