OBG talks to Christopher Morgan, Chairman, Karak International Oil

Interview: Christopher Morgan

How much could oil shale realistically contribute to Jordan’s energy mix, and how do the country’s resources compare to those found abroad?

CHRISTOPHER MORGAN: The potential for oil shale production in Jordan is enormous, especially given the size of the local economy. Like phosphate resources, shale resources exist across the kingdom’s entire territory; indeed, geologically, both phosphate and shale oil come from the same source rock that dips under Saudi Arabia. Of course, it is possible that not all of these resources are economically available, but there is enough to last Jordan at least several decades, if not hundreds of years. Ultimately, given Jordan’s rising budget deficits, which are tied to imported energy costs, oil shale is poised to play a big role in the nation’s financial future.

Regarding quality, it is important to remember that in most mining projects the highest grade reserves are hit first. This is something energy companies should consider when deciding to invest in oil shale projects here.

Are you optimistic that the challenges associated with oil shale production can be overcome?

MORGAN: Oil shale production is not a new business. There was an oil shale industry from 1850 to 1960 in Scotland, where the source rock was used in home heating and for the production of lantern oil and paraffin wax. Meanwhile, the Estonians have been working with oil shale since the 1920s. For much of the 20th century, the Estonians burned the source rock like coal to produce power; however, in the last 15-20 years they realised that it was much more valuable to use the source rock for the extraction of hydrocarbons.

Over time, we have seen major changes in oil shale extraction technology. Indeed, new methods such as the AOSTRA Taciuk Process (ATP), which is an above ground approach, have begun to make oil shale extraction much more efficient and affordable.

Despite these advances, here in Jordan one issue is that the refinery for processing oil shale is very dated, and needs to be upgraded to achieve higher production capacity. From what I understand, the country’s energy authorities are looking for a new operator to make these improvements.

On the technical side, a second challenge for Jordan is that the country needs to develop the human resource capacity needed to manage oil shale projects over several decades. In fact, the kingdom is producing strong science, engineering, and management graduates, but they often leave the country for job opportunities in more advanced economies. In the coming years, Jordanian policymakers should focus on attracting this talent back home specifically for work in the energy and oil shale business.

In terms of funding, there are several issues, including the fact that financial institutions are not very familiar with the oil shale business, or the concept of oil shale itself. Banks know about shale gas, and about shale oil, which is mature oil trapped in rock that needs to be extracted through a fracturing process. However, oil shale is a solid rock that needs to be heated for oil conversion. Moving forward, these important technical differences need to be explained to the global banking and investment community to convince these organisations to support major ventures.

In addition, although oil shale projects have been running for several decades, in the past they were driven by global energy giants like Shell and Petrobras, which did not have to rely on lenders because they had their own internal sources of funding. For smaller companies looking to enter the market, on the other hand, outside financial support is much more important.

Lastly, although Jordan is a relatively stable nation, there are still economic and political country risks in the kingdom that concern lending institutions. These risks do not necessarily prevent oil shale companies that are operating in Jordan from receiving funding, but they do reduce the amounts that these companies can obtain from any single lender. Consequently, it is often necessary to find a strategic partner, or to spend a significant amount of time negotiating with multiple banks.