Diversifying the mix: As demand increases and the external environment continues to get more complicated, the country turns to alternative energy sources

One of the biggest challenges facing Jordan is keeping up with the rapidly increasing demand for energy, as it continues to grow economically. Energy demand over the past four years increased rapidly after the population grew by an enormous 20% due to the Syrian refugee influx. Sabotage attacks in Egypt halted Egyptian gas supplies to Jordan, which forced the country to substitute the relatively cheap gas with much more expensive diesel and heavy fuel. This challenge is made all the more difficult by the fact that the country currently has few developed energy sources of its own, while historical partners overseas, who have traditionally supplied Jordan with oil and natural gas, have recently been unable to meet their commitments.

As a result, Jordan has had to rapidly develop and commercialise a range of frontier technologies in energy – such as shale oil – while also boosting usage of more tried and tested methods. Renewable energy (RE) has risen to a level and status seldom seen even in more developed economies, while energy efficiency drives are also much more widespread than in neighbouring, more energy-rich countries.

Lack of domestic resources may thus give Jordan an advantage in the longer term, as it begins to leverage its experience and expertise in energy paths that many other countries will also soon have to follow. In the meantime, though, the country has a major need for investment in all branches of the energy sector, ranging from electricity generation and transmission to solar panel manufacture and oil shale exploitation.

Facts & Figures

According to the latest Ministry of Energy and Mineral Resources (MEMR) figures, crude oil and oil products accounted for 82% of primary energy consumption in 2013, followed by 11.11% for natural gas, 1.78% for renewable energy and 1.18% for imported electricity. In terms of oil and gas, Jordan has extremely limited quantities: Oil & Gas Journal put oil reserves at around 1m barrels in January 2014, primarily located in the Hamzah field, west of Amman, along with around 200bn standard cubic feet (scf) of natural gas, in the Rishah field in the north-east, near the Iraqi border (see analysis). Production was around 20 barrels per day (bpd) at Hamzah and 21m standard cubic feet per day (scfpd) in mid-2014, according to officials from the National Petroleum Company (NPC) who spoke to OBG. The most recent figures from MEMR, for 2013, show total domestic crude oil production at 1000 tonnes and gas output at 5.3bn scf, equal to a combined total of 112,000 tonnes of oil equivalent (toe).

For a country that was home to some 6.46m people in 2013, according to the World Bank, and with average population growth of 2.2-2.6% over the 1999-2012 period, such output is clearly far short of demand. The recent addition of significant numbers of Syrian refugees has further fuelled demand as well.

At the same time, Jordan has experienced sustained economic growth in recent years – reaching a high of 7.2% in 2008, before the global economic downturn hit home. The growth rate fell to 5.5% in 2009 and 2.3% in 2010, although GDP expansion has since picked up again, rising to 2.7% in 2012 and 2.8% in 2013, according to figures from the World Bank. The IMF has forecast growth of 3.5% in 2014 and 4% in 2015. In its most recent World Economic Outlook, the IMF lowered its growth forecast for the MENA region to 2.6% from 3.2% in its previous forecast due to instability; despite this, Jordan still maintained its forecast of 3.5% for 2014.

A 2013 report by the Ministry of Planning and International Cooperation (MPIC) stated that primary energy demand in the country had been rising at 5.5% per annum, on average, in recent years. MEMR figures, again for 2013, show primary energy consumption totalling 8.16m toe, of which 6.69m toe was crude oil and oil products and 907,000 toe was natural gas.

Without the domestic resources to meet this demand, and receiving less than a third of the actual contracted amount of gas with Egypt, Jordan has had to spend substantially more on relatively more expensive imports of crude oil. Central Bank of Jordan (CBJ) figures show that the value of crude oil imports rose from JD1.1bn ($1.55bn) in 2009 to JD1.96bn ($2.77bn) in 2012, before dropping slightly in 2013 to stand at JD1.85bn ($2.61bn).

Regional Turbulence

In 2011 Jordan imported some 97% of its energy needs, a figure that is unlikely to have changed significantly since. Indeed, in 2013 a Bank Audi report stated imports of mineral fuels and lubricants accounted for 27% of the country’s entire import bill. This scenario is, of course, nothing new. Since its establishment, Jordan has had to wrestle with the lack of natural resources. In the past, the government has dealt with this – and still been able to sustain robust economic growth – via a series of import deals with neighbouring countries.

A Big Deal

The first of these was a deal with Iraq, which during the 1980s supplied Jordan with crude oil at prices far below market levels, in response to Jordanian support for Iraq in its conflict with Iran. Another major supplier back then was Saudi Arabia, which supplied oil via the Trans-Arabian Pipeline (TAP). Iraqi oil came in by tanker truck, but this arrangement unravelled with the Gulf War of 1990-91, subsequent international sanctions against Iraq – although Jordan was granted some exemptions – and then finally, the US-led invasion of Iraq in 2003. These shipments did later resume, but have been small in nature – between 10,000 and 12,000 bpd, according to a 2014 Reuters interview with Iraqi oil ministry officials.

Saudi Arabia remains the main source of imported oil, while Jordan has shifted much of its power generation from oil to gas. This move was facilitated by a 2002 agreement to purchase Egyptian gas via the Arab Gas Pipeline (AGP), which runs from Arish, in north-eastern Sinai, to Aqaba. Amman signed a 14-year agreement back then with Cairo, stipulating a delivery of up to 253m scfpd at a preferential rate. The availability of this gas underscored much of Jordan’s energy policy during the period, with a shift away from fuel oils and towards natural-gas-fired power stations. By 2011 around 80% of Jordan’s natural gas needs were being met by imports from Egypt, according to the MPIC.

Once again, however, the turbulence of the region has impacted Jordan, albeit indirectly. Since 2011, when the government of Hosni Mubarak fell in Egypt, Egyptian gas supplies have become unreliable. As of July 1, 2014 there had been very few shipments of gas to Jordan via the AGP since January of that year. Since 2011, in fact, Jordan received less than a third of the contracted Egyptian gas amounts. This was due first of all to repeated sabotage of the pipeline in the Sinai desert. There were also occasions when the Egyptian government diverted gas to meet domestic shortfalls. In addition, a lack of maintenance at the wellheads also caused supply to stutter at the source. The minister of energy and mineral resources, Mohammad Hamed, told reporters in late June 2014, “We do not expect the resumption of gas supplies to Jordan soon.”

At the same time, the shipments of oil by road from Iraq have also become difficult to maintain. From early 2014 much of the Iraqi province adjacent to Jordan – Anbar – has been out of the control of the Baghdad government, as fighting has severely impacted trade. In December 2013 shipments were therefore halted. These developments have thus highlighted a major vulnerability in the Jordanian energy sector to external political and security risks.

Strategic Planning

The government of Jordan has, of course, long been aware of these dangers, and has conducted its energy planning accordingly. This has followed two broad strategies: the enhancement, diversification and development of domestic energy sources and efficiency on the one hand, and the diversification of supply from external sources on the other. Yazan Al Bakhit, an economic analyst at the Jordan Atomic Energy Commission (JAEC), told OBG, “With Jordan importing approximately 97% of its total energy needs, further diversification through a nuclear programme will significantly reduce our debt burden.”

The first energy plan incorporating these objectives was the 2004 National Master Strategy for the Energy Sector, which was subsequently updated in 2007 and now runs up to 2020. The strategy aims to achieve the above goals, and in a way that enhances environmental protection, through the development of RE projects, maximising the utilisation of domestic resources, promoting energy conservation and awareness, and generating electricity from nuclear energy. The RE part of the plan took a major step forward in 2011 with the passing of the RE and Efficiency Law (REEL) and a subsequent set of by-laws related to REEL in 2012. In 2014 another by-law made RE and energy efficiency system equipment exempt from sales tax and Customs duties, and a feed-in tariff law was passed.

Jordan has been moving in recent years to end its fiscally burdensome regime of energy subsidies and reform its subsidy system to benefit the underprivileged. In 2008, an automatic pricing mechanism was adopted that set monthly fuel and electricity charges below international levels. This ended in 2011, when the government froze fuel prices. Since then, a gradual reduction in the level of subsidies has been under way, with the target of removing them altogether by 2017. The next reduction – and consequent hike in energy prices – is set for January 2015. Under the strategic plan, by 2020, the energy sector in Jordan is thus to have changed substantially. The target is for crude oil and products to account for approximately half its current share, falling to just 40%, while RE rises to 10%, natural gas to 29%, nuclear to 6%, oil shale to 14% and imported electricity to 1%. A huge amount of investment will be required to achieve these targets – Jordinvest estimates $3.4bn for the oil sector, $4.8bn-5.8bn for the power sector, $1.4bn-3.8bn into oil shale, $1.4bn-2.1bn into RE and $2.4bn into natural gas over the plan period. Carrying out such huge investments will be challenging, but they represent a potential opportunity.

Sector Bodies

A number of important agencies and ministries are involved in the implementation of the strategy, with 2014 also seeing a significant reorganisation of these, in line with overall moves to streamline and simplify Jordan’s administration. MEMR is the overall ministry responsible for the sector and reports to the Cabinet. In oil and gas, there is also the Natural Resources Authority, which overseas exploration and surveying, and the NPC, which is a government-owned entity conducting both exploration and extraction of oil and gas. Jordan Petroleum Refinery is a listed firm responsible for refining and producing petroleum derivatives, while the Jordanian-Egyptian Fajer Company has the licence to operate the gas pipeline from Aqaba to the north of Jordan and the power plants that have been receiving Egyptian gas.

On the electricity side, the Electricity Regulatory Commission (ERC) fell under MEMR. This organisation set tariffs, issued licences and monitored compliance with regulations. In 2014, however, the ERC was reorganised and renamed the Energy and Mineral Resources Regulatory Commission (EMRRC), keeping its previous functions while taking on others relating to the wider energy and minerals sectors.

Powering Up

Jordan has a single buyer model for electricity, with power generated by independent power production (IPP) companies sold exclusively to the National Electric Power Company (NEPCO). A combination of increased use of fuel oil to compensate for the halted Egyptian gas, which has caused generation costs to rise more than five-fold, and a subsidy system that results in power being sold at below-market levels has meant that NEPCO has made serious losses in recent years. These were as large as $4.23bn since 2011, according to local press reports. This deficit should come down in the years ahead, though, as subsidies are reduced and new sources come on-line.

The generation companies, meanwhile, are the Central Electricity Generating Company (CEGCO), the Samra Electric Power Generating Company (SEPGCO), the Qatrana Electric Power Company (QEPCO), the Amman East Power Plant (AES) and the international power grid, for imported electricity. Figures from the EMRRC for 2013 show that peak demand in Jordan was 2995 MW that year, up from 2790 MW in 2012 – a growth rate of 7.3%. Meanwhile, total generating capacity stood at 3566 MW in 2013, up from 3419 MW in 2012, or 4.3% growth. Some 17,261 GWh were generated in 2013, up 4% from 2012, while 14,581 GWh were consumed, up 2% on 2012. The amount of imported energy fell in 2013 though – down 51.4% from 784 GWh in 2012 to 381 GWh in 2013. The average consumption of electricity per capita also fell a little, by 0.2%, from 2237 KWh in 2012 to 2233 KWh in 2013. Some 99.9% of the population was connected to the grid in both years, illustrating a major advantage for Jordan. The kingdom has long had a connected population, with the transmission and distribution system covering most of the country. However, the loss ratio was fairly high, though it fell slightly over the two years from 17.3% in 2012 to 17.1% in 2013. This shows that while the transmission and distribution systems may be extensive, they are in some places in major need of an upgrade – and enforcement of payments also needs to be improved. Running power lines across some of the most inhospitable desert terrain in the world entails considerable maintenance costs, while the distribution companies also take losses from underinvestment in the “last mile”.

Other Players

In addition to these major firms, small amounts of power are also being produced by other sources. The King Talal dam, which lies across the Zarqa River in the hills of northern Jordan, generates some 6 MW of power, annually, while in 2013, the EMRRC recorded 1 MW from wind energy and 4 MW from biogas. The industrial sector also generated some 95 MW of its own power, as it has done since 2010, when it generated 97 MW. This is also then fed into the grid. The IPPs use both oil and gas to fire their power stations, with CEGCO consuming 1.73m toe in 2013, down slightly from 1.8m toe in 2012. SEPGCO consumed 874,000 toe in 2013, down from 887,000 toe in 2012; AES’s consumption went up from 307,000 toe to 500,000 toe over the same period; and QEPCO’s consumption went from 445,000 toe to 489,000 toe. In terms of Jordan’s total fuel energy consumption, that used by the power sector amounted to 45.3% in 2013, according to EMRRC figures, up from 43.8% the year before. Electricity sector fuel consumption rose 5.7% in 2013, on top of an 11.5% rise in 2012, year-on-year (y-o-y).

After purchasing the electricity from the IPPs, NEPCO then sells this on to the distribution companies, which are the Jordan Electric Power Company (JEPCO), the Irbid District Electricity Company (IDECO) and the Electricity Distribution Company (EDCO). These then sell on to their customers, with JEPCO selling some 8511 GWh in 2013, up from 8473 GWh in 2012. JEPCO also reported that its customer base increased from 1.07m in 2012 to 1.12m in 2013. Over the same period, IDECO’s sales went from 2181 GWh to 2306 GWh, with the company reporting 383,000 customers in 2012 and 413,000 in 2013. EDCO’s sales, meanwhile, went from 2492 GWh to 2612 GWh over the two years, and its customer numbers rose from around 199,000 to 210,000. Overall, customer numbers increased by 5.5% y-o-y in 2013.

Consumption, Tariffs & The Grid

In terms of which sectors consume the most power, households are in the lead at 36.6% of total consumption in 2013, when the segment took 5344 GWh, up from 36.4% and 5210 GWh in 2012. The industrial sector comes in second, with 24.5% in 2013 and 24.7% in 2012, with consumption rising from 3527 GWh to 3567 GWh y-o-y. The commercial sector, which includes hotels, radio and TV, lands in third place, with consumption there falling slightly from 16.2% and 2314 GWh in 2012 to 15.5% and 2266 GWh in 2013. Water pumping takes fourth place, consuming 1344 GWh in 2012 and 1452 GWh the following year, equivalent to 9.4% and 10%, respectively, of the total. Tariffs, which are set by the EMRRC, differ by sector, time of day and level of consumption. In 2013, for example, the household tariff for 1 KWh to 160 KWh per month was JD0.033 ($0.047), while for over 1000 KWh per month it was JD0.259 ($0.366). In the industrial sector, small industries paid JD0.066 ($0.093) for the first 10,000 KWh per month and JD0.075 ($0.106) per KWh over that.

In 2012 the EMRRC also signed an agreement with the US Trade and Development Agency to begin a series of studies on the transformation of the networks of JEPCO, IDECO and EDCO into “smart grids”. The firms and NEPCO have begun rolling out an upgrade programme, too, with substantial work to be done to the existing 132-KV and 400-KV transmission lines. There are also 230-KV and 400-KV tie lines with Syria, and a 400-KV tie line with Egypt. NEPCO is also developing a “Green Corridor” grid reinforcement plan to prepare to absorb the increased supply of RE-generated power into the system, which is set to be ready in 2015.

Nuclear & Re

The main authorities for nuclear energy are JAEC, tasked with establishing a nuclear energy industry, and the Commission for Regulating Radiation and Nuclear Activity, which regulates the nuclear energy applications and monitors environmental impact.

Russia’s national nuclear company, Rosatom, won a tender for a two-unit plant back in October 2013, and the project development agreement (PDA) between JAEC and Rosatom was signed in September 2014. According to current plans, two 1000-MW ( Generation III+) units should be fully operational by 2023-25.

A team of experts led by the International Agency Energy Agency (IAEA) conducted an Integrated Nuclear Infrastructure Review (INIR) mission in Jordan in early August 2014. The team of experts found that notable progress has been made in the development of the country’s nuclear infrastructure. “Jordan was the first country to invite an INIR mission in 2009, and in this second mission, we have seen that our counterparts have made notable progress in developing the nuclear infrastructure in Jordan,” said Jong Kyun Park, INIR mission team leader and director of the IAEA Nuclear Power Division. Another team of nuclear safety and radiation protection experts concluded an 11-day IAEA Integrated Regulatory Review Service (IRRS) mission to review the regulatory framework for nuclear and radiation safety in Jordan. The IRRS team concluded that the government of Jordan has shown commitment to radiation and nuclear safety through various measures.

A smaller, 5-MW research reactor was given the go-ahead in 2013 too, with this under construction at the Jordan University for Science and Technology and set to be operational by 2016. “We are undertaking this project after having exhausted all possible safety concerns that may arise under a nuclear power plant. In doing so, we have arrived at the conclusion that nuclear energy will prove beneficial to all Jordanians in the long term,” Bahjat Aulimat, a commercial and contract engineer at JAEC, told OBG.

In the RE field, two long-standing institutions are the Promotion of Renewable Energy and Energy Efficiency Fund and the Jordan Bio-Gas Company, which operates in the Amman area, using methane extracted from organic waste to fuel a 3.5-MW power plant.

Resource Poor, Resource Rich

Solar power is a potential major source of energy. Here too, the kingdom has a strong competitive advantage – indeed, parts of southern Jordan have the highest irradiation figures in the world, at around 6.4 KWh/sq metre/day. Even in the relatively shady parts of the north and the Rift Valley, irradiation averages 4.4-4.8 KWh/sq metre/day, giving the country overall an average of 5.6 KWh/sq metre/day, according to MEMR figures.

At the same time, Jordan has some excellent sites for generating power from wind. The best wind locations are often in the western and northern parts of Jordan, yet given that those are also the most populated areas of the country, the south may be the focus in the future.

The National Energy Strategy for 2007-20 set a final target of drawing 10% of the total energy mix from RE sources. However, due to the disruption of Egyptian gas, MEMR has already issued tenders that would see RE’s share of the energy mix reach 11.3%, assuming that growth in energy demand continues at 5.5%. These new RE projects are set to be operation in 2015, and it is now anticipated that Jordan will be able to more than double its 10% goal by 2020.

Project Proposals

Under the REEL, companies have been allowed to make direct proposals for RE power generating projects and for connecting these to the grid. A reference price list was also issued by the ERC, back in 2012, which for large projects set tariffs at $0.12/KWh for wind, $0.19/KWh for solar and $0.17/KWh for photovoltaic (PV) solar, $0.127/KWh for biomass and $0.85/KWh for biogas. As an incentive to domestic industry, a 15% addition for RE systems of Jordanian origin was also included in the list. For small projects, the same 15% addition applies, with a net-metering system now agreed. The law also states that the surplus cannot exceed the average consumption of the building to which the solar or wind system is attached, limiting the amount that can be sold on.

While the REEL law states that distribution firms should buy net metering electricity at the same price at which they sell it, the government has tried to change the tariffs for larger projects. This has caused some concern, as guaranteed tariffs are vital if investment is to be encouraged. Nonetheless, a wave of unsolicited RE project proposals were submitted to the ERC. Over 65 entities expressed interest, which was narrowed down to 34 qualified projects, 30 memoranda of understanding, and 12 final proposals and power purchase agreements (PPAs), which were signed by March 2014.

By June of that year, seven projects were already under way, according to data from the NERC. One of the first to be approved was a 117-MW wind project on the outskirts of the southern city of Tafileh. Representing a $288m investment by Jordan Wind Project Company (JWPC), this project should begin supplying power by September 2015. It will be the first operational wind plant in the Middle East, and will be joined by a $200m, 90-MW project being set up by KEPCO of South Korea in Fujeij. Also in the works is a 65- to 75-MW, $150m wind power project in the Maan district. This is being funded by the Kuwait Fund for Arab Economic Development. With all these projects under way, the RE segment is set for rapid development. “I am optimistic about Jordan’s future energy security, with significant advancements being made in the RE field,” Philip Cabus, managing director of Total Jordan, told OBG.

Outlook

Oil shale represents a potential long-term game changer, while RE should help to ease the burden on hydrocarbons. At the same time, diversity of supply in gas and oil is likely to become even more critical as the region moves through a turbulent period. The removal of energy subsidies will also likely cause pain for Jordanians, although it will take a burden off growth. For now, the sector offers many opportunities.