After disruptions to an Egyptian pipeline that had supplied the majority of Jordan’s electricity demand prior to 2011, the Jordanian government is moving to reduce expensive fuel imports and boost domestic generating capacity by building several new power plants. Comprising a diverse energy mix of gas, oil shale and renewable projects, these plants are expected to boost Jordan’s combined capacity by over 1000 MW in the coming years. Although low crude prices have had an impact on Jordan’s largest planned project, a 554-MW oil shale plant, new deals for gas-fired and renewable projects will keep the kingdom’s domestic electricity sector on a strong growth path in 2016.
Pipeline Interruption:
Jordan’s oil production is extremely limited; the kingdom held just 1m barrels of crude reserves and 200bn standard cu feet of gas reserves as of 2014, according to the US Energy Information Administration, making fuel imports for electricity generation a necessity. For years the kingdom met the majority of its power demand with natural gas imports from Egypt through a pipeline cutting across the Sinai Peninsula, with the Carnegie Endowment for International Peace reporting that Egypt supplied 87% of Jordan’s electricity demand in 2009.
However, regional instability in the years following the 2011 Arab Spring uprisings spread to include attacks on the Arab Gas pipeline in the Sinai, with supply essentially halted as of 2014. Fuel imports for power plants saw the kingdom’s energy imports soar in the years between 2011 and 2015, with Jordan’s fuel bill rising from $3.4bn in 2010 to reach $5.3bn in 2011, $6.7bn in 2012, $5.5bn in 2013 and $6.2bn in 2014, according to World Bank data.
Losses at the state-owned National Electric Power Company (NEPCO) simultaneously mounted to reach $1.6bn in 2014. While they have since been dropped back to $308m in 2014, losses are projected to reach $530m in 2016. Fuel imports remain a major expenditure for Jordan, as its population continues to grow.
Stakeholders have called on Jordanian officials to avoid over-reliance on oil as a feedstock, as most Jordanian families are unprepared for the impact of oil market fluctuations on their electricity bill, making reduction of oil imports and the development of new domestic power plants critical in upgrading electricity capacity. With this in mind, and in a bid to reduce NEPCO’s significant losses accumulated in the years between 2012 and 2016, the government is supporting development of several new power plants, with investors from China and the UAE moving to capitalise on significant opportunities to work with the government in delivering electricity capacity upgrades.
Shale Power:
Although it does not hold significant crude oil reserves, Jordan does benefit from some of the world’s largest oil shale reserves – rocks that are rich in fuel and can be heated, cooled and distilled through a process called retorting to produce oil. The kingdom holds between 40bn and 70bn tonnes of oil shale, according to an assessment by Estonia’s state-owned electricity firm Enefit, which has invested in an oil shale-fired power plant in Jordan. This makes the kingdom’s reserves the world’s fourth-largest, with most of this concentrated in the southern governorate of Karnak. The reserves, first discovered over a century ago, offer the potential to meet Jordan’s energy needs for the next 1500 years. While the kingdom has made significant progress towards developing the region’s first oil shale-fired independent power project in 2015 and 2016, ongoing global energy market trends have created new finance challenges for the project.
Plans for an oil shale power project began gathering momentum in February 2014, when the Saudi Arabian Corporation for Oil Shale announced Jordan’s lower house of parliament had approved an extraction project valued at between $2bn and $3bn, which could see production of 30,000 barrels per day (bpd) by 2025. In November 2014 the government signed a memorandum of understanding with Al Qamar for Energy and Infrastructure – an energy consortium active in energy projects from oil, gas and oil shale to wind and solar – to build an oil shale facility with a capacity of 40,000 bpd. The project, which will cover a 64.3-sq-km block located in Attarat Um Ghadran about 100 km south of Amman, is expected to begin production in 2017 with an initial output of 10,000 bpd.
These developments are the outcome of long-held plan for a shale-fuelled power project. This has been in the works since 2007 after Enefit, the world’s largest shale oil developer, partnered with NEPCO, Malaysia’s YTL Power International and Jordanian firm Near East Investment to form a special purpose company, Attarat Power Company (APCO). In June 2013 Enefit received approval from the Ministry of Environment to proceed with the project under a power purchase agreement. Upon completion the facility is expected to generate 554 MW of electricity.
In April 2014 APCO signed an engineering, procurement and construction contract with China’s Guangdong Power Engineering Corporation, following a competitive bidding process between major international players such as Daewoo, Hyundai, Samsung Engineering and POSCO. Shale extracted from a planned nearby mine will be cooked in oxygen-free retorts to separate oil and gas, with the remaining solid burned to fuel a steam-powered generator, producing natural gas, synthetic crude and electricity in the process, while leftover ash can be used to manufacture cement.
Financial Close
Although Enefit announced in July 2014 that the project had received a $1.4bn loan from two lenders – the Industrial and Commercial Bank of China and the Bank of China – the project’s total budget is an estimated $2.3bn, making additional financing a key priority. However, global crude prices have fallen from a high of $115 per barrel in June 2014 to around $45 per barrel as of mid-2016, creating a challenging situation for project stakeholders. In May 2016 APCO announced that Eesti Energia, a parent company of Enefit, had signed an agreement with YTL Power International and Near East Investment to reduce its stake in the project and introduce a new shareholder, China’s Yudean Group, which is to take on a leadership role. Yudean is a state-owned Chinese company that owns and operates more than 29,000 MW of capacity through various facilities, as well as coal mines in China and Australia. Yudean agreed to purchase a 45% stake in the project, while YTL Power International upped its stake from 30% to 45%. Eesti Energia reduced its stake to 10%, as it plans to concentrate on projects within Estonia, and Near East Energy exited the project.
Completion of the share transfers and full financial close will be subject to several conditions, according to a May 2016 report from Estonian Public Broadcasting, including final approval for export credit insurance, which will be provided by China’s Sinosure, and approval from the Chinese government. Eesti Energia has announced plans to fully exit the project within the next five years, and the final deadline for financial close has been set at August 31, 2016, having been extended three times since 2014. Following financial close, construction will last 38 months.
Gas Plant
Although the final timeline for delivery of the oil shale project could be in doubt, Jordan’s electricity capacity is nonetheless expected to soar in the coming years, after authorities signed a number of new agreements for the development of gas-fired and renewable power plants. One of these will replace an ageing, oil-burning plant and further curtail oil imports. In December 2015 NEPCO officials announced that the company was set to sign a $400m contract with Saudi Arabia’s ACWA Power for the construction of a new 480-MW power plant, which will replace the kingdom’s oldest existing facility, Aqaba’s Hussein Thermal Power Station. The new plant is expected to be completed by 2019 and will run primarily on natural gas, as well as smaller quantities of gasoline. At present, the Hussein Thermal Power Station uses heavy fuel and gasoline for a generating capacity of 198 MW.
Masdar Plant
Outside of oil- and gas-fired plants, Jordan is also intensifying its focus on new, large-scale renewable power plants, with recent announcements indicating investment in this segment could drive future capacity upgrades. In January 2016, for example, Abu Dhabi’s state-owned renewable development entity Masdar announced plans to build a 200-MW solar power plant in Jordan, with Ibrahim Saif, the minister of energy, telling Bloomberg News that the project will cost an estimated $200m. The decision was made after Masdar officials invested in a 117-MW wind farm in the kingdom in 2015 (see overview), with the new deal expected to include a 15-year power purchase agreement between NEPCO and Masdar.
Jordan will also provide land, logistics and a link to the national grid. The Ministry of Energy and Mineral Resources reported in the same month that Jordan will have 500 MW of wind and solar power capacity on-line by the end of 2016, and that out of 1000 MW of projects currently under development, 170 MW are already operational, with the rest expected before 2018.
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