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Jordan seeks oil riches from shale deposits

Financial Times

By Ferry Biedermann

Published: July 6 2009 18:04 | Last updated: July 6 2009 18:04

Oil wealth can be a mixed blessing. Too much black gold tends to crowd out other sectors of the economy by boosting exchange rates and the “unearned” income it provides can encourage dependency among some sectors of society.

For Jordan, such arguments are the stuff of dreams. The country “imports every drop of oil”, in the words of Ala Nuseibeh, chief executive of Kan International Petroleum Services, an Amman-based company.

But that may be about to change. In May, Royal Dutch Shell signed a deal to explore and possibly eventually exploit Jordan’s deep oil shale deposits, which are among the world’s largest.

Oil shale is sedimentary rock that contains kerogen. This organic matter was formed millions of years ago as silt and debris on lake and seabeds built up. Rich shale is almost black, whereas lean shale is caramel in colour.

Once extracted, oil shale can either be used directly as fuel for a power plant, or be processed to produce shale oil and other chemicals and materials.

The Shell deal, which involves initial outlays of $425m by the company, is not expected to yield commercially viable quantities of oil before the late 2020s.

“People who are concerned about developing fuel resources in Jordan would rather see it yesterday than today,” says Maher Hijazin, head of Jordan’s Natural Resources Authority, which signed the deal with Shell in May. “But that is normal.”

Such a “huge project” will take a long time to come on-stream, he says, and some people, including politicians, are impatient with the lengthy lead time. Parliament is still vetting the deal.

Jordan used to obtain cheap and even free oil from Iraq before the Ba’athist regime was toppled in 2003. Since then, several of the oil-producing countries in the Gulf have provided Jordan with favourable terms but nowhere near as advantageous as the Iraq deals.

Domestic oil consumption in 2008 stood at 108,000 barrels per day. The Shell project, if commercially exploited, could produce in excess of 100,000b/d.

Mr Hijazin says the viability of the project will not be affected by Jordan’s existing oil import agreements. The deal with Shell is not a production-sharing agreement, he explains. The state will profit through royalties and taxes.

Shell will explore for oil in 22,000 sq km in the north-east and south, a quarter of the known oil shale layers in the country. It will then confine drilling to 1,000 sq km.

The involvement of a leading oil company such as Shell is a boon for Jordan, says Mr Nuseibeh of Kan (which is not involved in the deal). He says “billions of dollars” of investment will be needed to see the project through. He calls oil shale extraction “the next generation” of oil availability. “It is cheap to mine but expensive to produce.”

The project is concerned with the deep oil shale layer in Jordan, of which the Mr Hijazin of the NRA says not much is known. The shale will have to be heated for three to four years before it yields oil. The technology that will be used, ICP, or in situ conversion process, is still experimental and has been tested in a trial in Colorado.

ICP extracts hydrocarbons from oil shale using underground heaters. The heating process converts organic matter in the shale into oil and hydrocarbon gas underground.

“There are no guarantees of success,” Mr Hijazin says. But he is confident that the project will end in a decision by Shell to go ahead with commercial oil production.

Mr Nuseibeh estimates that for the initial pilot project to be viable, oil prices have to remain above $35 a barrel. But he expects Shell to remain interested if prices fall below that.

Jordan is also aiming to exploit its shallow oil shale deposits. Mr Hijazin cannot say how big the various deposits are because they are still being explored.

By the end of the year the NRA hopes to sign an agreement with Eesti Energia, an Estonian company, and has signed exploration agreements with six other groups that are due to present feasibility studies within two years.

The deal with Shell is being considered by the energy committee of Jordan’s parliament. Atef Tarawneh, who heads the committee, says the members may have “some questions” about it.

Among concerns that he lists is the structure under which the agreement was signed with Shell Jordan, the group’s local subsidiary.

Mr Tarawneh also mentions the long duration of the deal, and concerns over the tax structure and the environmental impact of what is still an experimental technology.

But Mr Hijazin says the fact that the agreement has been referred to the committee makes him optimistic that it will soon be passed. “It took us three years to negotiate this agreement,” he says. “It is a fair and balanced agreement between the government and the company.”

Copyright The Financial Times Limited 2009

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