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Likely Future Product Prices for Gas and Other Products
Jordan has in recent time been regarded as an investment hub for energy. The nation has provided a stable market for energy related products such as oil and gas. This can be largely attributed to the surge in demand for these products and also the need to increase the nation’s energy independence.
However, Jordan has no internal energy sources. It heavily relies on imports. The country has directed efforts to import as much hydrocarbons as possible so as to protect against from external supply shocks. It has also focused attention on alternative energy sources as a viable means to counter against these external supply shocks (Brand, 2011).Statistics indicate that in order to meet the local demand, Jordan has to import well over 90% of its energy needs. Importing to such an extent is quite expensive and is highly unsustainable.
Specifically on gas imports, Jordan heavily relied on Egypt. Jordan uses gas for electricity generation. But this heavy reliance had a big implication when the gas supply was disrupted. This disruption was due to the attacks on the pipeline. Jordan had no option but to use costly alternative energy sources such as diesel and fuel oil especially in generating electricity (Maciejewski and Ahsan, 2014).
The attacks indeed had a big implication, since it greatly reduced the gas supply. At around 2014, the gas supply almost ceased. Gas was not being used in generation of electricity as much as it used to; in fact, its share in production of electricity fell to a mere 7%.In 2009, Jordan expended about 11% of its GDP on energy related expenses. But with the cessation in the importation of gas due to the attacks on the Egyptian pipeline, the increasing reliance on petroleum products led to an increase on the expenditure. As at 2012, the expenses rose to 21.1% of the GDP. Hence, it can be said that the expenses doubled in a span of two years.
The Jordanian government was not able to meet these expenses. It turned to the International Monetary Fund for a $2 billion loan to help it cover the rising expenses on energy. The impact on the prices of energy related products was an increase across the board. As it was clear that Egypt would not be able to sufficiently supply gas to Jordan, a suitable alternative was sought. Jordan turned to countries such as Qatar, Iraq, Algeria and Cyprus to broker a deal that would ensure a renewed supply of gas to the nation.
Israel later proved to be a suitable option, owing to its enormous gas reservoirs. This was further complemented by the proximity of Jordan to Israel. Thus, on a cost-benefit perspective and as far as sustainability of supply was concerned, Israel was the best option (Brand, 2011).An agreement was signed between NEPCO and the Leviathan partnership. This agreement saw to it that a constant supply of gas was to be given to Jordan for 15 years. In terms of figures, the deal was estimated to be about $10 billion. The supply is to commence at the end of 2019. Currently, Jordan will have to source Liquefied natural gas (LNP) to meet the gas demand of the local population. A number of sources have been identified and they include the Aqaba Port. This port started operations in 2015.
A commercial perspective to this partnership will be that the electricity rates will be reduced for consumers. This will be an incentive for electricity consumers. Indeed, Jordan has all the incentive to safeguard its gas and oil supplies. A close look at its climate, it has an arid climate. Such a climate does not favor alternative electricity generation activities like hydropower. Thus, there is a need for fuel safeguards and fuel diversification. A good alternative that can work in Jordan is Liquefied Natural gas. At present, Liquefied Natural gas can serve as an alternative.
The benefits that will accrue to the energy industry will be well pleasing. When the energy sources are diverse, a buffer will be created. This buffer will have enormous macroeconomic benefits which will enable the country to increase its energy independence (Piro, 2009).
Jordan has targets that are already in place to foster its energy independence. There are fuel mix targets, which are already in place. They are to be realized between 2015 and 2020. They include:
Increase in natural gas inputs
Maintenance of gas inputs
Increasing capacity in alternative energy capacity
Maintenance of natural gas inputs
Reduction of oil products
All these point out to a favorable future price of gas and other related petroleum products. Presently, the prices for fuel products dropped in the international market. However, in Jordan, the prices have remained relatively constant. The Jordanian government has been undertaking a financial reform and thus, this move was expected to support the budget. However, there was an imposition of a 20-fils tax on gasoline. There was also a 15-fils tax imposition on diesel and kerosene.
Refining aims at providing a distinct range of products according to the agreed terms. However, simple refineries make use of a distillation process to isolated crude into fractions, and the relative quantities are then directly reliant on the crude used. Therefore, it is necessary to obtain a variety of crude that can be merged to a suitable feedstock to produce the needed quantity and quality of finish products. The financial success of a modern refinery depends on its capacity to receive almost any available crude.
Since the supply has been high, demand has gone down because there is plenty of oil for use by consumers. The refinery operations often include product distribution depots for supplying product to wholesale customers such as ports, gasoline stations, industries, and airports. The present future curves of the oil prices show that they are projected to maintain a steady rise from the current approximate price of 50 dollars for every barrel for the next few years as well as the gas prices.
Finally, with the expectation of a rise in the overall prices of gas in next few years, an investment in a gas field would be beneficial. And as Dr. John says; “prices will rise and drop, but what is coming first, rise or drop is not important, prices are fluctuating.”
References
Piro, T. 2009.The Political Economy of Market Reform in Jordan. Lanham, Maryland: Rowman& Littlefield Publishers.
Brand, L. 2011. Jordan’s Inter-Arab Relations: The Political Economy of Alliance Making. New York: Columbia University Press.
Maciejewski, E, and Ahsan M. 2014. Jordan: Strategy for Adjustment and Growth. Washington, D.C.: International Monetary Fund.
