Identifier
Created
Classification
Origin
03AMMAN2367
2003-04-20 10:28:00
CONFIDENTIAL
Embassy Amman
Cable title:  

TFIZ01: JORDAN'S ENERGY MINISTER ON OIL SITUATION,

Tags:  EPET ETRD ENRG IZ JO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 002367 

SIPDIS

E.O. 12958: DECL: 04/17/2013
TAGS: EPET ETRD ENRG IZ JO
SUBJECT: TFIZ01: JORDAN'S ENERGY MINISTER ON OIL SITUATION,
GAS FUTURES


Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 002367

SIPDIS

E.O. 12958: DECL: 04/17/2013
TAGS: EPET ETRD ENRG IZ JO
SUBJECT: TFIZ01: JORDAN'S ENERGY MINISTER ON OIL SITUATION,
GAS FUTURES


Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)


1. (c) Summary: Jordanian Energy Minister Mohammed
Bataineh told us April 17 that after a slow start, Gulf oil
was now flowing into Jordan to replace Iraqi crude.
Jordanian reserves had dipped initially when Iraqi oil
stopped flowing, but had since stabilized and were expected
to replenish soon. This new system, though, is causing
significant financial and environmental disruptions in
Jordan. While the GOJ is making plans to accommodate the new
reality of market prices for crude in the future, it will
feel sharp fiscal pain in the short term as it makes the
adjustment. End summary.

--------------
Gulf Oil Deal Update
--------------


2. (c) Bataineh praised the flexibility and reliability of
his Saudi interlocutors, noting that they had not only come
through as promised with a three-month deal to provide 50,000
bpd, but had also agreed to restructure the delivery schedule
from three to two shipments at the GOJ's request. Bataineh
said one ship had already lifted one million barrels of crude
from Yanbu and had arrived at Aqaba. It had not yet begun
offloading. The 3-month deal, he said, was formally an
agreement between ARAMCO and the Jordan Petroleum Refinery
Company (JPRC),not/not a government-to-government deal. He
added that this arrangement was made at ARAMCO's request.


3. (c) Bataineh was somewhat frustrated with his Kuwaiti
colleagues, however. He said Kuwaiti oil and port
authorities had raised objections about the ship the GOJ had
chartered to transport the oil, refusing it entry into the
loading site on the grounds that it did not meet safety
standards (Bataineh admitted it was an older, single-hulled
vessel). He said the Kuwaitis were less flexible about
consolidating shipments, meaning the GOJ would have to make
additional trips and lease the ship for longer in order to
collect the oil, which resulted in significant additional
costs (see below). The Kuwaitis ultimately agreed to a
ship-to-ship transfer of 240,000 tons of crude, which
Bataineh said was currently being effected, after which the
leased ship would head to Aqaba.


4. (c) As for the Emirates' promise of a cash grant to
cover purchase of 25,000 bpd, Bataineh said this matter was
being handled directly by the Finance Ministry. He had no
knowledge as to whether or not any grants had been received.
Bataineh also denied reports that Jordan had lifted oil from
Ras Tanura. He said the site had been proposed as a lifting
option, but that they and the Saudis had decided instead to
lift from Yanbu which is much closer, and hence less costly.

--------------
Reserves Down, but Stabilizing
--------------


5. (c) Bataineh said land-based as well as shipboard
reserves were down significantly over the past month. Crude
reserves in Zarqa are down to 95,000 tons from a pre-war peak
of 200,000 tons, and reserves on the tanker "Jerash," moored
in Aqaba, were down to 140,000 from 280,000. (Note:
Bataineh told us in a previous meeting that all land reserves
were refined product, and all crude storage was shipboard.
End note.) Bataineh attributed the dip in reserves to the
need to offset the loss of crude flows from Iraq when the war
started. He said reserves are now stable at the new, lower
level. He added that, with the arrival of the feeder from
Yanbu, reserves should "top up" again to their previous
levels "in a few weeks," and noted there are an additional
30,000 tons of crude storage in Aqaba currently.

--------------
Financial, Opportunity Costs
--------------


6. (c) Bataineh asserted that the new system was resulting
in significant financial and other costs. While exact
figures are unavailable for the total additional cost to the
GOJ of the current system, Bataineh provided many
illustrative examples: rental of the two feeder ships was
costing the GOJ $25,000 and $85,000 per day respectively just
in rental fees. Bataineh complained that these fees were
assessed monthly, even though the ships were only making one
or two trips. The ships incurred additional costs at port.
When lifting, the ships are assessed a $1.50/ton fee, and
once they reach Aqaba, they incur significant additional
costs as they maneuver in and out of the sole oil jetty -
which is also used to offload vegetable oil, refined product,
and sulpho-chemicals.


7. (c) Land transport fees were actually cheaper under the
new system ($9.10/ton versus $14.50/ton when trucked from
Iraq),but trucks cannot be fully loaded (for the reason
given below) and as a result have to make additional trips.
Thus land transport costs are likely a wash. More
concerning, though, is the significant damage being done to
the just-completed bypass road that curls behind Aqaba to
link with the Desert Highway. Bataineh showed us pictures of
significant damage to the road and the surrounding
environment from large amounts of spilled oil. According to
Bataineh, the grade of the road is exceptionally steep, and
Jordan's crude trucking fleet is exceptionally old. This
combination has resulted in large amounts of spillage of
crude onto the road and into the countryside. To counter
this, the trucks are now traveling with only partial loads.
However, since the road was designed essentially for cargo
traffic and not tanker traffic, the axle load on the road
from the crude trucks far exceeds the maximum allowable.
This is further destroying the new road.

--------------
The Future is Gas
--------------


8. (c) Bataineh said the cabinet was concerned about
Jordan's energy future, in particular what would happen in
three months when the Gulf concessions ran out. He said it
was inevitable that Jordan would be paying market prices for
crude, but noted this would have serious budgetary
consequences. He said the cabinet is still discussing price
hikes for refined product, but said it is a highly-charged
issue, because of the social and political costs of such a
move.


9. (c) On the bright side, he said, a number of natural
gas-related projects were on schedule and would help limit
Jordan's crude dependency. He noted that the undersea
portion of the Egypt-Jordan gas pipeline was complete, and
that documentation was nearly finalized to extend the
pipeline to Amman. He expected the remaining land
connections and receiving stations to be completed in the
coming weeks, and said gas should be flowing by mid-June.
Once the turbines at the Aqaba power station started using
gas (they are already installed and ready to go),Jordan's
fuel oil needs would be cut by about 60%.


10. (c) Bataineh said the Al Samra Independent Power Project
(IPP) was still in train, but said progress had stalled with
the departure of Tractebel, the original contractor.
Bataineh said the GOJ was taking new bids on the
combined-cycle plant, and had received serious interest from
a number of energy companies. However, most of the bidders
proposed greenfield projects, which would take too long to
build to meet Jordan's medium-term energy needs. Bataineh
predicted the IPP needed to be on-line by 2006 to meet
Jordan's future electricity needs, and was asking bidders for
new proposals that could build on the work already completed
by Tractebel.

--------------
Happiness is Multiple Pipelines
--------------


11. (c) Looking even further ahead, Bataineh said Jordan
would likely have to look to re-establish an oil relationship
with a new Iraqi government in order to meet its energy needs
in the most cost-efficient way. Bataineh did not suggest
that new oil concessions were in the cards, but looked rather
to oil sector investment as a means to renew the relationship
to mutual advantage. He said first that the Iraq-Zarqa
pipeline was still on the books, and that the GOJ was eager
to see a new Iraqi government in place that could meet its
commitments under the terms of the deal (which includes,
inter alia, delivery of loading stations by the developer to
Iraqi government control).


12. (c) In addition, he said he had received a number of
expressions of interest from developers looking to revitalize
an idea from the mid-1980's to run a crude pipeline from Iraq
to Aqaba, and to build additional refineries in Aqaba. Such
a plan, he said, would bring Jordan revenue from transit fees
and would reduce transportation costs for oil used
domestically. He denied flat out, however, that there was
any plan or discussion to restart a Mosul-Haifa crude
pipeline as reported in the press. Any such talk, he said,
was ridiculous, since the pipeline no longer exists as such.

--------------
Comment
--------------


13. (c) The war has clearly brought additional costs to
Jordan's energy sector. While those costs are not yet easily
quantifiable, they are apparent, from the significant damage
to Aqaba's new bypass highway to the fees associated with
feeder ships, to say nothing of the looming elimination of
subsidies on crude imports. Bataineh's plans for the
sector's future appear sound, if somewhat ambitious. But if
successfully completed, they would ease somewhat the burden
of shifting to market prices for crude. In the short term,
though, and especially after Gulf concessions cease in three
months, Jordan will face serious financial strains from the
cessation of its sweetheart oil arrangement with the Saddam
regime.
GNEHM