Jordan Puts Oil Shale Projects on Hold to Pursue Uranium

UNCLAS AMMAN 002421 SIPDIS SENSITIVE STATE FOR EEB, ISN/NESS, AND NEA/ELA STATE PASS TO USTDA E.O. 12958: N/A TAGS: ENRG EPET ECON JO SUBJECT: Jordan Puts Oil Shale Projects on Hold to Pursue Uranium Mining REFS: A) Amman 233 SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS PROPRIETARY INFORMATION. NOT FOR DISTRIBUTION OUTSIDE THE USG. ¶1. (SBU) Summary: Jordan released a new national energy strategy in December 2007 that identified various areas for increasing indigenous energy resources and reducing dependency on foreign oil (ref A). Given recent hikes in world crude prices, the Government of Jordan (GOJ) has faced pressure to implement the new strategy as quickly as possible and competing priorities have emerged. Most recently, the Cabinet decreed on August 6 to suspend ongoing feasibility studies, tenders, and other activities in oil shale exploration within central Jordan for a period of up to 18 months in order to first explore uranium mining activities in that region. While the Jordan Atomic Energy Commission argues that this makes sense since the uranium is closer to the surface than oil shale, the Natural Resources Authority believes that this decision sends negative signals to foreign investors who have already signed memoranda of understanding with the GOJ and invested significant funds and time in oil shale projects. End Summary. 40 Billion Tons of Oil Shale Reserves in Jordan Spell Great Potential -------------- ¶2. (U) Jordan, which imports over 96% of its energy and is struggling to meet growing needs, has the world's fourth largest reserves of oil shale - a rock that contains kerogen and can be retorted at high temperatures to form crude shale oil, gases, and char. According to the Natural Resources Authority (NRA),some 40 billion tons of oil shale exist in over 20 sites, mainly in central Jordan. Note: An estimated 1.25 tons of extracted oil shale are needed to produce a single barrel of crude oil. End note. While the resource can be found as shallow as 40 meters (131 ft.) below the surface in the west and south, oil shale is at deeper levels, some 900 meters (2,953 ft.),in the east and north of the Kingdom. ¶3. (U) Jordan's energy strategy aims to have oil shale comprise 11% of Jordan's energy mix by 2015 and 14% by 2020. Jordan Engineers Association President Wael Saqqa told local press that exploiting oil shale reserves would satisfy Jordan's oil needs for the coming 700 years. NRA Director General Maher Hijazin also averred to Econoffs that oil shale is the medium- and long-term answer to Jordan's energy needs. Surface Oil Shale Exploration in Central Jordan -------------- -- ¶4. (SBU) Under four separate memoranda of understanding with the NRA, Estonian Eesti Energia, the Brazilian firm Petrobras, the Jordanian-British-owned Jordan Energy and Mining Limited (JEML),and a Saudi firm have been conducting for several years surface oil shale feasibility studies in four separate blocks in the Attarat Um Ghudran and Wadi Maghar areas of central Jordan. The NRA had hoped to sign concession agreements with the four companies by the end of the year and have commercially viable oil shale within the next 10 years. Having already finished its feasibility study, Eesti Energia concluded that there was the potential to produce 36,000 barrels of oil per day by 2018 in its assigned block, and already signed an agreement with the Jordanian National Energy Power Company (NEPCO) and the Ministry of Energy and Mineral Resources (MEMR) to do testing and drilling over the next two to three years. NEPCO Director General Ahmed Hiyasat said that at that point, the GOJ would present Eesti an offer to develop an Independent Power Producer (IPP) in the range of 600 megawatts and if the price was right, a contract would be signed. The NRA had also floated a tender with a bid deadline of August 14 for surface oil shale exploration in four additional blocks in central Jordan; Hijazin noted that the U.S. company EcoShale had already submitted a bid. Deep-Oil Shale Exploration by Shell -------------- ¶5. (SBU) The NRA has also been hoping to conclude by September 2008 negotiations on a long-term concession agreement, which would run between 15 and 20 years, with the Anglo-Dutch group Royal Dutch Shell on deep oil shale exploration. Under the potential concession, Shell would survey and develop 22,000 square kilometers (8,494 square miles) of land, nearly one quarter of the country, in the central and northern regions of Jordan. Ian Bromilow, the Jordan Country Chairman of the Shell Business Development Company Middle East, told Econoffs that Shell expects to apply its patented In-situ Conversion Process, which the company developed in Colorado. The process entails drilling shafts through the rock surface and inserting heaters which cook the oil shale rock at around 300 - 350 degrees Celsius over several years to produce oil that is pumped to the surface for extraction. Bromilow said Shell knows the location and the depth of the oil shale, but does not yet know the quality. Uranium Exploration Trumps Oil Shale -------------- ¶6. (SBU) Despite these agreements, the Cabinet decided on August 6 to freeze oil shale activities in the Attarat Um Gudhran and Wadi Maghar areas for 18 months since they fall within a 1,500 square kilometers (579 square miles) area of potential uranium reserves for Jordan's nuclear energy program, which is to provide 6% of Jordan's energy mix by 2020. Note: Jordan has an estimated 130,000 tons of uranium reserves. End note. Jordan Atomic Energy Commission (JAEC) Chairman Dr. Khaled Toukan indicated to Econoffs on August 13 that the decision made sense because uranium is at shallower levels of 0.5-10 meters (1.6-33 ft.) below the surface than oil shale and could be lost if not exploited first. He expected that a joint venture for uranium exploration between a strategic partner and Jordan Energy Resources, Inc., which JAEC owns, would be established by the end of the summer, and noted that there have been several interested parties, including the French company Areva and the multinational Rio Tinto Group. ¶7. (SBU) Toukan noted that the JAEC had identified three different zones within the central region - 1) Zone A which has known uranium deposits; 2) Zone B, which is close to potential uranium reserves; and 3) Zone C, which is on the periphery. He said that many of the current oil shale projects are located in Zone C, and therefore, the JAEC will ensure that any uranium exploration first occurs in that zone within the next six months. If nothing is found, then the areas will be released and made available for further oil shale activities, although small lots might still be designated as buffer zones between work sites. If deposits are found, however, Toukan said it would most likely take 18-24 months for complete extraction before the areas will be relinquished. Impact on Investment? -------------- ¶8. (SBU) Toukan thought oil shale companies would welcome the Cabinet's decision as a means for ensuring that they are not working on top of one another, not to mention that some of the more shallow excavation work would actually be done for them. Additionally, he did not believe that the GOJ was reneging on any agreements, since they were primarily for studies, and no contract had been awarded yet for the new tender. Hijazin disagreed, however, arguing that numerous studies have already identified where the uranium reserves are located in central Jordan, and they do not necessarily overlap with the blocks that were designated for oil shale exploration. He fears that the decision will discourage future investment and bring lawsuits against the government. He also lamented that many international firms invested time and money into bidding on the new tender, which would now need to be stopped. ¶9. (SBU) In particular, Hijazin said the Estonian company, which has already invested about $15-$20 million, has threatened to pull out of Jordan. He added that Eesti Energia representatives met with the JAEC and requested a letter of comfort from the GOJ that it would be able to resume work as agreed after the six month initial exploration period, but nothing has been provided to date. Both Hijazin and Hiyasat presented the solution of carving out the Estonians' 10 square kilometers from the larger area designated by JAEC, since neither believes it holds uranium based on geological studies, but Hiyasat noted that MEMR would need to take such a decision. Hijazin said that although the area designated for uranium mining also conflicts with a small portion of the block being given to Shell, that company was less concerned since its project also involves other areas within Jordan and is more long-term, with a final investment decision not expected until 2018. Comment -------------- ¶10. (SBU) The concept of oil shale extraction is not new in Jordan. For over 30 years, government officials and international organizations have revisited the prospect of oil shale production in Jordan, but the cost of production was always much higher than the market price of purchasing crude oil until recently. Now that world crude oil prices have skyrocketed, oil shale has once again risen to the forefront as a potentially viable alternative, but there are still many challenges, including high sulfur and ash content in the shale, environmental concerns, and water requirements. Further studies and environmental impact assessments need to be done before oil shale can be declared the savior of Jordan's energy needs. Likewise, the nuclear energy program is a long-term prospect that still requires development of human capacity and studies on suitable reactor sites, water requirements, and environmental impact. Despite the long-term nature of both program areas, they hit a crossroads early on, requiring that strategic implementation priorities be addressed. The decision making process, however, has caused concern about transparency and the credibility of GOJ commitments in the energy sector. The GOJ will need to ensure that present and future investors do not become discouraged or else Jordan may be left with great energy plans and no one to implement them. Visit Amman's Classified Website at: http://www.state.gov.sgov.gov/p/nea/amman/ Beecroft