Don't spend it all in one place

Jordanians have become commodities experts, carefully following the daily fluctuations in oil prices. So, over the past month, as oil prices have fallen precipitously, they have been waiting to see whether the government was honest about letting prices at the pump follow the oil price trends. Of course, the government has rigorously followed the world prices as they rose.

The poor souls actually believed that the government was good for its word. Humorist Ahmad Hassan Zoubi suggested a grand celebration to announce the lowering of prices, following the model of the New 7 wonders of the world. He also suggested that they invite Jennifer Lopez to sing at the ceremony, because “we have good luck with her”. He was of course referring to Petra winning in the New 7 wonders contest.

So now, the moment of truth has arrived. After world oil prices have fallen around 16% since the first week of July, this has translated to a 5% drop in prices at the pump. Yippee.

It is no secret that this whole thing is a scam. The government gets the oil at deep discounts and charges the consumer full price, plus taxes, pocketing the difference. They refuse to let competitors enter the market, because they are making too much money on this. Free economy be dammed.

But not to worry. Mullah Nader promises that if world prices stay the same, prices will be dropped again next month as well. The reason, we are told, is that prices are calculated based on daily averages. We are led to assume that importers buy commodities on a daily basis, without shopping around.

So, we will go through another round of complaining, and as usual the government will profess its total honesty on the issue. There may be some posturing by the opposition, followed by the government accusing them of “having no alternatives”. Of course, if the government was totally honest it would get out of the oil business and let the private sector do the job.

Oil, oil, go away; come again some other day

Jordan is on its way to becoming the first country in the world where parliament will discuss whether or not there are petroleum deposits in its territory. Typically, this is the job of oil companies or of state geological surveys. But, since such an announcement is not forthcoming, well, then maybe our parliamentarians can do it.

I can see it. They will collect all the aeromagnetic surveys, the geophysical seismic sections, the geological maps, the well data (cuttings and the well log data), and after pouring over all of this data, they will develop depositional and structural models of the geology of Jordan. After that, they will vote on whether there is any oil in Jordan or not.

Obviously, this is the most ridiculous stunt that parliament can pull. But how did we get here?

Exploration for oil in Jordan began in the 1940’s, although none of the efforts was really whole hearted, because oil companies were more interested in the giant oil reservoirs of the Arabian Gulf (the nearest oil giant is about 1000 km away). Some interesting information can be found on page 189 here). Things only became interesting when Trans-Global Petroleum came into the picture in 1997. Their area of interest was in the southern basin of the Dead Sea. Trans-Global has had a rough relationship with the Jordanian government, with a culmination of a lecture at the Jordanian Geologists Association conference last year. During the conference, Trans-Global President, Nick Abraham, announced that his company has discovered massive amounts of oil in the concession area. The Natural Resources Authority was not amused, and tried to take the concession away from them. Later, Trans-Global backed away from the claim of finding oil. Subsequent developments include a newly established Hariri company (Porosity) gaining an 80% share of the Trans-Global concession through NRA coercion and Trans-Global suing the Jordanian government for 700 million dinars. A this stage, observers started to wonder what the intentions of the NRA are.

And to add another nail to the coffin of credibility of the NRA, a previously closed exploration well in the Serhan Basin in eastern Jordan started leaking oil. At the time, MP ‘Awwad Zawaideh (southern Bedouins) said that people are filling their cars directly from the well. Again, the NRA insisted that the well is not productive, and to solve the public relation problem they decided to seal the well with concrete. There. Problem solved.

Rula Hroub at Al Anbat wrote a series of articles about oil exploration in the country. In it, she revealed some very interesting and potentially embarrassing information. To me, the most interesting was how the NRA insisted on having meetings with Trans-Global at their headquarters and how they offhandedly dealt with investors who wanted to join Trans-Global. They only agreed to Hariri joining the concession, although his company has no history in oil exploration. However, why do you need expertise if your name is HARIRI?

Now, all of this does not mean anything about whether or not there are commercial oil deposits in the country or not. It just means that the government is acting suspiciously, which leads people not to trust them. Does that sound familiar?

More on the new oil policy

Yesterday, I talked about how the government is insisting on monopolizing oil imports and pricing in the country. Today, Ali Rawashdeh has a report in Al Arab al Yawm concerning the new plans for the oil sector.

The most interesting part of the report is the agreement between the government and the Jordan Petroleum Refinery Company to regulate relationships after the ending of the concession agreement. The company will get one out of four licenses to distribute oil products in the country.

Noteworthy is that the agreement stipulates that distribution companies that will be set up will be obliged to buy 75% of their fuel from the JPRC.

Kind of defeats the purpose, don’t you think?

Slick liberalization

Today, I chuckled as I read Samih Ma’aitah’s piece. In it, he earnestly asks questions about how petroleum products are priced, the cost of the crude oil that we buy and the relationship between the two. I don’t know if he is being naïve or being clever.

I have pointed out previously that the numbers that the government feeds us on this issue don’t make sense. It is almost as if the numbers are put out to confuse rather than to explain.

The government has recently liberated the price of oil products, but it has not liberated the oil market. This means that they retain the monopoly on importing and marketing oil, set the price they feel is appropriate and, thus far, don’t allow the private sector share in the bounty. Nobody is suggesting that government control of prices is meant to protect consumers.

When the issue of the expiration of the 50 year contract with the Jordan Petroleum Refining Company showed up a couple of years ago, the initial statements suggested that the market will be opened and competition between different companies will result. Ziad Manaseer opened a chain of high end modern gas stations in anticipation of this. Since then, the contract has expired and the government has dragged its feet on issuing legislation and regulations to allow for real liberalization to occur. I guess 50 years wasn’t enough time to think about this and decide what to do next.

Today, a report in Al Ghad says that a group of industrialists want to set up a company to import and distribute oil products, because obviously feel that they can get a better deal this way than buying the oil from the government. One investor says that he hopes that the government will encourage this step and take the necessary steps to create the proposed company. His statement suggests that he probably realizes that the government is not interested in any competition in the energy market, all the statements supporting a market economy not withstanding.

Another fuel rise

The screen play for raising fuel prices has become monotonous. The boring show starts with an “independent” columnist at Al Rai starts to wring his hands about the budget deficit. Next, press leaks to the effect that there is a budget deficit, and that government subsidies are going to help the rich. Here it is forgotten that the government blames high inflation (which actually hurts the poor) on fuel price increases. This is a simple example of trying to have things both ways: subsidies don’t help the poor, and inflation is due to the elimination of the subsidies. Next there is an exaggerated rumor as the extent of the price rise. This is to make people grateful that the rise was not as bad as it might have been. Next, a promise to float the prices so that they reflect world oil prices, implying that someday prices might actually go down. Ha Ha.

At least this time we might be spared the coupon shtick. You never know.

A nuclear energy program?

King Abdullah has told Haaretz newspaper that Jordan is considering starting a peaceful nuclear energy program (thanks Batir). Obviously, this is causing quite a stir. Why would little old Jordan want to play with the big boys?

I have previously written a three part argument for the establishment of a nuclear energy program in Jordan (Parts I, II and III), so my feelings are clear. I am interested in the reactions to this. Most notable is the sneering sarcasm by Arab bloggers such as Nadeem and Issandr. These guys are no friends of Jordan, and so their negative attitude is not so surprising.

The US does not seem to object to the idea.

Now, I fully expect that such an ambition should be subject of lively debate. I just find the objections of our “Arab brethren” quite disturbing (although not really surprising). Issandr has this rambling diatribe:

The boy-king says Jordan has to even though it probably can’t afford to, because of those nasty Iranians and their Shia crescent. Which is probably a lot of bull— if Jordan gets a nuclear power station, it’s because men with little black briefcases will have toured Arab capitals trying to sell multi-billion dollar plants with the backing of their governments. If Jordan goes though with, you can bet its power station will be mostly funded by the US taxpayer thanks to the Bush administration pandering to the nuclear energy lobby.

I read the transcript and there is no linkage between the proposed program and Iran or the Shia crescent. Moreover, if the US decides to give us one for free (highly unlikely), well, they will do us more good that the likes of Issandr ever will.

As for Nadeem, he has this to offer:

Personally – I think that Jordan has been kissing American and Israeli ass for far too long to be denied the opportunity to develop (or be punished for creating) a national nuclear energy program. Seriously, how would it look to the Arab masses if even Jordan and Egypt’s sell-out governments are treated like Iran when it comes to such matters? Doing so would only create (or help solidify) the impression that whether Arab states cooperate with Zio-American imperialism or not, they'll still always be side-swiped by American-Israeli relations.

So, there should be benefits for maintaining good relationships with the west and Israel. I’m glad he sees that. Remind me again what Saddam (or Iraq) gained by pissing off the US.

Debate on MTBE

It is painful to watch the government try to grapple with issues it seems to know little about. Recently, they took a decision to replace leaded gasoline with unleaded. The government says this is to protect the environment, but people are more worried about how this will affect the cost. Regular gas currently costs about 400 fils per liter, and unleaded is over 600 fils per liter.

But it is all worth it to protect the environment, right?

Al Ghad today has a report on the debate over the alternative, which is known as MTBE (methyl tertiary-butyl ether), which is now being phased out in California, because it seems to be polluting water supplies in that state. The minister of energy is pushing for the change to MTBE, claiming that storage tanks at gas stations in the country are of international standards, and will not leak (unlike the tanks in California). The minister of environment is more cautious, saying that adopting MTBE will only take place if double layered storage facilities are provided. I found it interesting that the minister of water has little to say about the issue. What does the ministry of water have to do with clean water, anyway?

Leaded gasoline was phased out in the United States because it interfered with the action of catalytic converters, which are designed to oxidize carbon monoxide and to lower excess nitrous oxide emissions. Excess hydrocarbons are also burnt off in the catalytic converter. The purpose of this is to lower air pollution (smog), and not because lead in vehicle emissions was found to be a hazard. The Al Ghad report notes that lead contents in children’s blood in Jordan are within normal ranges. I have seen a number of such studies. Circumstantial evidence that children living near highways have lower IQ’s than others are sometimes cited as an indication that lead is a hazard, but this evidence is far from compelling.

Incidentally, the vast majority of automobiles in Jordan are not equipped with catalytic converters in the first place. A few years ago, a friend of mine imported a car, and the customs officials wanted to charge him extra for the device. Apparently, it is viewed as an accessory, like an air conditioner or a CD player. I am not sure if the customs department still views catalytic converters as luxury items.

A year ago, Al Ghad had a report on how diesel fuel in Jordan does not meet international requirements because of high sulfur contents. This leads to rapid aging of diesel engines and thus to the sight of older vehicles with black plumes of smoke billowing out of their tail pipe. If the government is so concerned about clean air, they would tackle this issue, rather than trying to use environmental concerns to bilk people.

Pop quiz

Ok, boys and girls. Today the question is how much electricity can be generated by the proposed Red Sea Dead Sea canal. I have previously cited a number of 100 MW, which an American brief on the project used. On the occasion of a donor meeting in Amman to fund a feasibility study, the press is parroting a 550 MW estimate. This is a big difference. Which number is true?

To help you figure it out, you can use the following equation. The volume of water to be pumped is 1900 million cubic meters a year, which works out to 60 cubic meters per second (I have made this too easy). Head is 400 meters. Don’t forget to divide the result by 1000 to convert from KW to MW.

Clock’s ticking.

Why Jordan needs nuclear energy (part III)

Part I here.
Part II here.

Two major sets of objections are cited in the context of the proposal to use nuclear energy. The objections are related to waste and safety, and to political concerns. This stems from the current crisis involving Iran’s nuclear program.

All traditional forms of energy come at environmental costs. Fossil fuels are cited as a reason for the buildup on greenhouse gases, which have a profound effect on the climate of our planet. Solid fossil fuels (such as coal or oil shale) produce massive amounts of solid waste, some of it is radioactive. Building hydroelectric structures comes at an environmental cost. The Three Gorges dam in China will cause massive social dislocations and environmental stresses. The Aswan dam has had large impacts on the river system, and the entire structure of the Abu Simble temple had to be moved. Thus, it is clear that in our modern world, we will always require more energy, and obtaining this energy will come at social, cultural and environmental costs.

Thus, the environmental costs for nuclear energy must be viewed in comparison with other energy sources. The largest concern stems from the management and disposal of nuclear waste.

Nuclear waste is divided into low, intermediate and high level nuclear waste. Low level waste consists of medical and research waste produced at the plant, as well as protective gloves, shoes and other clothes. Disposal of this material is not considered to be a problem. Intermediate level waste is produced in the reactors, and typically is short lived. The greatest concern comes from high level nuclear waste, which comes from the spent fuel of the reactor. The volume of this material is small, but requires special handling and disposal procedures. In many instances, it is recycled to reclaim some of the unfissioned isotopes, which significantly reduces the volume.

The criteria for disposal of nuclear (or any other hazardous) waste are well defined. These include geological requirements related to low seismicity and significant distance and hydrogeological separation from the water table, as well as distance from population centers and natural resources. It is highly likely that one or more suitable locations are available in the country. Disposal of waste is not an insurmountable technical issue. Either that, or it may be shipped to other countries. The North Koreans want it (just kidding).

Despite the Chernobyl nuclear accident, the record of safety for nuclear energy is superior to all major energy sources currently used. This list gives an idea of the track record for the major energy sources. Modern standardized designs take into account the experience of many years of nuclear experience, and these designs have multiple fail-safes that make Homer Simpson type accidents impossible.

As for the political objections, these stem from assumptions about the attitude of the major powers towards the proposal. The non-proliferation treaty states in part that “Nothing in this Treaty shall be interpreted as affecting the inalienable right of all the Parties to the Treaty to develop research, production and use of nuclear energy for peaceful purposes without discrimination and in conformity with Articles I and II of this Treaty”. This is quite clear, and as a signatory to the NPT, there are no legal reasons to object to Jordan developing a peaceful energy program. This is contrary to the situation of Israel, which has not signed the NPT.

It should be noted that the Iran nuclear crisis stems from their attempts to enrich uranium. Indeed, the offers to Iran have included supplying them with light water reactors and the fuel needed. Jordan’s nuclear program would be purely for peaceful purposes, and would be open to the inspection of monitoring of the IAEA.

The Canadians, French, Russians and Chinese are all looking for customers for their reactors. They have a vested interest in making things easy for us.

Why Jordan needs nuclear energy (part II)

Part I here.

Various options have been proposed as alternative energy sources in Jordan. These include solar, wind, oil shale and the Red-Dead canal. Here is some information pertaining to these choices.

Solar Energy: While much research has been done on solar energy, this resource still suffers from high instillation costs. While the energy itself is free, the cost of installation of photovoltaic cells is still prohibitively high. It is currently estimated that solar energy costs upwards of 21 US cents per Kilowatt hour. The potential for substantial drops in costs is questionable, and little is being done in terms of commercial investment in this resource.

Wind Energy: Large scale wind farms have been constructed in Holland, and some pilot projects in Jordan have been carried out. This study estimates that installed capacity of about 50 MW per year is feasible in the two potential areas in Jordan. European estimates for the cost of wind energy, including cost and maintenance, differ according to wind regime. The most optimistic cost range is from 6.4 to 7.7 US cents per Kilowatt hour. While the economics of wind energy are promising, the potential amount of electricity that can be generated in Jordan is modest.

Oil Shale: I have written about this in the past, and many people are excited about the possibilities of this resource. Two economic issues limit the possibility of using these resources for electricity. The first is that extraction of liquid petroleum from the rock is still too expensive. Second, burning extract from the shale would be a waste of a valuable resource that would be better utilized in vehicles rather than in electric generation. Environmental issues related to the volume of water required and the nature of the waste products from oil extraction also arise.

The Red-Dead Canal: The potential elevation difference between open seas and the Dead Sea (400 meters) is being considered as a source of hydroelectric power. While some aspects of the project are desirable (restoring the level of the Dead Sea), some of the numbers associated with the project simply don’t make sense.

The flow of 1600 million cubic meters of water is expected to generate a measly 100 MWe, with an annual production of 876 GWh. This is supposed to be used for desalination of the water to produce freshwater. The best numbers concerning desalination of seawater using reverse osmosis suggest a need for over 5 KWh per cubic meter. Thus, if what the proponents say is true, then the desalination of 850 million cubic meters of water will require at least 4250 GWh per year. This will require an additional installed capacity of 400 MWe. Pumping the water from the Dead Sea to Amman (a vertical elevation of 1300 meters from the Dead Sea) will probably require another 150 MWe of installed capacity, meaning that running the system as described by the proponents will require installing of at least 550 MWe capacity above the 100 MWe that will be generated by the flow of the water. Thus, the Red Dead canal system will be a net drain on the electrical system of the country.

Nuclear Energy: The economics of nuclear energy are compelling, as described here. While the startup costs are high (about 1500 $ per KW, as opposed to between 500-1000 for gas and 1000-1500 for wind), this is made up for in low fuel costs. Therefore, a 1000 MWe nuclear plant will cost 1.5 billion dollars, as opposed to the Red Sea-Dead Sea canal project, which will cost 5 billion dollars and generate a tenth of the electricity.

Part of the attractiveness of nuclear energy is that it is insensitive to fuel rises, as most of the cost is in the building of the plant, with only 8% of the cost being from the consumption of fuel. In total, the cost of generating nuclear electricity ranges from 2.3 US Cents in the Czech Republic to 4.8 US cents in Japan (an outlier in terms of cost, if you check the table). This cost includes construction, maintenance, fuel, management of waste and decommissioning. By any economic standard, it would be difficult to imagine generating significant amounts of energy at such a low cost.

An additional bonus to this is that coupling of a nuclear power generator with a desalination plant allows for the production of significant volumes of low cost water. This IAEA document suggests that a 900 MWe power plant on the Red Sea is capable of producing half a million cubic meters of water per day at a cost of between 50-60 cents per cubic meter. This alone is an important incentive.

Part III here.

Why Jordan needs nuclear energy (part I)

The recent rise in energy costs, coupled with the drop in oil donations from Iraq and the Gulf states has exposed the precarious energy situation in Jordan. The country is almost totally dependent on imported oil and natural gas, and the cost is eating away at our budget. Fahed Fanek estimates that oil imports constitute 21% of our GDP.

The currently perceived economic effects of high energy costs are only the tip of the iceberg as to how this is affecting the country. For example, high energy costs preclude large scale desalination plants, heavy industries and mass transit systems. Thus, it effects the water situation, unemployment and the environment. Simply stated, we are using less energy than we need, and the cost is being borne by the human and physical environment of the country.

The government is placing heavy emphasis on the conversion to natural gas. A gas pipeline has been established to supply Jordan, Syria and Lebanon with natural gas from Egypt. As an incentive to the Jordanian government, the Egyptians agreed to fix the price of natural gas used in the country for 15 years. Because the cost is low, the electrical system of the country is being converted to gas turbines, and energy hungry industries and being encouraged to convert their energy sources to natural gas.

In fact, this situation is reminiscent of that which left us in this position in the first place. Prior to natural gas, Jordan’s electricity infrastructure was based on petroleum derivatives, particularly residual fuel. As far as I know, no non petroleum rich country produces significant electricity using residual oil, because it is simply too expensive. The Hussein Thermal Station was built to produce electricity based on the premise that petroleum is given to us at low prices or for free. Of course, this premise no longer holds.

Now we are repeating the same mistake. We are rebuilding our electricity generation capacity on the premise that natural gas from Egypt will always be abundant and cheap. Since signing the agreement, the world price of one million BTU of natural gas has risen from $4.9 to over $7 (a 42% increase). While we are shielded from these fluctuations now, it would be naïve to think that the price will be fixed after 2018. At that point, we will be where we are now, paying for energy through the nose. It will take many years and a lot of money to convert the electric system again.

The National Electricity Power Company sells the Kilowatt hour of electricity to medium industries for between 28 (night) and 38 (day) fils, which works out to between 4 and 5.4 US cents. This can only be done through artificial suppression of costs through subsidies on residual fuel and the fixed gas price agreement with Egypt. Electricity prices are now comparable with current US industrial rates in industrialized states such as Ohio (5.4 cents), Michigan (6.06 cents) and Illinois (4.42 cents), although lower than other states. The lower rates in the US are not subsidized, but are a result of the availability of abundant low cost alternatives such as hydroelectric, coal and nuclear energy.

Reliance on natural gas in the near future should only be viewed as a stepping stone towards more energy independence. The volume of gas to be imported from Egypt (reaching about 2 billion cubic meters per year) is enough to generate about 11300 Gigawatt hours per year. Electricity generation in 2003 was 8500 GWh, and with annual growth in consumption estimated at 9% per year, the volume of gas pumped at preferential rates will not be enough to produce the electricity needed in a few years.

In fact, the production of more electricity should become a goal in itself, as the amount of electricity produced per capita in Jordan (1190 KWh) is lower than Israel (6000 KWh) or any industrialized nation. As noted in the beginning, more abundant low cost energy will mean a greater ability to manage our economy and environment. In the next installments I will discuss some of the options available to us in getting out of this predicament.

Part II here.
Part III here.

Pipe dreams

In the aftermath of sending a new ambassador to Iraq, a deal seems to have been struck with the Iraqi government for discount oil. According to the reports on the issue, the Iraqis have agreed to supply Jordan with 30,000 barrels of oil per day, out of a total of 100,000 barrels which are our total need. Some reports suggest that the total figure might rise later to 60,000 barrels per day. The “preferential rates” that the oil will be supplied at have not been disclosed, presumably to keep economic observers, bloggers and other annoying people from calculating how much the government will make off the deal.

Initially, the oil will be shipped by tankers to Jordan, with a plan to lay a pipeline later. It seems that the pipeline will end in Aqaba, with a spigot in Zerqa to feed the oil refinery there. Questions about the viability of the deal have been raised, given the security situation in Iraq, particularly in the areas near the Jordanian border.

The treatment of the issue of oil grants and subsidies in Jordan is not straight forward. A couple of weeks ago, the government sent legislation to the parliament that included imposing the sales tax on fuel. The argument for this was to make up for the loss which will occur when the prices are floated; despite the fact that the government until now claims that it is subsidizing fuel. Yesterday, Khaled Zubaidi at Al Dustour wrote a critique of this situation, which raises a number of important issues. First, the government is implying that it is paying for oil at the highest Brent benchmark level ($78), despite the fact that they are paying Aramco between $65 and $67 to deliver it to the refinery. Second, Saudi Arabia is paying the Jordanian government $280 million to support Jordan. The grant expired last April, and the government is not telling whether it has been renewed. Third, Zubaidi calls for the lifting of government controls on the fuel market, as the cost in Jordan is higher than in many other world markets, despite the government subsidies. This is partially true (especially the cost of gasoline), but some oil derivatives are sold at lower rates than in Europe and the US (for example diesel). But the major thrust of the argument is valid. Free the market and relieve the government of the subsidies that will need to be reimbursed through the sales tax.

Jordan has two major oil pipelines running through its territory. One is an old line extending from Iraq to Haifa. This line was abandoned when Israel was established in 1948. The second is the Trans Arabian pipeline (TapLine) from the oil fields of eastern Saudi Arabia to the port of Sidon. The pipeline runs through the Golan Hights and its use was restricted after the 1967 war to pumping oil to Jordan. This was discontinued in 1990 after the Gulf war.

So, with such a history, one might be skeptical that the pipeline project will succeed, given how regional political and military events in the past have led to the demise of earlier projects. One thing that we can count on is not exactly knowing what is going on. Ah, predictability!

Sales tax on fuel

Recently, the prime minister made a grand announcement concerning the new income tax law. In the list of legislations presented to the parliament in its new session, a proposed modification in the sales tax law is included, which will allow the taxing of the raw crude oil and petroleum derivatives. This information is buried deep into a news item in Al Ghad with little fanfare. I didn't find it in the other newspapers. Also to be included in the new sales tax list will be telecommunications services, cement, alcohol, tobacco and tobacco products and automobiles.

The reason given for a sales tax on fuel is hilarious. The justification is that it is “to make up for the price difference caused by floating the prices and due to the cancellation of the monopoly of the Jordan Petroleum Refineries Company". So, they need to make up for floating the prices, suggesting that they were making more money when the derivatives were subsidized. I have a better suggestion. Why don’t they return the subsidies and lower the prices to the previous levels? Do they think we are stupid or what?

According to the financial report of the JPRC for 2004 (before the recent rises in costs), their sales that year were are 1.24 billion dinars. Slapping a 16% sales tax would gross a cool 200 million dinars. This would dwarf the 30 million that the rejected income tax law would have brought in. This, as usual, will harm the poor and middle class in favor of the richer people who will enjoy lower income taxes. Add to that the tax on the other products and services, and you will soon figure that your government is trying to pull a fast one.