Energy Sector Report 12-12-2012

8/9/2019 Energy Sector Report 12-12-2012

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The Jordanian Energy

Sector

Prepared by:

Tanya Khammas

CFA, CVA

December 12th20


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The Energy Sector of Jordan

Table of Contents

1.0 Executive Summary 3

2.0 Global Energy Sector Overview 6

2.1 Oil 7

2.2 Natural Gas 9

2.3 Coal 10

2.4 Electricity 11

2.5 Renewable Energy 12

2.6 Global Energy Outlook 13

3.0 The Energy Sector in Jordan 14

3.1 Energy Sector Statistics 14

3.2 Primary Energy 14

3.3 Final Energy Consumption 19

4.0 Major Sector Players 26

4.1 Ministry of Energy and Mineral Resources 26

4.2 Petroleum, Gas and Mineral Ores 26

4.3 Electricity 264.4 Nuclear Energy 28

4.5 The Bio-Gas Company 29

4.6 Promoting Renewable Energy and Energy Efficiency Fund 29

5.0 Share Performance and Valuation 30

6.0 Energy Sector Index Performance 31

7.0 Traded Energy Service Companies 33

7.1 Jordan Petroleum Refinery (JOPT) 33

7.2 Jordan Electric Power Company (JOEP) 34

7.3 Irbid District Electricity Company (IREL) 35


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1.0 EXECUTIVE SUMMARY

Jordan is a country that is rapidly growing, both as a result of its population demographics and dueto an influx of refugees over the past decade, with an estimated 1.5 million non-Jordanians residing in

the Kingdom currently. With its lack of indigenous energy resources, Jordan is heavily reliant on itsimports of energy to meet the growing energy demand, expected to double to a forecasted 15.08Mtoe(million tonnes of oil equivalent) by 2020 from 7.58Mtoe back in 2007. Prices of energy imports havesoared in recent years, creating a hefty dent in the Kingdoms budget, which has prompted theGovernment into action; In 2007, the Government updated its Energy Master Plan, a comprehensivestrategy for the energy sector that is hoped will transform the existing energy mix from one heavilyreliant on oil and natural gas to a more balanced mix with a higher proportion of energy supplied bynuclear power, oil shale, and renewable sources. This comprehensive strategy for the sector requiresan estimated investment of between fourteen and eighteen billion dollars over the period 2007-2020.

Source: Ministry of Energy and Mineral Resources

The existing energy mix is heavily weighted in favour of oil and natural gas, which, combined, makeup 93.9% of the total energy mix in 2011. This breakdown of energy, however, provides an inaccuraterepresentation of the typical energy mix for the Kingdom, which has had a greater weighting ofnatural gas in the past. Explosions on the Egyptian pipeline that supplies Jordan with the bulk of itsnatural gas needs brought about a significant drop in imported gas from 2,152.3bcm in 2010 to a mere872.7bcm in 2011. Because natural gas is utilised by the Kingdom for the generation of 80% of itselectrical power, this drop in natural gas supply had to be replaced with oil products, which drove upthe weighting of oil in the energy mix to 82.2% in 2011 from 64.9% in 2010.


Oil Shale Exploration$1,400-$3,800mil

Renewable Energy$1,400-$2,100mil

Natural Gas $2,400mil

Oil Sector $3,400mil

Power Sector $4,800-$5,800mil

Master Plan Required Investment over Period 2007-2020

Crude Oil&

Products,82.2%

RenewableEnergy,

2.0%

NaturalGas, 11.7%

ImportedElectricity,

4.2%

Energy Mix - 2011

Crude Oil&

Products,40.0%

RenewableEnergy,10.0%

NaturalGas,

29.0%

ImportedElectricity,

1.0%

Oil Shale,14.0%

Nuclear,6.0%

Energy Mix - 2020


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Surging prices of energy in recent years have hiked up the cost of the energy subsidies provided bythe Jordanian Government, placing increasing pressure on the Government budget. To ease some ofthis pressure, the Government has been gradually reducing the subsidies in place since 2005. In spiteof these efforts, however, the substitution of oil products for natural gas in 2011 and through most of2012 has been detrimental to the budget, forcing the Governmentshand at finally liberalising the

remaining subsidised oil products during November of this year. Replacing the blanket-subsidy thathad been in place with a cash-based aid program targeted at the lower-income segment of theeconomy, this bold but necessary move is expected to reduce the energy subsidy bill from JOD800million to around JOD300 million per annum. Other efforts with regards liberalisation have alsobeen made, with a series of privatisations taking place over the past decade, particularly in theelectricity segment of the sector, to encourage competition and efficiency in the market, as well asattracting investment to the sector. Of the more recent liberalisation moves are the granting of arenewable temporary 6-month distribution license to the Jordan Electrical Power Company followingthe expiry of its distribution concession, albeit at similar terms to those in the concession, and thegranting of distribution rights of oil products to two other companies, Total and Manaseer Group, aright that had been exclusively granted to the Jordan Petroleum Refinery in the past.

With limited indigenous energy sources, the dual impact of rising energy prices and increaseddemand has continued to highlight the need to both diversify the Kingdoms energy mixand secure astable energy supply. The targeted energy mix according to the Master Plan relies on a relativelyambitious utilisation of oil shale, which is hoped to contribute 14.0% to the total energy mix. Basedon estimates of oil shale reserves, Jordan is one of the five richest countries in terms of oil shalereserves, with over 40 billion tonnes spread under around 60% of the Countryssurface. In spite ofthese abundant reserves, the monetary and environmental costs of extracting these reserves has, upuntil recently, been deemed too high. However, with oil prices at current levels, the requiredinvestment into oil shale exploration and extraction are now viewed as justifiable. The production ofelectricity through direct burning of oil shale is expected to commence by 2016, while retorting theoil shale underground should begin production by 2020-2023. The utilisation of the oil shale reserves,combined with plans to generate 6.0% of the Kingdoms energy needs through nuclear power, could

transform the Country from an energy importer to an energy exporter by 2030.

Other plans in the works include capitalising on the Kingdoms more natural resources in the form ofwind and solar power. While renewable energy already contributes 2.0% to the existing energy mix,wind turbine and solar power projects are hoped to raise the contribution to 10.0% of the energy mixby 2020. The Kingdom has enormous solar energy potential, a source of energy that remains largelyuntapped. The recent adoption of the Renewable Energy and Energy Efficiency Law will helppromote private sector investment in renewable energy by providing incentives for investments.

The primary obstacles standing in the way of reaching the Master Plan targets are the capitalintensive nature of the investments needed, the technical knowledge required, and overcomingenvironmental concerns in the case of oil shale and nuclear power. Nonetheless, interest in

investment in the sector has been high, with the Ministry of Energy and Mineral Resourcesannouncing that it has shortlisted 34 companies for investment in renewable energy projects from 66companies that had submitted expressions of interest. Going forward, it remains to be seen theextent to which the Government will facilitate the ease of investment in the sector and the monetaryand environmental impacts such investment will have on the Kingdom. To date, the Government hasfallen behind schedule with regards the Master Plan by around five years due to the investmentsfalling short of those previously foreseen. As a result, the Government is focusing on both raising itsinventory of oil and oil derivatives, through building storage tanks with a capacity to hold enough oilto cover the Kingdoms need for a period of 60 days, as well as reining in current consumption.


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The Ministry of Energy and Mineral Resources is planning to build storage containers in Aqaba by2014 to hold a capacity of 100 thousand tonnes of oil, as well as taking up the number of oil ports tothree by 2015. It also revealed its intent to resolve outstanding issues with the Jordan PetroleumRefinery to enable it to attract a strategic investor to complete its fourth expansion project.

The Government has allocated a portion of a recent GCC grant to launch electricity generationprojects utilising wind and solar power, with a capacity ranging between 200MW and 300MW.

Arrangements are also being made, in collaboration with the Jordan River Foundation, to provideaffordable loans with low monthly repayment instalments to families wishing to buy solar panels fortheir homes, which will eventually lead to a drop in electricity consumption.

The Government is also looking into options to rein in energy consumption, both through raisingprices of oil derivatives through its liberalisation and prices of electricity. Other ideas in hand aredriving restrictions, setting in place specific days in which odd-number-plated cars may be allowedto drive and other days for even-number-plated car. Street lighting may be reduced by half on majorroads or cut out entirely on less busy roads, and scheduled blackouts may be in the pipeline if power

consumption is not contained soon.


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2.0 GLOBAL ENERGY SECTOR OVERVIEW

The global energy sector has undergone a number of rapid changes in recent years, with a price run-up in 2007 and 2008 caused by strong demand and declining world production, followed by a sharpdrop in prices on the onslaught of the world economic crisis and financial meltdown. In 2011 alone, a

number of factors came into play that weighed heavily on the sector, to include the Arab Springcausing disruptions to oil supply, as well as the earthquake and tsunami in Japan, which had adevastating impact on the nuclear power segment of the market and repercussions for its energysector as a whole. As a result, oil prices skyrocketed, bringing about a deceleration in the growth ofglobal energy consumption. Over the period 2000 through to the end of 2010, global consumption ofenergy grew by a whopping 27.6% to reach 12,792Mtoe (million tonnes of oil equivalent), with thehighest growth rates occurring in 2004 and 2010. Amidst the global economic slowdown that tookeffect in 2009 came a drop in total energy consumption, the first since 1982, where it registered a 1.0%decline year-on-year as consumption of oil slumped. In 2010, however, global energy consumptionrecovered, rising by 5.0% to 12,792Mtoe. The sectors growth was dampened once again in 2011 as aresult of the aforementioned events, causing a slump in growth to 2.2% to register at 13,078Mtoe.

Source: Enerdata

Nonetheless, the growth that did occur was largely driven by emerging markets, with China and Indiaregistering consumption growth rates of 7.7% and 6.2% in 2011, respectively. China stands as thelargest energy consumer on a global scale, with its 2011 consumption registering at 2,638Mtoe. The0.7% year-on-year drop in the United States consumption to 2,225Mtoe drove it down to secondposition amongst the worlds largest energy consumers. Meanwhile, poor economic conditions in theEU led to a more significant 3.2% decline in consumption.

In terms of energy consumption composition, the chart below highlights oil, coal and gas continuingto make up the larger part of consumed energy, at 87.1% of the total. Coal has registered the fastestgrowth amongst the fossil fuels, rising by 5.4% in 2011 to 7,304.2Mt, driven largely by Asian countriessuch as China, which utilize coal for the generation of electricity. In 2011, China accounted for 45% ofthe world increase in coal consumption, with a 9.7% year-on-year rise.

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World Energy Consumption

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America25.7%

CIS8.3%

Asia39.3%

Pacific1.2% Africa

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World Consumption by Region - 2011


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Source: BP

In parallel, growth in energy production also decelerated, slumping to a rate of 2.7% in 2011, downfrom 4.5% the previous year, according to Enerdata. Asia accounted for the larger share ofproduction, at 30.0% in 2011. Asias production grew by an impressive 5.7% over the 2000-2011 period

and 7.1% in 2010 alone, but, hand-in-hand with world production, also experienced a deceleration ingrowth in 2011 to 3.7%. China again was the driver of the growth, producing 62.2% of Asias output,registering a 7.1% rise in production. While this increase was more than sufficient to compensate forthe decline in Japans production following its earthquake, Chinasproduction for the year failed tocover its own consumption.

Source: Enerdata

Europe also saw a 3.0% decline in production, while America sustained a 3.2% rise year-on-year.Meanwhile, the loss of production in Libya, coupled with drops in production for both Algeria and

Egypt, led to a 5.7% decline in production in Africa. This was, however, more than offset by theMiddle East, which increased production by 10.1% to 1,802.9Mtoe, with Saudi Arabia, the UAE andQatar all producing record levels.

2.1 Oil

The strong economic growth over the period 2003 2008 drove global demand for oil, which led to arapid rise in oil prices, which peaked during the second quarter of 2008. The onset of the financialcrisis and global economic slowdown put a sledgehammer in the works, bringing about a sharp

Oil33.1%

Natural Gas23.7%

Coal30.3%

Nuclear Energy4.9%

Hydro-electricity6.4%

Renewables1.6%

World Energy Consumption by Type - 2011

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World Energy Production

Production Growth

Europe8.2%

America24.5%

CIS12.9%

Asia30.0%

Pacific2.6%

Africa8.2%

MiddleEast

13.6%

World Production by Region - 2011


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collapse of prices back down to below the USD50/barrel mark. Since the start of 2009, however, oilprices resumed their growth, re-emerging once again above USD100/barrel, driven by the drop in oilsupply from Libya coupled with disrupted supply amidst the Arab Spring.

Source: World Bank Pink Sheets

In terms of crude oil production, the Middle East and America are the primary producers, supplyingsome 59.0% of the total in 2011. On a global scale, production increased by 1.8% and 1.3% in 2010 and2011, respectively, following a 2.3% decline in 2009, to reach 4,029.8Mt.

Source: Enerdata

Growth in production in the Middle Eastern countries, with Saudi Arabia registering a 13.4% increaseand the UAE and Kuwait each recording a 14.2% rise in 2011, helped offset the 9.1% drop inproduction in Europe, and the 13.2% slump in African production. The United States, the third largest

producer of crude oil after Russia and Saudi Arabia, managed a 4.1% growth in production, whileCanada and China increased production by 4.9% and 0.3%, respectively. Russian production,meanwhile, was relatively flat, rising by 0.9% in 2011.

Consumption of crude oil, meanwhile, increased by 0.5% in 2011 compared to growth of 2.3% in 2010,as a result of continued poor economic performance and high prices of oil. America and Asiaaccounted for 31.4% and 29.9% of global crude oil consumption in 2011, each seeing slight increases inconsumption that year. The consumption in America registered a 0.3% increase, while Asia saw itsconsumption growth decelerate sharply to a mere 1.3% increase versus growth of 3.2% and 5.1% in

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Crude Oil & Natural Gas Liquids (NGL) Production and Consumption - 2011

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2009 and 2010, respectively, largely due to the 5.9% decreased consumption in Japan. Chinacontinued to be the driver of growth in consumption, with the largest increase in consumption year-on-year in absolute terms. Europes consumption of crude oil fell by1.1%, while consumption in theMiddle East grew by 0.2%, well below its 5.0% growth in consumption over the 2005-2010 period, as aresult of the political unrest in the region.

On a different note, production of refined oil products rose by 0.5% in 2011 to 3,982.7Mt, droppingfrom the 2.3% growth recorded in 2010. America and Asia stood as the largest producers, registering a0.3% and 1.3% growth in production year-on-year. Chinas production rose by 2.7%, while Japans fellby 5.9%. The Middle East saw a slight increase in production, sustained by the 4.7% increase in Saudi

Arabias output, while Africa registered a 0.4% drop over the same period.

Growth in consumption of refined oil products also decelerated sharply to 0.6% in 2011 compared to3.2% the previous year, with a 1.8% decline in consumption in the United States, the largest consumerof refined oil, as well as a 2.4% drop in Europes consumption. This was compensated for by the 1.8%rise in growth in consumption in Asia, albeit down from 6.0% growth in 2010, as well as the 3.8% and4.1% increases in consumption in the CIS and Middle Eastern countries.

2.2 Natural Gas

In 2010, global natural gas production increased by an impressive 7.8% following its slump in 2009,where production declined by 3.2%. In 2011, however, production decelerated to a 2.5% growth,reaching 3,365.8bcm (billion cubic metres). America produces some 30.6% of the world production,and it registered a strong 4.9% increase in production in 2011. The CIS countries also managed a 2.6%increase in production, buoyed by the 2.7% increased production in Russia. Meanwhile, Asianproduction was somber in spite of an 8.7% rise in Chinas production, due to declines in output inIndia, Indonesia, Japan, and South Korea. Africa and the Pacific both experienced drops in theiroutput of 6.1% and 1.8%, respectively, but the star of the show was the Middle East, which hiked upproduction by a whopping 11.1%, increasing its output from 471.6bcm in 2010 to 524.1bcm. Iran andSaudi Arabia are the largest producers of natural gas in the region.

Source: Enerdata

Global consumption declined in 2009 by 2.3% to 3,065.1bcm in response to both high gas prices andweak economies. In 2010, the recovery in demand surpassed production, with an 8.2% increase inconsumption. Alongside the slowdown in production in 2011 was a slowdown in consumption growthto 2.8%, reaching 3,394.5bcm. Weakened economies in Europe led to a 9.0% drop in gas

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Natural Gas Production and Consumption - 2011



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consumption, largely as Germany, the United Kingdom and the Netherlands reigned in their usage.All other regions of the world displayed positive growth in consumption, with Americas demandrising 2.8% to 1,013.0bcm, Asias demand increasing by 7.9% to 602.4bcm, and CISs demand reaching686.3bcm from 666.5bcm in 2010.


The price of natural gas highlights the slump in demand for natural gas that occurred in 2008 and2009 as the economic crisis hit. While the price of US natural gas has continued to suffer, the Europenatural gas prices have resumed their upward trend, but still fall significantly below the 2008 peaks.In terms of liquefied natural gas (LNG), new sources appeared in the Middle East and Indonesia, andthe prices of LNG have been on a relatively consistent upturn since mid-2009.

2.3 Coal

Growth in coal has surpassed the growth in other fossil fuels, with production increasing by 5.3% in

2011. Asia, and more specifically China, is both the largest producer and consumer of coal in theworld, producing 4,496.3Mt of a total 7,585.8Mt in 2011, of which Chinas contribution is 3,427.3Mt.While all regions of the world saw a rise in coal production, larger players, such as America and India,saw a stabilisation in their production that year.

Source: Enerdata

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Natural Gas PricesNatural Gas, US Natural Gas, Europe Liquefied Natural Gas, Japan

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Consumption of coal, meanwhile, rose by 5.4% to 7,304.2Mt globally, on the back of strong demandin China and India, where coal is a key energy source utilised in coal-fired plants for the generation ofelectricity. Asias consumption overall increased by 8.4%to 4,611.3Mt in 2011, while in contrast, North

America exhibited a 5.0% drop in decline, with the United States consumption falling some 4.6% to910.5Mt. Demand in Europe remained strong, as a result of coals competitive pr ice in light of highgas prices, rising by 5.2% year-on-year.


2.4 Electricity

As the global recession came into play, electricity consumption, and thus production, was reigned induring 2009, with production declining by a slight 0.5% year-on-year. Production recovered swiftly in2010, rising by 5.9%, and continued to increase in 2011, reaching 22,005.8TWh (terawatt hours). Asiaand America are the largest producers of electricity, producing 8,409.9TWh and 6,384.4TWhrespectively in 2011. That year, electricity production in the United States dropped by 0.5%, allowing

China to overtake it as the worlds largest electricity producer, producing 21.2% of the world total.China was also the primary contributor to the production growth, where it registered an impressive11.7% increase in output. Japan, the third largest electricity producer in 2010, saw a 4.7% slump inproduction in 2011 following the earthquake that hit it that year, pushing up Russias ranking to thirdlargest producer. Production in the Middle East rose by 4.4% as Iran and Saudi Arabia hiked upproduction by 5.2% and 2.0%, respectively, while Africas output increased by3.0% that year. Europe

was the only area to witness a decline in overall output, as production slumped in Germany, France,the United Kingdom, and Spain, to name a few.

Driven by the rise in consumption in Asia, which increased by 10.4% and 8.3% in 2010 and 2011respectively to reach 7,356.8TWh, global electricity consumption rose by 3.5% in 2011 to settle at19,016.0TWh. Chinas consumption of 4,079.1TWh in 2011 surpassed that of the United States, at

3,852.1TWh, again allowing it to overtake the United States to rank as the worlds largest electricityconsumer. In spite of Japans 4.6% drop in consumption, it remains the third larges t consumer in the

world. Russia, with consumption of 856.0TWh, stands as the worlds fourth largest consumer. Worthnoting, however, is that with Indias 16.2% growth in consumption of electricity in 2011 versus Russias1.5% growth in consumption, coupled with its level of consumption of 828.3TWh, it stands to reasonthat we should expect India to climb the ranks to replace Russias position in 2012. Overall, CIScountries increased their demand by 2.5%, in contrast with Europe, whose demand dropped by 1.5%to 3,315.2TWh, as a result of a significant 7.0% decline in consumption in France, the regions second

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Coal PricesCoal, Australian Coal, Colombian Coal, South African


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largest consumer, and declines in demand across the area owing to poor economic conditions.Meanwhile, strong growth in Iran and Saudi Arabia brought about a 5.3% consumption increase inthe Middle East, versus growth levels of 2.5% and 2.4% in the Pacific and Africa, respectively.

Source: Enerdata

2.5 Renewable Energy

As the prices of oil and gas have been rising over the past decade, and awareness of theenvironmental impact of fossil fuels has gained ground, the importance of renewable energy as asource of power has become more prominent. On the global scale, renewable energy made up 20.1%of electricity production, up by 1.4% from 2010s energy mix. In Latin America, renewable energycomprises 58.4% of the energy sources used in electricity production, while in North America, it is amuch lower 19.4%, in spite of Canadas high 63.5% reliance on renewable s.While the United Statesenergy mix is comparatively lower in its reliance on renewable (13.1% in 2011), Enerdata reveals that in2011 hydropower production and wind generation increased by more than one-quarter, and solar

power increased by 50%. In Europe, renewables made up just over one-quarter of the energy mix ingenerating electricity, with a phenomenal 96.6% renewable share in Norway. Meanwhile, financialincentive schemes were put in place in Italy and the United Kingdom to boost solar power use,causing increases of 500% and 65%, respectively. The energy mix in the CIS countries has arenewables share of 16.5%, registering a 4.9% increase since 2010, while in Asia, the importance ofrenewable energy declined by 6.9% to 14.4% of the energy mix, primarily due to a drop in China,

whose importance of renewable energy in the generation of electricity lost out to the use of coal.Africa also has a strong reliance on renewables, at 17.3% of the mix, while the Middle East has thelowest, at a mere 2.4% of the energy mix used in electricity production.

In terms of direct consumption of renewable energy, this stood at 12.7% of the global energy mix in2011. The use of renewable energy in primary consumption is higher in developing countries due to

usage of biomass in households, such as in the form of wood energy. In Nigeria, for example,renewables made up 85.1% of its primary energy consumption in 2011, and for Africa as a whole, theshare of renewable energy was just under half of the energy mix. In Asia, the importance of renewableenergy has declined by 4.0% in 2011 to 13.6% of the primary energy mix, due to the 7.2% decline inusage in China, while in North and Latin America, the share of renewable stood at 7.5% and 25.5% in2011, up from 6.9% and 25.4% the previous year. In Europe, the share of renewable energy increasedby 4.6% to 11.8% of primary energy consumption, while in the Middle East, renewables made up anegligible amount of its energy consumption.

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Source: Enerdata

2.6 Global Energy Outlook

An outlook report by BP (BP EnergyOutlook 2030)projects an annual growth rate in world primaryenergy consumption of 1.6% over the period 2010-2030, giving a growth in consumption of 39% by2030, with gas and non-fossil fuels gaining ground against other fossil fuels. Renewables are forecastto grow at a rate of 8.2% per annum up to 2030, while oil and gas are expected to increase at 0.7% and2.1% per annum, respectively.

The report states that energy utilised for the generation of electricity will remain the fastest growingsegment of the energy sector, at 57% of the projected growth in primary energy consumption for2010-2030. As a result of efficiency gains anticipated over the next 20 years, the 2.6% growth perannum in world electricity demand is projected to surpass the growth in total energy, as fuel inputsinto electricity production increase at a lower rate than the electricity produced.

Oil is anticipated to experience the lowest level of growth over the next two decades, causing it tolose market share. Its growth will be driven by Asia and the Middle East, with the rise in supplycoming largely from OPEC.

On the other hand, natural gas is projected to be the fastest growing fossil fuel, estimated by BP at2.1% per annum, which China contributing to 23% of the increase in global demand. The globalgrowth will be driven by substitution of other fuels for natural gas as a result of its relatively lowerprice, as well as due to its use in industrialisation and electricity generation.

Coal consumption, meanwhile, is anticipated to continue to rise till 2020, before demand begins toslump, reducing its growth rate to 0.5% per annum over the period 2020-2030. This is based on

assumptions of improvements in efficiency and structural changes that reduce coal intensity in Chinain the future.

Non-fossil fuels are predicted to exhibit strong growth going forward, with rapid growth in nuclearoutput, estimated by BP at 7.8% per annum over 2010-2030, driven by China, India and Russia.Initially, renewable energy growth is expected to come from the EU, but the United States and Chinaare expected to take over as the drivers of growth from 2020 onwards. By 2030, renewables areanticipated to generate 11% of global electricity.

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3.0THE ENERGY SECTOR IN JORDAN

3.1 Energy Sector Statistics

Jordan Energy Balance - 2011(000 Toe) Total Oil Natural Gas Electricity Solar Energy Total Energy

Indigenous Production 0.9 133.9 16.5 130.0 281.3

Imports 5,978.3 738.8 312.9 - 7,029.9

Exports - - 15.4 - 15.4

Bunkers 117.6 - - - 117.6

Stock Changes (279.1) - - - (279.1)

Primary Energy Supply 6,140.7 872.7 313.9 130.0 7,457.3

Oil Sector (87.9) - - - (87.9)

Electricity (2,246.2) (872.7) 1,259.6 - (1,859.2)

Transport & Distribution Losses - - 325.4 - 325.4

Cons. Energy Supply 213.1 - 83.0 - 296.1

Final Energy Consumption 3,593.5 - 1,164.0 130.0 4,887.5


3.2 Primary Energy

The Kingdoms consumption of primary energy is composed of crude oil and oil products, naturalgas, renewable energy, and imported electricity. Crude oil and related products make up the bulk ofthe consumption in 2011 at over 80.0%, up from 64.8% in 2010.

Primary energy consumption rose sharply in 2009 to 7,775 thousand toe from 7,388 thousand toe theprevious year, on account of a 14.4% increase in the consumption of natural gas. In 2010, however,consumption levels decreased to 7,372 thousand toe as consumption of natural gas slumped by 25.8%to 2,289 thousand toe. The political situation in Egypt, Jordans primary supplier of natural gas, led toattacks on the gas supply line several times during 2011, cutting off Jordans supply of natural gas,reducing its consumption further to 873 thousand toe. Natural gas is utilised by the Kingdom togenerate electricity, with some 80% of the electricity produced in Jordan depending on the importedgas from Egypt. To compensate for the drop in natural gas, Jordan increased the amount of importedelectricity to 313 thousand toe from 168 thousand toe in 2010, as well as raising the import of crude oil

Crude Oil and Products82.2%

Renewable Energy2.0%

Natural Gas11.7%

Imported Electricity4.2%

Composition of Primary Energy Consumtion in 2011


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15


to 6,141 thousand toe from 4,774 thousand toe over the same period. The sky-high prices of crude oilmeant that this swap in energy source cost the Kingdoms Treasury in excess of JOD 1.00 billion in2011.

Primary Energy Consumption (000Toe)


The disruption in the supply of natural gas to the Kingdom, which led to a decline in the amountsimported of around 65% in 2011 compared to 2010, coupled with the increasing burden of the high oilprices, have highlighted the urgency of persevering with the energy master plan to diversify thesources of energy going forward. In 2011, the total cost of imported crude oil, oil products and natural

gas reached a whopping JOD3.84 billion, up by 51% compared to 2010.


It is hoped that by 2020, the primary energy mix will be significantly less reliant on oil, with the mixbeing weighted more heavily towards natural gas, oil shale, and nuclear energy. The complicationsarising from the Egyptian gas line has prompted the Kingdom to search for alternative suppliers of

-

2,000

4,000

6,000

8,000

2008 2009 2010 2011

Crude Oil and Products

115

120

125130

135

140

145150

2008 2009 2010 2011

Renewable Energy

-

1,000

2,0003,000

4,000

2008 2009 2010 2011

Natural Gas

-

100

200

300

400

2008 2009 2010 2011

Imported Electricity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2011 2015 2020

Composition of Jordan's Primary Energy Sources (2011 - 2020)

Crude Oil and Products Renewable Energy Natural Gas Imported Electricity Oil Shale Nuclear


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16


natural gas, and has formed a technical team with Qatar to explore the possibility of importing gasfrom Qatar. Moreover, discussions were made with Iraq for the supply of natural and liquified gas.

In terms of oil shale, Jordan has one of the largest shale reserves in the world, estimated at anywherefrom 40 billion to 70 billion tonnes. The reserves lie below more than half of the King doms landsurface, and up until recently, have been deemed too expensive for extraction, quantified by a World

Bank consultant on oil and energy, Mr. Mamdouh Salameh, at around JOD1.00 billion. Otherestimates have concluded that as long as oil prices remain above USD60-USD70/barrel, extraction ofthe oil shale is justifiable. In recent years, the sky-rocketing prices of fuel have applied substantialpressure on the Governments already strained budget. In 2011, the energy bill made up some 20% ofGDP and subsidies on fuel constituted a sizeable portion of the budget. The Government has sinceliberalised fuel prices, replacing the subsidy instead with an aid package for the lower-incomesegment of the population. Nonetheless, the heavy financial burden caused by prevailing high pricesof energy on both the Government and the Jordanian population, alongside the ongoing instability inthe region leading to tightening fuel supplies, as well as the difficulties in obtaining a stable inflow ofnatural gas from Egypt, has emphasised the need for a change in the Countrys energy mix, with amove towards alternative energy sources.

Estimated and Calculated Reserves of Oil Shale Deposits

El-Lajjun SultaniJurf Ed-Darawish

AttaratUmm El-Ghudran

WadiMaghar

Area (km2) 20.4 24.0 150.0 226.0 -

Av. Thickness of Oil Shale (m) 29.6 31.6 63.8 45.0 40.0

Av. Thickness of Overburden (m) 25.8 69.3 47.3 53.2 40.5Geological Reserves (Mt) 1,196 1,130 8,000 11,300 31,600

Indicated Reserves (Mt) 1,170 989 2,500 10,400 21,600

Source: Natural Resources Authority

The active stance taken by the Kingdom with regards oil shale extraction is evident in the agreementsbeing signed; Jordan signed a 44-year agreement with the Estonian company, Eesti Energia, to

produce 35,000 tonnes of oil share per day alongside the construction of a 460 megawatt oil shalepower plant by 2016. A British-Jordanian company, Karak International Oil, is currently exploring foroil shale near Karak, in an initiative that is hoped to produce 15,000 barrels of oil shale per day.Meanwhile, Royal Dutch Shell is utilising experimental technology to produce up to 40,000 barrels ofoil from the eastern desert within the next two decades. Moreover, a memorandum of understandinghas been signed with the Canadian company, Global Oil Shale Holdings (GOSH), regarding a 25-year,USD32 billion project to provide up to 25% of the Kingdoms energy requirements. Exploration is tooccur in the region of Al-Attarat, which contains the bulk of the Kingdoms oil shale reserves.

By 2020, the energy strategy anticipates that oil shale will make up around 14% of the Kingdomsenergy mix. In spite of hype generated with regards the future outlook for oil shale, there remain anumber of obstacles facing the sector; firstly, the oil shale in Jordan has higher than average sulphurcontent, which is a byproduct that will need to be captured, increasing the refining cost. Moreover, itis feared that the electricity generated from oil shale may be more expensive than traditional fuels.Moreover, much of the reserves are located deep within the ground, and thus cannot be mined byconventional methods. And while the Royal Dutch Shell is utilising unconventional technologies in abid to extract these reserves, it still remains to be seen whether the oil shale will be economically

viable.


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Another project on the horizon is the development of nuclear power, which is hoped to make up 16%of the energy mix by 2020. A number of companies have been established in this sector in recent

years, including the Jordanian Energy Resources Company, a company wholly owned by the JordanAtomic Energy Commission (JAEC), which has a paid-up capital of JOD100.00 million and isresponsible for the exploration and excavation of uranium and other natural nuclear materials in theKingdom, as well as the Nabatean Energy Company, which is a coalition between the Jordan Atomic

Energy Commission and the French company Areva. As part of the Kingdoms strategy to generateelectricity through nuclear reactors, the Jordan Atomic Energy Commission has recently narrowedthe number of bids to build the first nuclear reactors in Jordan to two; the first is the bid submittedby Atmea, a consortium made up of Mitsubishi Heavy Industries Ltd and Areva. The second is the bidsubmitted by the Russian company, AtomStroyExport. The intention is to commence theconstruction of a 750-1,000MWe nuclear power reactor in 2013 to begin operations by 2020, followedby a second reactor a couple of years later, and up to four reactors by 2030.

While the nuclear energy strategy hopes to eventually transform the Kingdom to an energy exporter,opinions on the nuclear programme remain mixed amidst fears of potential environmental damageand health risks arising from the nuclear power plant, not to mention the substantial investmentburden that must be overcome, as well as meeting the water requirements for cooling in a country

with a limited water supply.

In terms of more environmentally friendly initiatives, the energy strategy includes an emphasis onwind energy projects hoped to generate electricity of 600MW by 2020. The strategy includes anumber of projects under consideration; a wind project in Kamsha to generate 30-40MW, a windproject in Fujaij to generate 60-70MW, a wind project in Harir to generate 100-200MW in phases, a

wind project in Wadi Araba to generate 40-50MW, as well as additional projects to generate a further300MW by 2020.

Another renewable energy source is solar energy. Currently, just under 14% of households use solarpower for water heating, according to the Jordan Investment Board, and this is expected to reach 20%by next year. According to the energy strategy, some 300MW of solar power generation will be addedto the energy mix by 2020, adding to the weight of renewable energy in the overall mix. Currentlythere are two feasibility studies being carried out; the first is a 100MW plant by Millennium forEnergy Industries, which utilises Concentrated Solar Power technology (CSP), while the second is byKawar Energy Shams Maan Project, which entails a 100MW solar power plant that utilises PVtechnology.

The Bio-gas company, a joint venture between the Central Electricity Generating Company (CEGCO)and the Greater Amman Municipality, is generating methane gas from organic waste in Al-Rusayfeh,producing 7.60 million cubic meters of gas in 2011, generating 8,005 MWh of electricity with acapacity factor of 73.3%.

3.2.1 Crude Oil and Oil Products

Economic growth, coupled with a rapidly expanding population, both internal and through an influxof refugees in the aftermath of the war on Iraq and the Arab Spring, in addition to the real estateboom in the earlier years of this decade, led to a rise in the demand for crude oil and oil derivatives.

Jordan has limited indigenous energy resources, thus necessitating the import of its crude oil and oilproduct needs. In 2007, the Kingdom imported 4.87 million tonnes of oil products, at a cost of

JOD2.06 billion with the bulk of the imports coming from Saudi Arabia. The economic crisis led to a


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decline in volume of oil imports in 2008 and 2009, but the continued rise in prices of oil in theinternational markets meant that the drop in imports did not reflect on the Kingdomsoil bill, whichrose by a further 26.1% in 2008 for crude oil and petroleum products. The drop in global oil prices didimpact on the Kingdoms oil bill the following year, where it dropped to JOD1.40 billion from JOD2.23billion in 2008.

Imported Crude Oil and Oil Products during 2007-2011

(000 tonnes) Crude Oil Fuel OilLiquefied

GasDiesel Gasoline Jet Fuel Total

2007 4,040 - 223 429 166 1 4,869

2008 3,796 91 196 320 141 1 4,544

2009 3,633 - 234 414 231 1 4,513

2010 3,485 307 219 670 400 1 5,082

2011 3,189 674 288 1,361 540 1 6,138

Growth2011 (8.5%) 119.5% 31.5% 103.1% 35.0% 0.0% 20.8%


As imports resumed growth in 2010 and 2011 and oil prices recovered, the Kingdoms energy billcontinued to skyrocket, reaching JOD2.04 billion in 2010 and a whopping 3.44 billion in 2011,

registering a 45.9% and 69.1% increase year-on-year, respectively. Oil consumption soared in 2011,particularly due to increased usage of fuel oil in the generation of electricity to make up fordisruptions in the natural gas supply from Egypt.

Source: Central Bank of Jordan

Based on the value of imported oil products for the first eight months of 2012, we can forecast anestimate of 2012s oil bill for the entirety of 2012 at around JOD4.35 billion. Because of the removal ofsubsidies by the Government on fuel prices in the final quarter of 2012, however, we anticipate aslight reduction in oil demand towards year-end, which may result in an oil bill of slightly below ourestimate.

3.2.2 Natural Gas

Although the Kingdom does produce some natural gas from Al-Risha fields, with a total output of 6.4billion CF in 2011, it relies heavily on imported natural gas from Egypt, which is used to produce 80%of its electricity needs. In 2011, the natural gas supply was disrupted a total of ten times due to theuprising in Egypt resulting in explosions on the gas pipeline that supplies both Jordan and Israel.Consequently, the volume of gas imported declined by a substantial 61.9% to 873 toe compared to

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2007 2008 2009 2010 2011 8M 2012

Impo

rts(JOD'000)

Imports of Crude Oil and Petroleum Products

Crude Oil Petroleum Products


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2,289 toe in 2010, which had to be compensated for with the use of fuel oil to generate electricity. Thedisruption in gas supply cost the Kingdom over JOD1.00 billion in 2011, and is expected to reach inexcess of JOD1.50 billion this year. Egypt has resumed pumping natural gas to the Kingdom inamounts surplus to those agreed upon to compensate for amounts that were previously undelivered.

Nonetheless, due to the high cost and the Kingdoms vulnerability from its heavy reliance on the

supply from Egypt, the Kingdom is looking into alternative sources of natural gas, in addition toincreasing the current capacity of the natural gas pipeline by doubling the number of compressors in

Aqaba. The Kingdom has also entered into discussions with Qatar regarding providing Jordan withliquid gas via a freighter in Aqaba in the short term, as well as constructing a permanent liquid gasterminal in Aqaba, which could be ready by 2014.

A memorandum of understanding was also signed with Iraq entailing the start of planning for apipeline that will carry both heavy oil and natural gas to Aqaba.

In 2009, BP was granted up to four years to explore the Al-Risha natural gas field for recoverable gasreserves, which it announced as being successful. It has commenced drilling its first well as part of itsconcession agreement. The Kingdom hopes that the discovery of economically extractable gas

reserves will help reduce its dependence on oil and gas imports.

3.3 Final Energy Consumption

Of the primary energy supplied to the market, both indigenously and through import, a substantialproportion is utilised for the generation of electricity; in 2011, the total supply of oil productsamounted to 6.14Mtoe of which 2.25Mtoe were utilised for the production of electricity tocompensate for the shortage of natural gas supplied. Moreover, all the 0.87Mtoe of natural gas wasutilised for energy generation. Allowing for transportation and distribution losses of electricity, thefinal energy consumption registered at 4.89Mtoe in 2011, the bulk of which was in the form of oil.


The transportation sector accounts for the lions share of final energy consumption using 41.0% of thetotal consumption in 2011, at 2.03Mtoe. Predictably, the sectors usagewas entirely in the form of oil,of which 56.5% was in the form of gasoline, 31.4% was in the form of diesel, and 12.1% was in the formof Avtur. Households are the second largest consumers, at 23.0% of the total, and their consumption

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Oil Natural Gas Electricity Solar Energy

'000TOE

Final Energy Consumption

Transport,41.0%

Industry,20.0%

Household

, 23.0%

Others,16.0%

Sectoral Distribution of Final Energy

Consumption - 2011


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includes 545.6 thousand TOE of oil products in the form of liquefied gas and diesel, 477.2 thousandTOE of electricity, and 113.1 thousand TOE of solar energy.

3.3.1 Oil Products Consumption and Prices

Consumption of oil products has been on the rise in recent years as a result of an increase in the

number of people residing in Jordan through natural population growth and the influx of refugeesfrom Iraq and Syria. Moreover, the expansion of Ammans borders following the real estate boommeans that distances travelled have also risen, coupled with the multiple-car phenomenon exhibitedby many households, particularly in the Capital. In 2011, however, the increase in consumption wasexacerbated by a need to compensate for the decline in imported natural gas used to generateelectricity, resulting in a 24% increase in oil consumption year-on-year. Of the 6.14Mtoe of oilsupplied in 2011, 2.25Mtoe in the form of diesel and fuel oil was utilised for the generation ofelectricity.


The increase in prices of oil in international markets has put the governments budget undersignificant pressure due to the subsidies in place on fuel prices. As prices continued to rise, theGovernment took action in recent years to reduce the subsidies in place by liberalising a number ofoil products, adjusting the fuel prices on a monthly basis to reflect the movement in internationalprices. The table below highlights the prices in place at year-end for 2009 through to 2011, as well asthe price of fuel as of December 1st2012.

Local Prices of Oil ProductsUnit Price as of

31 Dec 2009 31 Dec 2010 31 Dec 2011 1 Dec 2012

Gasoline, Unleaded 90 Fils/Litre 485 655 620 800

Gasoline, Unleaded 95 Fils/Litre 575 795 795 1,015

Diesel Fils/Litre 445 545 515 685Kerosene Fils/Litre 445 545 515 685

LPG JD/Cylinder 6.5 6.5 6.5 10

Fuel Oil (Industry) JD/Tonne 370 397 501 475

Avtur (Local Companies) Fils/Litre 423 512 614 621

Avtur (Foreign Companies) Fils/Litre 428 517 619 626

Avtur (Charter Flights) Fils/Litre 443 532 634 641

Fuel Oil (Bunkers) JD/Tonne 370 397 511 501.5

Diesel (Bunkers) Fils/Litre 445 545 670 685

Asphalt JD/Tonne 398 426 537 509


-

500

1,000

1,500

2,000

2,500

Liquified

Gas

Gasoline

Avtur

Kerosene

Diesel

FuelOil

Asphalt

Production('000tonnes)

Production of Oil Products by Jordan

Petroleum Refinery

-

500

1,000

1,500

2,000

2,500

Liquified

Gas

Gasoline

Avtur

Kerosene

Diesel

FuelOil

Asphalt

Production('000tonnes)

Consumption of Oil Products

2009 2010 2011


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In November 2012, with a bold but necessary move by the Government, the prices of the remainingproducts were liberalised as estimates of the cost of the subsidies on the budget reached between

JOD650 million and JOD800 million for the year. The Minister of Energy and Mineral Resourcesexplained that with the rise in prices of crude oil, a mere USD1.00 increase in prices of crude oil fromcurrent prices drives up the annual subsidy by an additional USD40.00 million. The subsidy on

unleaded 90-octane gasoline reached 12.1%, giving an estimated annual subsidy of JOD100.00 million,while the subsidy rate on diesel and kerosene amounted to 28.2%, giving an annual subsidy ofJOD425.00 million. Meanwhile, the subsidy on liquefied petroleum gas cylinders reached 51.9%,giving a subsidy value for the year of around JOD95.00 million.

Instead of subsidising the price of oil products directly, the Government is instead implementing adirect cash aid plan to compensate for the hike in prices. Individuals of a household earning less than

JOD10,000 per year will receive JOD70 each as compensation for the subsidy removal, for up to sixfamily members. This is anticipated to reduce the cost of subsidising fuel prices to around JOD300million per year. The Government hopes to demonstrate its commitment to fiscal consolidation andsecure loans and aid from the IMF, Western and Arab countries.

A further part of the liberalisation process, was the signing of an agreement in November, whichgranted Total and Manaseer Group licenses to distribute fuel across the Kingdom alongside the

Jordan Petroleum Refinery. Prior to this agreement, the Jordan Petroleum Refinery was the soledistributor of oil products. The agreement stipulates that each company has the exclusive right tomarket one-third of the Kingdoms oil products, namely both types of unleaded gasoline, diesel,kerosene and avtur for a period of three years.

The Government is considering other methods to rein in fuel consumption, such as putting into placea system of alternate driving days, whereby cars would be permitted to drive on alternate daysdepending on whether their number plate ends in an even or an odd number. This would lead to arapid drop in consumption and would help reduce the number of vehicles on the streets. Other ideasinclude scheduled blackouts and reduced street lighting, to reduce electricity consumption.

3.3.2 Electricity and Prices

Key Electricity Statistics2007 2008 2009 2010 2011

Electricity Fuel Consumption (000 toe) 3,035 3,282 3,441 3,262 3,186

Power Stations and Nominal Capacities (MW) 2,300 2,612 2,666 3,069 3,420

Electrical Energy Generated (GWh) 12,999 13,768 14,208 14,683 14,593

Electrical Energy Consumption (GWh) 10,559 11,555 11,993 12,871 13,572

Electrical Energy Consumption Per Capita (KWh) 1,845 1,975 2,006 2,106 2,171

Total Electrical Fuel Consumption/total Fuel Consumption (%) 42 45 44 44 42

System Peak Demand in Jordan (MW) 2,160 2,260 2,330 2,670 2,680

System Peak Load Interconnected System (MW) 2,130 2,230 2,300 2,650 2,660

No. of Employees in the Electricity Sector 7,806 8,084 8,273 7,729 7,841

No. of Consumers (000 Consumers) 1,263 1,352 1,426 1,498 1,574

Av. Purchase Price from Generation Sector (Fils/kWh) 31.9 45.9 39.2 52.6 112.2

toe: tonnes of energykgoe: kilograms of energyMW: MegawattsGWh: Gegawatt hourSource: Electricity Regulatory Commission


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Demand for electricity has been on the rise in recent years, not only as the population demographicsexpand, but also as prices of oil derivatives soar, making the use of electricity for heating a moreaffordable option. Furthermore, the decline in prices of airconditioning units in recent years hasmade them significantly more affordable, heightening the use of electricity for cooling in the summermonths, as well as for heating in the winter. The expansion of Ammans boundaries has also

necessitated the extension of electricity and lighting to areas previously uncatered for.

Source: Electricity Regulatory Commission

The growth in consumption of electricity has surpassed the growth in electricity generated, with theconsumption rising from 10,550GWh in 2007 to 13,572GWh, a compounded annual growth rate of6.5%, versus a rise in generated electricity from 12,999GWh to 14,593GWh over the same period at acompounded annual growth rate of 2.9%. On a per capita basis, electricity consumption reached2,172kWh in 2011, up from 1,843kWh in 2007, and up 3.1% from the previous year.


Some 98.7% of the generated electricity is produced through the interconnected system, with CentralElectricity Generating Company (CEGCO), Samra Electric Power Generating Company (SEPGCO)and AES - Jordan producing 55.2%, 24.2% and 15.5% of the total generated electicity in 2011. Electricity

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2008 2009 2010 2011

Elec

tricalEnergy(GWh)

Electrical Energy Generation, Consumption, and Import

Electricity Generated Electricity Consumed Electricity Imported

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011

Electricity Consumption by Sector

Others

Water Pumping

Agricultural

Industrial

Commercial

Governmental

Households


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23


is generated primarily through steam units, gas turbines running on natural gas, and the combinedcycle.

Energy Generated According to Producer

(in GWh) 2008 2009 2010 2011

1- Interconnected

System13,551 13,995 14,477 14,406

CEGCO 8,851 8.009 7,655 8,051SEPGCO 3,736 3,629 3,467 3,534

AES 826 2,286 3,238 2,267

QEPCO - - - 463

King Talal Dam 15 13 15 13

Potash Company 64 - 36 11

Indo - Jordan Chemicals 59 58 66 66

2 - Large Industries 218 213 206 187

Total 13,768 14,208 14,683 14,593

Imported from Egypt 534 363 446 1,458

Imported from Syria 13 20 224 281

Grand Total 14,316 14,591 15,353 16,331

Exported 318 139 58 86

Total Available Energy 13,998 14,452 15,295 16,245


Electricity system losses have hovered over the past decade at above 17%, reaching as high as 19.1% in2007. However, in 2010 and 2011, the losses as a percentage of generated electricity have declined to15.8% and 16.5%, respectively, with the bulk of the losses arising on distribution.

3.3.3 System Peak Demand

The increase in number of subscribers, particularly in terms of residential users as a result of a

growing population, expansion of city boundaries, and the evolution of the residential compoundphenomenon in Jordan, has pushed up electricity demand in recent years. Moreover, the increasinghot summers in Jordan, and the soaring price of fuel for heating has led to a surge in usage of air-conditioners both for cooling and for heating, thereby applying substantial additional pressure onelectricity supply.


SteamUnits46.7%

GasTurbines /

NaturalGas

23.0%

GasTurbines /

Diesel0.5%

CombinedCycle29.1%

Others0.7%

Electrical Energy Generated by Type of

Generation

0

500

1000

1500

2000

2500

3000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

SystemPeak

Demand(MW)

System Peak Demand

System Peak Demand in Jordan System Peak Load Interconnected System


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24


The system peak demand began rising in 2004 through to 2008 after which it began to level off,accompanying the deceleration in growth in the construction and real estate sectors, andcorresponding to poor economic conditions and financial hardship. Year 2010 saw the peak load risesharply, and in 2011 only marginally more.

The high percentage of fuel consumption utilised in the generation of electricity translates into a

positive relationship between fuel prices in the international markets and the cost of electricitygeneration. The hike in oil prices in recent years has increased the cost of generating electricity, andthis has been passed, in part, on to the distributors, as evident in the bulk supply tariff at which thethree distribution companies purchase electricity from NEPCO.

Transmission Tariff Development (Fils/kWh)From

01/01/2009

to

15/01/2010

From

16/01/2010

to

30/04/2011

From

01/05/2011

to

30/06/2011

From

01/07/2011

to

31/12/2011

From

01/01/2012

to

28/05/2012

From

29/05/2012

to

04/06/2012

From

05/06/2012

to Date

Distribution Companies

Night Energy

JEPCO 35.76 36.62 36.62 45.14 45.14 49.52 55.29

EDCO 26.10 25.81 28.53 38.87 36.65 43.15 46.58

IDECO 28.11 29.04 31.84 39.05 33.92 37.19 39.77

Day Energy

JEPCO 45.81 46.67 46.67 55.19 55.19 59.57 65.34

EDCO 36.15 35.86 38.58 48.92 46.70 53.20 56.63

IDECO 38.16 39.09 41.89 49.10 43.97 47.24 49.82

Max. Load

(JOD/kW/Mnth)2.98 2.98 2.98 2.98 2.98 2.98 2.98

Principal Consumers (Mining & Quarrying)

Night Energy 49.00 50.00 50.00 66.00 66.00 164.00 164.00

Day Energy 65.00 66.00 66.00 82.00 82.00 220.00 220.00

Maximum Load

(JOD/kW/Mnth)2.98 2.98 2.98 2.98 2.98 2.98 2.98

Principal Consumers (Other Industries)

Night Energy 49.00 50.00 50.00 66.00 66.00 66.00 76.00

Day Energy 65.00 66.00 66.00 82.00 82.00 82.00 94.00

Maximum Load(JOD/kW/Mnth)

2.98 2.98 2.98 2.98 2.98 2.98 2.98

Source: Electric Regulatory Commission

In 2011, the average purchase price of electricity for NEPCO was 112.2 fils/kWh compared to anaverage selling price of 52.6 fils/kWh. This meant that the Company incurred a loss of 59.6 fils/kWh,giving a total loss of JOD1,007 million for the 2011 fiscal year.

The Government is considering raising electricity prices by an average of 6% - 8% in a bid to closeNEPCOs budget deficit over the next eight years and to reduce the annual cost of energy subsidies.Other proposals to rein in energy costs include reducing electricity use by cutting street lighting by

half on major roads, and blacking out roads that have little traffic. The Government is alsoconsidering restricting the number of hours of lighting in public institutions, as well as otherelectricity consuming activities. A last resort is scheduled blackouts.


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Distribution Tariff Development (Fils/kWh)From

09/07/2005

to

13/03/2008

From

14/03/2008

to

15/01/2010

From

16/01/2010

to

30/06/2011

From

01/07/2011

to

28/05/2012

From

29/05/2012

to

04/06/2012

From

05/06/2012

to Date

Standard Domestic Tariff:

From 1-160 kWh/Month 31.0 32.0 33.0 33.0 33.0 33.0

From 161-300 kWh/Month 59.0 71.0 72.0 72.0 72.0 72.0

From 301-500 kWh/Month 67.0 85.0 86.0 86.0 86.0 86.0

From 501-600 kWh/Month 82.0 113.0 114.0 114.0 114.0 114.0

From 601-750 kWh/Month 82.0 113.0 114.0 114.0 114.0 141.0

From 751-1000 kWh/Month 82.0 113.0 114.0 135.0 135.0 168.0

More than 1000 kWh/Month 82.0 113.0 114.0 174.0 174.0 235.0

TV and Broadcasting 61.0 86.0 87.0 98.0 98.0 122.0

Commercial Sector

From 1-2000 kWh/Month 63.0 86.0 87.0 91.0 91.0 91.0


Banking Sector

From 1-2000 kWh/Month 86.0 86.0 87.0 91.0 227.0 227.0


Telecommunications Sector

From 1-2000 kWh/Month 86.0 86.0 87.0 91.0 227.0 227.0


Small Industrial Sector 41.0 49.0 50.0 57.0 57.0 57.0

Medium Industrial Sector

Night Energy 28.0 36.0 37.0 50.0 50.0 53.0

Day Energy 38.0 46.0 47.0 60.0 60.0 63.0

Maximum Load (JOD/kW/Month) 3.05 3.79 3.79 3.79 3.79 3.79

Agriculture (Flat Tariff) 31.0 47.0 48.0 60.0 60.0 60.0

Three Part Tariff for Agriculture:

Night Energy 30.0 36.0 37.0 49.0 49.0 49.0

Day Energy 20.0 46.0 47.0 59.0 59.0 59.0


Water Pumping 40.0 41.0 42.0 54.0 66.0 66.0

Hotels (Flat Tariff) 60.0 86.0 87.0 98.0 127.0 127.0

Three Part Tariff for Hotels:

Night Energy 45.0 70.0 71.0 82.0 102.0 102.0

Day Energy 56.0 81.0 82.0 93.0 116.0 116.0


Ports Sector 46.6 58.0 59.0 91.0 112.0 112.0

Streets Lighting 30.0 51.0 52.0 64.0 80.0 80.0

Jordan Armed Forces 67.0 81.0 82.0 82.0 82.0 82.0

Mixed Tariff Commercial / Agricultural 52.3 73.0 74.0 80.7 80.7 80.7

Minimum Charge for Domestic Consumers

(JOD / Month)

1.00 1.00 1.00 1.00 1.00 1.00

Minimum Charge for Other Consumers (JOD /

Month)

1.25 1.25 1.25 1.25 1.25 1.25



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4.0 MAJOR SECTOR PLAYERS

4.1 Ministry of Energy and Mineral Resources

The energy sector in Jordan is overseen by the Ministry of Energy and Mineral Resources, which is

responsible for the regulation of the sector, compiling and implementing policies, providing energyin all its forms at the lowest possible costs consistently and according to best standards, developingand utilising any local sources of energy, creating opportunities for the private sector to invest in theenergy sector, improve the efficiency of the energy provided, as well as developing renewable energysources to relieve the burden of energy production and import off the government.

4.2 Petroleum, Gas and Mineral Ores

These institutions prospect for petroleum and mineral ores in the Kingdom, as well as refine crude oiland sell oil derivatives.

4.2.1 Natural Resources Authority (NRA)

The Natural Resources Authority overseas the prospecting for mineral resources, the conducting ofgeological and other surveys, as well as issuing licenses for mining and exploration.

4.2.2 National Petroleum Refinery (NPCO)The National Petroleum Refinery is government-owned public shareholding companies whichexplores for, and produces, oil and gas in its concession area in the north-eastern area of theKingdom. The Companys concession came into effect in 1995 and has a period of 50 years. Theconcession area includes the Risha Gas Field area.

4.2.3 Jordan Petroleum Refinery (JPRCO, ticker symbol: JOPT)Jordan Petroleum Refinery is a public shareholding company established in 1956. The Company isresponsible for the refining and production of petroleum derivatives, as well as the transportation anddistribution of these derivatives to fuel stations across the Kingdom. In 1958, the Company had beengranted a 50-year concession which expired on March 2nd2008, and was extended several times.

4.2.4 The Jordanian Egyptian Fajer CompanyThe Jordanian Egyptian Fajer Company is a limited liability company operating under a licenseagreement to build, own and operate the natural gas pipeline from Aqaba to the north of theKingdom, and transport natural gas provided by Egypt from Aqaba via the pipeline to sell to powerplants and heavy industries.

4.2.5 Gas StationsGas stations are privately owned, and sell oil derivatives directly to the citizens. Two such stationshave become more prominent this year; Total and Manaseer Group. In November 2012, the twocompanies signed a distribution agreement allowing them to each distribute one-third of theKingdoms oil products across the Kingdom.

4.3 Electricity

4.3.1 Electricity Regulatory CommissionThe electricity segment of the market is monitored by the Electricity Regulatory Commission, whichis responsible for setting electricity prices, subscription fees and other related costs, issuing licenses


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to electricity companies operating within the sector, as well as monitoring their compliance withconditions set out in these licenses.

As illustrated below, the generation of electricity takes place via a number of producers, primarilycomprising of the Central Electricity Generating Company (CEGCO), the Samra Electric PowerGeneration Company (SEPGCO) and independent power producers.


4.3.2 Central Electricity Generating Company (CEGCO)The Central Electricity Generating Company was registered in 1998 as a public shareholdingcompany, and commenced operations in 1999, generating electrical power from a number of sourcesand supplying it to the National Electric Power Company (NEPCO) in charge of transmitting theenergy to the distributors. The supply of electricity to NEPCO is governed by a power purchaseagreement signed between the two parties.

CEGCO was privatised during 2007 after the Government sold a 51% share of the Company to Enara

Energy, a company established by Jordan Dubai Capital. A further 9% was sold to the Social SecurityCorporation, and the remaining 40% was retained by the Government.

4.3.3 Samra Electric Power Generating Company (SEPGCO)Samra Electric Power Generating Company was established more recently as a private shareholdingcompany fully-owned by the Government to work hand-in-hand with CEGCO in generating electricalpower. SEPGCO was established with a paid-up capital of JD 50 million, and its first completed phase

Ministry of Energy and

Mineral Resources

Central Electricity Generating

Company (CEGCO)

(Generation)

NationalElectricPowerCompany(NE

PCO)

(NationalTransmissionGrid)

Jordan Electric Power Company

(JEPCO or "JOEP")

(Distribution)

Consumers

Electricity Regulatory

Commission

Samra Electric Power GeneratingCompany (SEPGCO)

(Generation)

Amman East Power Plant (AES)

(Generation)

Qatrana Electric Power Company

(QEPCO)

(Generation)

International Power Grids

(Power Sharing)

Irbid District Electricity Company

(IDECO or "IREL")

(Distribution)

Electricity Distribution Company

(EDCO)

(Distribution)

Large Consumers


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of the Samra power station has the capacity to generate some 25% of the total generated electricity inthe Kingdom.

4.3.4 Amman East Power Plant (AES)Amman East Power Plant is a private company co-owned by the American Company AES andMITSUI of Japan. The company was established in February 2009 representing the first private

project in the Kingdom in the generation of electricity. The power plant is located in East Amman /Al Manakhir, and has an installed capacity of 370MW.

4.3.5 Al Qatraneh Electric Power CompanyAnother private company called Al Qatraneh Electric Power Company was established in 2010 withan installed capacity of 373MW by the Korean Company KEPCO and the Saudi Company Xenel.

4.3.6 National Electric Power Company (NEPCO)The generated electricity is purchased by the National Electric Power Company and is then sold on tothe energy distributors and large consumers. NEPCO manages the Kingdoms electrical transmissiongrid and the process of transmitting the electricity. It is also responsible for the import and export ofelectrical power, in addition to the purchase of natural gas for supply to the power generating

segment of the industry.

Distribution, meanwhile, is executed by three companies, each of which is responsible for supplyingelectricity in different areas of the Kingdom:

4.3.7 Jordan Electric Power Company (JEPCO, ticker symbol: JOEP)Jordan Electric Power Company is a public shareholding company that distributes electricity inAmman, Zarqa, Al-Salt, Madaba, and Balqa, excluding the Central Jordan Valley. JOEP was granted a50-year concession in 1962 that recently expired. The Company is currently operating under atemporary renewable 6-month license under terms similar to those applicable under the concessionagreement.

4.3.8 Irbid District Electricity Company (IDECO, ticker symbol: IREL)Irbid District Electricity Company distributes electricity in Irbid, Mafraq, Jarash, Ajloun and someparts of the Balqa governorate. IDECOs 50-year concession expired on February 15th 2011, and iscurrently operating under a distribution license. IDECO was privatised in 2008 following theGovernments sale of a 55.4% holding to Kingdom Electricity Company.

4.3.9 Electricity Distribution Company (EDCO)Also privatised in 2008 was the Electricity Distribution Company, when Kingdom ElectricityCompany acquired a 100% stake in the Company. EDCO services the southern, central and easternparts of the Kingdom. EDCO operates under a distribution license.

4.4 Nuclear Energy

4.4.1 The Commission for Regulating Radiation and Nuclear ActivityThe Commission was established in 2007, replacing the Jordanian Nuclear Energy Commission whichhad been established six years prior. The goal of the Commission is to monitor the use of nuclearpower to ensure the health and safety of the population and surrounding environment from the useof radiation and nuclear power.


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4.4.2 The Jordan Atomic Energy CommissionThe Jordan Atomic Energy Commission was established in 2008 to establish the usage of nuclearpower for the generation of electricity, desalination of water, and for other peaceful uses.

4.5 The Bio-Gas Company

The Bio-Gas Company is a company jointly owned by CEGCO and the Greater Amman Municipality,established in 2000 to utilise methane gas extracted from organic waste to generate electricity. TheCompanys installed capacity is 3.5MW.

4.6 Promoting Renewable Energy and Energy Efficiency FundThe Fund was established to support the improvement of energy consumption efficiency studies as

well as provide loan guarantees for energy efficiency and renewable energy projects.


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5.0SHARE PERFORMANCE AND VALUATION

The weak economic conditions have taken their toll on the overall stock market, in terms ofexcessive drops in stock prices and poor trading activity. For the energy sector, in spite of goodfundamentals for the commodities themselves in terms of rising demand and increased prices, poor

market liquidity and weak consumer confidence have resulted in an overall slump in prices. For theJordan Petroleum Refinery, the recovery of oil prices internationally reflected on the stocks shareprice in 2011, registering a 12.4% increase. However, in 2012, the stock slumped by 5.1% as tradingdwindled. For Jordan Electric Company (JOEP), the stock was hit harder in 2011, declining by 16.5%compared to a 7.8% decline in 2012 to date. Irbid District Electricity Companys (IREL) stock,however, was the most significantly affected by the poor trading activities, with its share price fallingby a whopping 29.2% and 14.5% in 2011 and 2012, respectively.

The chart below illustrates the regression of the P/BV for the four listed health sector companies,based on current price and book value per their most recently issued financial results, against theirreturn on equity (ROE) ratio, using annualised profits. Based on the particularly high R2 for the line

of best fit, it would appear that the regression plotted indicates a strong correlation between thereturn on equity for these companies and their P/BV. A strong word of caution, however, is that thelow number of companies included in the regression may cause an invalid skew of the line of best fit.

Assuming that the relationship plotted is accurate for the average, the chart can highlight stocks thatare over- and under-priced based on their position on the chart. The companies that plot above theline can be deemed relatively overvalued, while those that plot below the line are undervalued.

0.00

5.00

10.00

15.00

20.00

JOPT JOEP IREL

Price(JOD)

Share Price Performance2010 2011 2012*

JOPT

JOEP

IREL

y = 0.1304x - 0.0912R = 0.7011

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

ReturnonEquity(ROE)

P/BV (times)

Regression of P/BV against ROE


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6.0 ENERGY SECTOR INDEX PERFORMANCE

The sky-rocketing prices of fuel prior to the financial crisis and economic slowdown was reflected on

the energy sector index, which rose to a high of 10,785.7 points in 2008, up 56.4% since the start ofthe year. The market overall also experienced a strong upturn, rising to a peak of 5,043.7 points,registering a 27.1% increase since the start of the year. Both indices dropped sharply during thesecond half of 2008, closing at 3,863.5 points and 2,758.4 points, respectively, down by 64.2% and45.3% from their peaks that year, and down 17.8% and 24.9% since the start of the year.

In 2009, the General Index continued to struggle, as bed news on the global economic frontcontinued to stream in. On the other hand, while declining prices of oil in the international marketcaused an overall decline in the price of Jordan Petroleum Refinery (JOPT), which dropped from

JOD6.86 at the start of the year to JOD6.80 by year end, the electricity sector was thriving; JordanElectric Power (JOEP) saw its share price rise by 36.7% over the year, while Irbid District ElectricityCompanys (IREL) stock rose to JOD9.00 by year end from JOD6.99, a positive change of 28.8%.

Neither index fared well during the first eight months of 2010, inspite of a brief recovery by theGeneral Index in early April. By August 30th, the Energy Sector Index had slumped by 10.6%, while theGeneral Index recorded a slightly higher 11.2% drop. In the final quarter of the year, however, bothindices picked up, closing at 4,414.8 points from 4,795.5 points at the start of the year for the EnergySector, and 2,373.6 points from 2,533.5 points for the General Index, still recording year-on-yeardeclines of 7.9% and 6.3%, respectively.

The market continued to suffer in 2011, but to a lesser extent than the energy sector which dropped toa low of 3,024.0 on October 10th. However, while the General Index continued on its downward trend,closing the year at 1,995.1 points, the Energy Sector Index managed a tremendous recovery in Octoberand November, on the back of rising trading volumes on the Jordan Petroleum Refinery stock whichpushed up prices from a low of JOD3.84 on October 3rd to a high of JOD6.28 on December 13th,coupled with a rise in the price of Jordan Electric Power (JOEP) from a low of JOD2.53 on October 10thto a high of JOD3.69 on November 15 th. The two stocks combined to buoy the sector index back upabove the 4,000 point mark, ending the year at 4,075.1 points, albeit still down by 7.7% for the year.Nonetheless, this compares favourably to the performance of the General Index, which registered a

year-on-year decline of 15.9%.

1,600

1,800

2,000

2,200

2,400

2,600

2,800

2,800

3,200

3,600

4,000

4,400

4,800

5,200

01/2010

03/2010

05/2010

07/2010

09/2010

11/2010

01/2011

03/2011

05/2011

07/2011

09/2011

11/2011

01/2012

03/2012

05/2012

07/2012

09/2012

11/2012

Free-FloatGeneralIndex(P

oints)

EnergySectorIndex(Points)

Energy Sector Index Performance

Energy Sector General Index


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The first quarter of 2012 saw both indices trading relatively horizontally with a marginal upwardtrend, as volumes in the market remain low. During April, however, both indices began to drop, moreso for the energy sector than the overall market. By June 30th, the Energy Sector Index stood at 3,623.9points, down 11.1% year-to-date compared to a 5.7% decline in the overall market. The combined 9.5%and 15.1% declines in prices of the Jordan Petroleum Refinery (JOPT) and Jordan Electric Power stocksover the six months were the drivers of this slump. The third quarter of the year was more promising,

with the Energy Sector Index following an upward trend. The Index reached a level of 4,110.7 pointson November 1stbefore declining to close at 3,870.8 points as of the date of this report.

In terms of trading activity, the table below highlights the values and volumes of trading for each ofthe energy sectors traded stocks. As is evident, trading activity has been sluggish both in terms ofnumber of shares traded and values of shares traded, with 2012 faring worse than 2011, with theexception of Irbid District Electricity Company (IREL), whose trading picked up slightly compared to2011, but still evidently not very liquid, with a daily average number of transactions on its stock of 4over a small number of shares.

Sector Trading Statistics

Value

Traded(JOD)

# ofTransactions

# of Shares

Daily Average

ValueTraded

(JOD)

# ofTransactions

# of Shares

JOPT

2011 87,490,273 32,077 16,721,965 355,652 130 67,975

2012* 48,565,255 22,370 8,633,188 204,056 94 36,274

JOEP

2011 20,373,106 9,957 6,016,836 82,818 40 24,459

2012* 17,756,712 6,757 5,464,889 74,923 29 23,059

IREL

2011 718,318 708 46,345 4,128 4 266

2012* 1,087,907 862 96,088 6,146 5 543

*Up to the date of this report


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7.0 LISTED ENERGY COMPANIES

7.1 Jordan Petroleum Refinery (JOPT)

Jordan Petroleum Refinery was established in 1956 as a public limited company with a paid-up capitalof JOD4.00 million, and has since raised the capital twice to reach a current level of JOD32.00 million.The Company has, in a recent extraordinary General Assembly meeting, resolved to raise the capital ofthe Company to JOD40.00 million through the capitalisation of JOD8.00 million and distribution of25% stock dividends to existing shareholders. The Companys objectives include the refining andproduction of petroleum derivatives, as well as the transportation and distribution of these derivativesto fuel stations across the Kingdom. The Company also owns four factories for the production of LPGcylinders, lube-oils, containers, and asphalt drums. In 1958, the Company had been granted a 50-yearconcession which expired on March 2nd2008. As a result of the termination of the concession period,the Company established two fully-owned subsidiary companies; the Jordan Liquid Gas Manufacturingand Packing Company, and the Jordan Lube-Oil Manufacturing Company.

Stock Highlights

Ticker Symbol JOPT Value Traded (JOD)* 87,490,275

Share Price** JOD5.59 Volume Traded* 16,721,965Year-to-Date Change** (5.1%) Average Daily Value Traded (JOD)* 355,652

52-Week High / Low** JOD6.28 / JOD5.09 Average Daily Volume Traded* 67,975

Market Capitalisation** JOD178,880,000 Turnover Ratio* 52.26

*For 2011**As of the date of this Report

Financial Indicators

2011 H1 2012

Total Assets (JOD) 1,286,683,227 N/A

Equity Attributable to Shareholders of the Bank (JOD) 86,581,400 N/ASales (JOD) 3,496,622,509 N/AGross Profit (JOD) 157,633,141 N/AOperating Profit (JOD) 161,904,148 N/AProfit after Tax (JOD) 21,853,669 N/AEPS (JOD) 0.683 N/AP/E (times) 8.6x N/AP/BV (times) 2.2x N/AROA (%) 2.1% N/AROE (%) 27.1% N/A

N/A: Not available / Not Applicable

0

100000

200000

300000400000

500000

600000

700000

0.60

1.60

2.60

3.604.60

5.60

6.60

7.60

12/2009

02/2010

04/2010

06/2010

08/2010

10/2010

12/2010

02/2011

04/2011

06/2011

08/2011

10/2011

12/2011

02/2012

04/2012

06/2012

08/2012

10/2012

Numberof

Shares

Price(JO

D)

JOPT Stock Performance

Trading Volume Share Price


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7.2 Jordan Electric Power (JOEP)

Jordan Electric Power Company was established in 1938 to supply Jordans capital with electricity. In1947 it received its first concession, and in 1962, following the Companys merger with the CentralElectric Company of Jordan, JOEP was granted a second concession for a period of fifty years. Theconcession granted JOEP the right to generate, transmit and distribute electrical power in the areas of

Amman, Zarqa, Al-Salt and Madaba. This concession expired on November 22nd2012 and the GeneralAssembly of the Company has voted in favour of not renewing this concession agreement and agreedthat the Company should apply for a distribution license. By the date of expiry of the concession, nofinal agreement with the Government had been made, but a temporary renewable 6-month license

was granted to the Company that entailed terms and conditions in line with those that had beenapplicable under the concession. The Company is currently raising its capital from 75.6 millionshares/JOD to 100.00 million shares/JOD.

Stock Highlights

Ticker Symbol JOEP Value Traded (JOD)* 20,373,108

Share Price** JOD3.18 Volume Traded* 6,016,836

Year-to-Date Change** (7.8%) Average Daily Value Traded (JOD)* 82,818

52-Week High / Low** JOD3.66 / JOD2.70 Average Daily Volume Traded* 24,459

Market Capitalisation** JOD240,408,000 Turnover Ratio* 7.96

*For 2011**As of the date of this Report

Financial Indicators

2011 9M 2012

Total Assets (JOD) 559,801,412 633,011,559

Equity Attributable to Shareholders of the Bank (JOD) 107,016,801 103,346,484Sales (JOD) 569,511,063 531,522,490

Gross Profit (JOD) 56,744,207 54,623,819Operating Profit (JOD) 39,280,341 40,667,009Profit after Tax (JOD) 9,482,075 8,425,683

EPS (JOD) 0.125 0.111

P/E (times) 27.6x 19.3x*

P/BV (times) 2.4x 2.1x

ROA (%) 1.8% 1.9%*

ROE (%) 9.0% 10.7%*

*Based on Annualised Profits

0

200000

400000600000

800000

1000000

1200000

1400000

1600000

0.60

1.10

1.602.10

2.

Energy Sector Report 12-12-2012

Documents

Transcript of Energy Sector Report 12-12-2012