Jordan hunkers down as Egyptian gas supplies disrupted

Israel was also hit by explosion at El Arish gas center, but Jordan is more vulnerable to cut-offs because relies heavily on Egypt for gas.

By DAVID ROSENBERG / THE MEDIA LINE
May 1, 2011 22:47
Flames from February attack on Sinai gas pipeline

Egypt gas pipeline blast 311. (photo credit: REUTERS)

Jordanians are being asked to shut off air conditioners and turn off lights when they don’t need them as the country’s main source of fuel for electric power – natural gas piped in from Egypt – has been shut off for the second time in three months.

Jordanian energy minister, Khalid Touqan, said he expected deliveries to resume in two weeks after an explosion blamed on sabotage by unknown elements destroyed a gas distribution center near the Egyptian town of El Arish last Wednesday. But Jordanians aren’t optimistic that the days of cheap and plentiful gas will come back anytime soon as Cairo seeks to renegotiate terms and to direct more of its gas to growing domestic needs.

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Israel also saw its natural gas supplies cut off after the explosion, but Israel is less reliant on Egyptian gas than Jordan and its richer economy is in a better position to pay for substitute fuel. Israel gets 40% of its gas from Egypt and has huge domestic fields in development, while Jordan relies on Egypt for 80% and has no domestic supply to fall back on for now.

“The energy situation in Jordan has always been tricky. With the cutting off of Egyptian gas, it has become precarious,” Riad al Khouri, Jordanian economist, told The Media Line.

Jordan’s energy crisis comes as a sensitive time for the country. Inspired by the Arab Spring, opposition protesters have been demanding reforms from King Abdullah while the economy is struggling with higher global prices for food and energy. The government has already announced plans to increase subsidies and wages as well as lower taxes, which will make it difficult to soften the blow of suspended gas deliveries.

A day after the explosion at El Arish, Jordan’s government announced plans in an emergency session to cut back on electricity. The bulk of what it called rationing measures fall in the public sector, with orders for government offices to shut off air conditioners and after the work day is over to switch off lights. Fuel supplies to government vehicles were ordered cut by 25%.

The cabinet also urged citizens to cut back on electricity, but observers said the officials are loathe to ask ordinary Jordanians to make sacrifices that would highlight the vulnerability of the government. The country is using its fuel reserves for now and “decided to start contacts with Arab and other countries to secure energy supplies,” the cabinet said in a statement.

The International Monetary Fund (IMF) said last week that Jordanian gross domestic product will probably grow 3.3% this year, it fastest pace in three years but far below the levels it was enjoying before 2008 when it was swept up by the global recession. Jordan’s budget is already being pressed hard by slow growth and increased spending, while some 11% of GDP already goes to paying for import energy, among the highest proportions in the Middle East.

But there are other factors that work in Jordan’s favor. Rising world prices for oil are boosting the country’s import bill, but the country’s exports of goods and labor to the oil-rich Gulf are growing, too, as a result. As a strategic partner of the US and its allies in the region, Amman also receives considerable foreign aid, which insulates it from the impact.

“The bottom line is that Jordan is starting to turn into a serious aid junkie. When our government tells the media it’s asking the US for $4 billion in aid over the next three years -- in addition to the billions from the other countries we will be receiving over the next few years -- it means we’re aid dependent,” al Khouri said.

The Arab Gas Pipeline, which crosses Egypt’s Sinai Peninsula before reaching Jordan, was attacked February 5, cutting supplies for nearly six week. On March 27, the Egyptian military prevented a second attempted bombing of the pipeline, the Egyptian state-owned MENA news agency reported. Even after supplies resumed, however, they never returned to pre-crisis level, said Touqan, the energy minister.

But Jordan’s energy crisis is as much about Egypt’s changing politics as it is sabotage. Jordan signed to agreements to buy Egyptian gas– one in 2004 and another in 2007 – before Egyptian President Hosni Mubarak was pushed out of office by mass protests. Now, the Egyptians are saying that the prices Jordan – and Israel – have been paying are unfairly low.

Last week, the decision by Egypt’s public prosecutor to extend Mubarak's detention by 15 days was made partly in order to question him about his role in agreeing to sell Israel natural gas. A former Egyptian oil minister, Sameh Fahmy, and five other officials have been detained for questioning on the deal as well.

While Egyptian anger has been focused on Israel, Jordan is also being forced to renegotiate terms. Egypt’s petroleum ministry says the 2007 contract allows for a periodic review of prices and has offered Jordan to sell it gas from a $7 per mission British thermal units (BTUs) in 2011, more than double the rate it was paying now.

Jordan may have little choice but to pay up. The shortest-term substitute for Egyptian gas delivered by pipeline is to important liquefied natural gas (LNG), but Touqan said it would take at least three years to construct an LNG terminal. Longer-term, Jordan hopes to turn east, to its Iraqi neighbor, for energy.

In January, Iraq, which has the world’s fifth- biggest crude reserves, agreed to build pipelines into Jordan to increase supplies of oil. The two countries agreed also to discuss development of the Risha natural-gas field on their common border. BP Plc agreed in October 2009 to join Jordan’s state-owned National Petroleum Co. to explore and develop Risha, which covers an area of about 7,000 square kilometers (2,700 square miles).


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