jordan international oil shale report 2014 - trends and challenges - study from leading oil shale...

March 2014 © IIR MIDDLE EAST. All rights reserved 1

In the Middle East, Jordan stands to benefit from the unconventional energy source of oil shale. It is estimated to be home to the world’s fourth largest oil shale reserve of some 45 billion barrels of shale oil. Commercial production is scheduled to begin in 2016/2017. As Nemat Shafik of the International Monetary Fund observed recently, ‘Energy is the achilles heel of the Jordanian economy; it's a huge vulnerability for Jordan’. Exploitation of oil shale will be a major step toward reducing the country’s dependence on foreign oil and moving toward achieving energy security.

Enefit, an Estonian company, is involved in developing two oil shale projects, which have the potential to save Jordan hundreds of millions of dollars each year. One is a power project in which oil shale will replace imported liquid fuels, and the other is a project for a shale oil production plant to produce synthetic crude oil. The power project will use advanced oil shale processing technologies that are currently being implemented successfully in Estonia. The shale

oil technology, Enefit 280, is not implemented yet. Along with saving money for Jordan, the projects will create employment: approximately 1000 permanent jobs and around 3000 during the construction phase.

Of course the industry is not without its challenges. In the past, many environmental groups have expressed concern over shale oil production and there is ongoing discussion about the environmental effects of the new technologies. Another factor to consider is the effect that an increase in oil products from an unconventional source, and produced by countries that have traditionally been oil purchasers, might have on oil prices, and the potential flow-on effects of any price variations.

It is against this background that IIR Middle East conducted this qualitative study with leading players in the sector, to gain insight into the key issues and the development of the industry, and to explore the major challenges facing companies and governments entering this energy sub-sector.

Oil Shale in JOrdanTrendS and ChallengeSPerSPeCTiVeS FrOM The regiOn’S leading OrganiSaTiOnS

A STUDY BY

The shale oil industry will support and upgrade the Jordanian economy in many ways. Shale oil is a commodity that will be traded in accordance with the conventional oil pricing regulations. The

expected quantity of shale oil is very small compared with global conventional

oil so it will not affect the oil price. However, it will increase Jordan's energy independence and therefore it will be

strategically important.

-Jaanus Purga,Board Member, VKG, Estonia


Q1. What are the most immediate challenges facing oil shale developments globally, and how can they be overcome?

The general consensus amongst the survey respondents about the challenges facing oil shale development related to four main areas: financing projects, technology, government regulation and environmental considerations.

FinanCing

One of the major challenges facing companies in the sector is finding capital to support oil shale development projects. Investors are reluctant to invest in the sector because they perceive the technology as largely unproven, and therefore risky. The need for large amounts of initial capital investment is coupled with the long-term nature of projects and unwillingness on the part of investors to put their money into projects which may not see a positive return for more than a decade.

Financing these projects is a long-term investment and many financial institutions are reluctant to wait twelve years for their

return on investment. They are asking for governmental guarantees; however,

governments are reluctant to intervene in the private sector.

Jamal M. Alali, General Manager, Aqaba Petroleum for Oil Shale Co., Jordan

Thomas Wigley of Trowers & Hamlins LLP suggested that one strategy to encourage investment is to prove that oil shale can compete in the market on the basis of ‘energy return against energy invested’. Jamal M. Alali of Aqaba Petroleum for Oil Shale Co. and Jaanus Purga of Estonia’s VKG both supported the idea of government support for investors, which could be provided through lower taxes during the early operational years of a project, and speeding up of licensing processes.

In an era of strong competition for energy investment funds, it is not going to be easy to attract investment. The challenge was summed up neatly by Jeremy Boak of Colorado School of Mines: ‘It will require hard work and creative thinking. In addition, it is likely to require patience and subtlety in negotiating with governments and investors to provide reasonably staged development plans for a functional industry.’

TeChnOlOgy iSSueS

Many of the technology being proposed are regarded as untested. Survey respondents commented on the relatively small number of pilot studies currently underway and an absence of high-level expertise in oil shale exploitation. There are still only a limited number of projects within the sector internationally, and few of these have experience over a sustained time period.

One of the biggest challenges the industry faces is providing tested operational

systems for shale oil production at competitive costs, with environmental assurance.

Jeremy Boak, Director, Centre for Oil Shale Technology and Research, Colorado School of Mines, USA

To overcome the technological challenges, new entrants into the market need to learn the lessons from existing projects in other countries. By conducting pilot studies and tapping into the experience of existing producers worldwide, the shale oil industry in Jordan can gain access to high-level expertise. Companies should look to the existing examples so that they can benefit from tests and trials being carried out with new, advanced technologies. Survey respondents also highlighted the need to provide appropriate university courses for young people who want to enter the industry, ensuring that they have necessary expertise when they graduate.

To get the benefits of oil shale development we need to train, teach and

qualify Jordanian capacities, to work in the project field, in the project r & d, in the plant operation and also as project

managers.

“The future Jordan development projects should be implemented and operated by

Jordanians in the long run.

Natural Resources Authority / Jordan


COnCluSiOn

gOVernMenT regulaTiOn and SeCuriTy COnSideraTiOnS

Survey respondents were concerned that many of the opportunities arising in the shale oil sector are in developing countries, some of which are not perceived as providing a secure environment. This, coupled with the underdeveloped governmental framework for the sector, is potentially reducing the attractiveness of exploiting the resource and slowing development.

It is important for governments to introduce effective regulatory processes, but to make sure that these do not put roadblocks in the way of potential investors by being too complex or time-consuming.

governments need to focus on providing an effective, streamlined,

and transparent process for awarding concessions and monitoring development to

ensure continued support, few roadblocks, and equitable processes to advance oil shale

development.


enVirOnMenTal COnSideraTiOnS

As with many energy projects the environment is a major consideration. Local communities, governments, environmental groups and others all want assurances that the potential impact of new industries and new projects is being taken seriously.

The industry acknowledges the potential environmental consequences of increasing shale oil production, and many governments are examining the need to introduce appropriate regulation to meet the environmental concerns. Some current extraction technologies require large amounts of water and this may present problems in countries such as Jordan.

Education is seen as an important strategy in alleviating the concerns of communities and governments worldwide that are expressing concern about the environmental impact of oil shale development projects. The industry views these concerns as being based on old data derived from projects using outdated technology. Survey respondents stressed the importance of ensuring that the public is educated about the ‘real’ consumption of water and carbon dioxide emissions and has access to data from the new technology projects.

environmental issues are on top of the list of concerns of the government in Oil

Shale development Projects.Complying with the Jordanian regulations is essential. efforts have been dedicated to updating the existing regulations to fill the

gaps, developing new relative and applicable regulations, standards and emission limit values to address the new environmental issues in this new industry and setting the

appropriate monitoring of the potential pollutants.

government requires full detailed environmental studies for each phase of the Project such as eia, hSe Plan, remediation

Plan and Monitoring Plan.

Natural Resources Authority / Jordan


Q2. how can countries best focus their efforts to support a first generation oil shale industry that is economic and sustainable?

Q3. What will commercialised exploitation of oil shale resources in Jordan mean for the country? is it likely to bring about shifts in oil prices and related market patterns?

The majority of survey respondents addressed this question by focusing on the issues of technology, government regulatory processes and finance.

TeChnOlOgy

Dr Jüri Soone of Tallinn University of Technology, Estonia, highlighted the imperative to develop technologies appropriate to the oil shale reserves in each country, and to test new technology in pilot and feasibility studies. He also emphasised the importance of analysing foreign technologies and assessing their usefulness.

gOVernMenT regulaTOry PrOCeSSeS

If countries are to benefit from the oil shale industry, they need to introduce effective regulatory processes, processes which support, rather than hamper, the industry. Gary R. Brierley, Senior Manager – Heavy Oils, Process Technology & Equipment for UOP LLC in the US, pointed out the potential

pitfalls. ‘In the US access to the best oil shale leases is restricted by the Government. Most projects are therefore made uneconomic by the lower grade ore and high mining costs. In Europe, the EU won’t allow diesel produced from shale oil to be consumed inside the EU because it was derived from a “high-carbon source,” and yet the production of raw shale oil is allowed.’

FinanCial SuPPOrT

Because it requires high amounts of initial capital investment and takes a comparatively long time for a facility to become productive, it is difficult for the sector to attract the levels of financing required. The survey respondents were unanimous in their call for governments to implement policies to help support the industry and to encourage investment. Suggestions ranged from state guarantees for loans to lowering taxes. It is clear that if governments wish to benefit from the advantages that oil shale developments bring, such as reduced reliance on imported energy sources, they are going to have to provide financial assistance to attract companies to develop the resource.

Jordan is currently dependent on expensive imported energy, and the cost of this has risen sharply during the years since the Arab Spring of 2011. Exploiting its large oil shale reserves will help reduce this dependence, but doing so has its challenges. The Middle East Economic Digest has reported that the Jordanian Government has set a target of meeting 14 percent of the country’s energy needs from oil shale deposits by 2020.

In addition to reducing Jordan’s dependence on imports, commercialisation may decrease fuel costs. However industry experts suggest that the development of Jordan’s reserves is unlikely to affect global oil prices and markets significantly because the amounts being discussed are relatively small as a percentage of the global oil market. That said there is the potential for Jordan to become an energy exporter which will have a substantial effect on the country’s economy.


Q4. What are the environmental challenges within the oil shale sector?

In the countries that are opening up their oil shale industries there is, unsurprisingly, discussion about the impact of the developments on the environment. In some countries, such concerns have gained considerable press attention and have resulted in increased regulation and a slowing of development. There is a fear that shale oil could have an adverse environmental effect by making alternative lower carbon transport fuels less attractive and that it might also displace production from higher cost and more environmentally sensitive plays.

The survey respondents mentioned three main areas of concern: emissions, water usage, and reclamation and waste disposal.

eMiSSiOnS

The majority of survey respondents highlighted emissions as a concern and emphasised the need to ensure the introduction of appropriate technology to address the issue.

new technologies are vital for avoiding excessive emission of carbon, i.e. semi-coke

and/or carbon dioxide.

Dr Jüri Soone, Tallinn University of Technology, Estonia

WaTer

When it comes to water, oil shale exploitation raises a number of issues. The mining influences the water runoff pattern of the area and can lower groundwater levels, and there is the very real fear of contamination of groundwater

supplies. Also, some of the processes are water intensive and this is a sensitive issue in arid regions such as Jordan. Commenting on water and energy consumption, Gary R. Brierley of UOP LLC in the US pointed out that ‘huge strides have been made to reduce both, but the public and regulatory bodies are largely uninformed of this new information’.

Top of the list will be water use simply because it is a new use, and will need to

demonstrate that the value of the product warrants rearrangement of the water

allocation.


reClaMaTiOn and WaSTe diSPOSal

The survey respondents recognised the need to consider the land and proposed that reclamation efforts need to be planned to occur as the development proceeds. Jaanus Purga proposed that spent shale be re-used as much as possible and that responsible measures be taken to dispose of the waste.

Some studies stated that the waste material after processing occupies a greater volume than the material extracted, which may cause problems, but other studies point to the amount of waste generated being dependent on the technology being used for processing. In Australia, studies have shown that, once compacted to reduce porosity created during retorting, the volume is reduced, not increased. Clearly waste disposal and reclamation need to be considered in the planning stages of a project.

COnCluSiOn: OPPOrTuniTieS abOundWhile there are obviously challenges to overcome, the outlook for exploiting oil shale reserves in Jordan is seen as positive. New technologies are being developed to exploit reserves in other countries and Jordan will benefit from the experiences of countries that are already in the game.

This study suggests that the exploitation of oil shale resources would provide significant security and economic benefits for Jordan, by reducing the country’s reliance on expensive foreign energy, but that major issues still need to be resolved in the areas of government regulation, financial investment and the environment.

Perhaps the strongest message to come from the survey responses is the need to invest further in the development of effective, efficient and environmentally sound technologies to make the most of the existing reserves, and to educate both governments and environmental groups about the current state of technology so that they are not decision-making based on out-dated information.


The JIOSS is the only Symposium to gather key investors, senior government representatives, policy makers, IOCs, leading engineers and researchers to discuss the various stages of oil shale production in Jordan and the industry's top challenges, projects timeframe's and commercialization plans in the following years.

The Symposium attracts senior government representatives, policy makers, leading engineers and researchers to discuss the various stages of shale oil production and the industry’s top challenges, project timeframes and commercialization plans in the following years. The Symposium is organized by the Natural Resources Authority (NRA) along with the oil shale companies investing in Jordan.

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ThanKSIIR Middle East would like to thank all the JIOSS 2014 speakers for their contributions to this report, with special thanks to:

gary r. brierley, Senior Manager Heavy Oils Process Technology & Equipment Uop llc, A Honeywell Company

Jüri Soone, Manager, Oil Shale Institute, Estonia

Jeremy boak, Director, Centre for Oil Shale Technology and Research, Colorado School of Mines, USA

Jaanus Purga, Board Member, VKG, Estonia

Jamal M alali, General Manager, Aqaba Petroleum for Oil Shale Co, Jordan

Tom Wigley, Partner, Trowers and Hamlin, USA

And Natural Resources Authority, Jordan

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