US embassy cable - 03AMMAN5186

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 005186 
 
SIPDIS 
 
TREASURY FOR OASIA/A DEMAMPOULUS 
 
E.O. 12958: DECL: 08/15/2008 
TAGS: EFIN, ENRG, IZ, JO 
SUBJECT: JORDAN'S OIL SUPPLY NEEDS 
 
REF: AMMAN 4835 
 
Classified By: David Hale, Charge d'Affairs, ai.  Reasons 1.5 (b) (d) 
 
1.  (c)  Summary.  The Jordanian Oil Ministry believes that 
Kuwait has agreed to continue supplying Jordan with 25,000 
barrels of crude oil per day through September, with Kuwait 
refining the crude on behalf of Jordan.  Along with the 
50,000 bpd Saudi oil grant -- which the Jordanians expect to 
continue into 2004 -- plus UAE cash transfers, this should be 
sufficient for Jordan to meet its petroleum supply needs this 
year.  Progress is also being made on procuring oil from Iraq 
and increasing natural gas consumption.  How Jordan will meet 
its oil needs in 2004 remains a question, but its currently 
strong finances put the country in a good position to manage 
a transition to paying market prices.  End Summary. 
 
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Kuwait Grant Through September 
------------------------------ 
 
2.  (c)  The number two official in the Ministry of Energy, 
Secretary General Khaldoun Qteishat, told us on August 14 
 
SIPDIS 
that recent Jordan-Kuwait meetings resulted in an oral 
agreement that Kuwait would extend to its 25,000 bdp crude 
oil grant by three months, i.e. through September.  Since the 
Kuwaitis were unable to provide the cash equivalent of the 
oil, as requested by Jordan, they further agreed that Kuwait 
would refine this amount on behalf of Jordan, with any excess 
over Jordan's needs being sold by Kuwait with the proceeds 
going to Jordan.  (This is necessary since the properties of 
Kuwaiti oil make it difficult to refine at Jordan's Zarqa 
refinery.)  Jordan pays for transportation of the refined 
products from Kuwait to Jordan.  While these generalities 
were agreed, Qteishat said the practicalities remained murky 
to the Jordanians.  They had recently transmitted a request 
for refined products to Kuwaiti counterparts and are waiting 
for a response. 
 
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Saudi Grant Likely to Extend into 2004 
-------------------------------------- 
 
3.  (c)  Deliveries of Saudi Arabia's 50,000 bdp oil grant 
continue to go smoothly, Qteishat said.  The Zarqa refinery 
has no problem refining Saudi oil.  Delivery is made at 
Yanbu, with Jordan picking up transportation costs to Aqaba. 
Qteishat said it had been agreed that the grant would 
continue through the end of the year.  He thought there was a 
99% probability that it would be extended into 2004, but 
noted that this was also based on oral promises; Jordan has 
nothing in writing. 
 
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UAE Cash Continues to Flow 
-------------------------- 
 
4.  (c)  The balance of Jordan's 90-100,000 bpd crude oil 
needs are being met by crude purchases at Yanbu at the market 
price.  As in the case of Kuwait, the UAE grant of the cash 
equivalent of 25,000 bpd had been extended through September. 
 Qteishat understood that this grant was being used for the 
purchases at Yanbu, but said the Finance Ministry was 
handling these transactions. 
 
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Progress Made on Iraq Purchases 
------------------------------- 
 
5.  (c)  Following up on recent meetings with Iraq's oil 
ministry (reftel), Qteishat said Jordan had recently sent to 
Baghdad a request for the purchase of crude and refined 
products.  He said payment would be at the standard market 
price Iraq charges all other buyers.  Delivery would be to 
Aqaba by ship from Mina al-Bakr.  Jordan would prefer to 
resume truck deliveries because of the lower cost, port 
congestion in Aqaba, and for environmental reasons, but the 
Iraqis, he said, are currently unable to comply for technical 
reasons.  (Qteishat thought this had to do with damaged 
loading platforms.) 
 
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Natural Gas Coming On-line 
-------------------------- 
 
6.  (c)  Finally, Qteishat said Egyptian natural gas 
deliveries to Aqaba had started following the July 27 
inauguration  of the new pipeline.  Gas is now being used to 
drive one of the six turbines.  All six should be gas fed by 
year end.  According to Qteishat, this would not reduce 
Jordan's crude oil import needs noticeably, since the same 
about of crude would be required to refine into other 
products.  However, it would result in a surplus of heavy 
fuel oil that Jordan would export.  This would create a net 
financial savings for Jordan, which, he said, was difficult 
to estimate given the complex formula used to price the gas. 
(IMF sources have told us the actual savings would be 
meaningful, but not large in the context of Jordan's balance 
of payments.) 
 
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Comment 
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7.  (c)  Comment:  If implemented as the Jordanians believe, 
these arrangements would seem to meet Jordan's crude oil 
needs through the end of the year.  As the Central Bank 
governor also observed to the charge August 14, the big 
question mark was 2004.  The governor said that he and his 
colleagues were planning on the assumption that Jordan would 
have to pay full market prices next year.  He thought, 
however, that Jordan was in a good financial position to be 
able to manage this transition, thanks, in part, to U.S. 
assistance. 
 
8.  (u) Baghdad minimize considered. 
HALE