US embassy cable - 03AMMAN2367

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 002367 
 
SIPDIS 
 
E.O. 12958: DECL: 04/17/2013 
TAGS: EPET, ETRD, ENRG, IZ, JO 
SUBJECT: TFIZ01: JORDAN'S ENERGY MINISTER ON OIL SITUATION, 
GAS FUTURES 
 
 
Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d) 
 
1.  (c)  Summary:  Jordanian Energy Minister Mohammed 
Bataineh told us April 17 that after a slow start, Gulf oil 
was now flowing into Jordan to replace Iraqi crude. 
Jordanian reserves had dipped initially when Iraqi oil 
stopped flowing, but had since stabilized and were expected 
to replenish soon.  This new system, though, is causing 
significant financial and environmental disruptions in 
Jordan.  While the GOJ is making plans to accommodate the new 
reality of market prices for crude in the future, it will 
feel sharp fiscal pain in the short term as it makes the 
adjustment.  End summary. 
 
-------------------- 
Gulf Oil Deal Update 
-------------------- 
 
2.  (c)  Bataineh praised the flexibility and reliability of 
his Saudi interlocutors, noting that they had not only come 
through as promised with a three-month deal to provide 50,000 
bpd, but had also agreed to restructure the delivery schedule 
from three to two shipments at the GOJ's request.  Bataineh 
said one ship had already lifted one million barrels of crude 
from Yanbu and had arrived at Aqaba.  It had not yet begun 
offloading.  The 3-month deal, he said, was formally an 
agreement between ARAMCO and the Jordan Petroleum Refinery 
Company (JPRC), not/not a government-to-government deal.  He 
added that this arrangement was made at ARAMCO's request. 
 
3.  (c)  Bataineh was somewhat frustrated with his Kuwaiti 
colleagues, however.  He said Kuwaiti oil and port 
authorities had raised objections about the ship the GOJ had 
chartered to transport the oil, refusing it entry into the 
loading site on the grounds that it did not meet safety 
standards (Bataineh admitted it was an older, single-hulled 
vessel).  He said the Kuwaitis were less flexible about 
consolidating shipments, meaning the GOJ would have to make 
additional trips and lease the ship for longer in order to 
collect the oil, which resulted in significant additional 
costs (see below).  The Kuwaitis ultimately agreed to a 
ship-to-ship transfer of 240,000 tons of crude, which 
Bataineh said was currently being effected, after which the 
leased ship would head to Aqaba. 
 
4.  (c)  As for the Emirates' promise of a cash grant to 
cover purchase of 25,000 bpd, Bataineh said this matter was 
being handled directly by the Finance Ministry.  He had no 
knowledge as to whether or not any grants had been received. 
Bataineh also denied reports that Jordan had lifted oil from 
Ras Tanura.  He said the site had been proposed as a lifting 
option, but that they and the Saudis had decided instead to 
lift from Yanbu which is much closer, and hence less costly. 
 
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Reserves Down, but Stabilizing 
------------------------------ 
 
5.  (c)  Bataineh said land-based as well as shipboard 
reserves were down significantly over the past month.  Crude 
reserves in Zarqa are down to 95,000 tons from a pre-war peak 
of 200,000 tons, and reserves on the tanker "Jerash," moored 
in Aqaba, were down to 140,000 from 280,000.  (Note: 
Bataineh told us in a previous meeting that all land reserves 
were refined product, and all crude storage was shipboard. 
End note.)  Bataineh attributed the dip in reserves to the 
need to offset the loss of crude flows from Iraq when the war 
started.  He said reserves are now stable at the new, lower 
level.  He added that, with the arrival of the feeder from 
Yanbu, reserves should "top up" again to their previous 
levels "in a few weeks," and noted there are an additional 
30,000 tons of crude storage in Aqaba currently. 
 
---------------------------- 
Financial, Opportunity Costs 
---------------------------- 
 
6.  (c)  Bataineh asserted that the new system was resulting 
in significant financial and other costs.  While exact 
figures are unavailable for the total additional cost to the 
GOJ of the current system, Bataineh provided many 
illustrative examples:  rental of the two feeder ships was 
costing the GOJ $25,000 and $85,000 per day respectively just 
in rental fees.  Bataineh complained that these fees were 
assessed monthly, even though the ships were only making one 
or two trips.  The ships incurred additional costs at port. 
When lifting, the ships are assessed a $1.50/ton fee, and 
once they reach Aqaba, they incur significant additional 
costs as they maneuver in and out of the sole oil jetty - 
which is also used to offload vegetable oil, refined product, 
and sulpho-chemicals. 
 
7.  (c)  Land transport fees were actually cheaper under the 
new system ($9.10/ton versus $14.50/ton when trucked from 
Iraq), but trucks cannot be fully loaded (for the reason 
given below) and as a result have to make additional trips. 
Thus land transport costs are likely a wash.  More 
concerning, though, is the significant damage being done to 
the just-completed bypass road that curls behind Aqaba to 
link with the Desert Highway.  Bataineh showed us pictures of 
significant damage to the road and the surrounding 
environment from large amounts of spilled oil.  According to 
Bataineh, the grade of the road is exceptionally steep, and 
Jordan's crude trucking fleet is exceptionally old.  This 
combination has resulted in large amounts of spillage of 
crude onto the road and into the countryside.  To counter 
this, the trucks are now traveling with only partial loads. 
However, since the road was designed essentially for cargo 
traffic and not tanker traffic, the axle load on the road 
from the crude trucks far exceeds the maximum allowable. 
This is further destroying the new road. 
 
----------------- 
The Future is Gas 
----------------- 
 
8.  (c)  Bataineh said the cabinet was concerned about 
Jordan's energy future, in particular what would happen in 
three months when the Gulf concessions ran out.  He said it 
was inevitable that Jordan would be paying market prices for 
crude, but noted this would have serious budgetary 
consequences.  He said the cabinet is still discussing price 
hikes for refined product, but said it is a highly-charged 
issue, because of the social and political costs of such a 
move. 
 
9.  (c)  On the bright side, he said, a number of natural 
gas-related projects were on schedule and would help limit 
Jordan's crude dependency.  He noted that the undersea 
portion of the Egypt-Jordan gas pipeline was complete, and 
that documentation was nearly finalized to extend the 
pipeline to Amman.  He expected the remaining land 
connections and receiving stations to be completed in the 
coming weeks, and said gas should be flowing by mid-June. 
Once the turbines at the Aqaba power station started using 
gas (they are already installed and ready to go), Jordan's 
fuel oil needs would be cut by about 60%. 
 
10. (c)  Bataineh said the Al Samra Independent Power Project 
(IPP) was still in train, but said progress had stalled with 
the departure of Tractebel, the original contractor. 
Bataineh said the GOJ was taking new bids on the 
combined-cycle plant, and had received serious interest from 
a number of energy companies.  However, most of the bidders 
proposed greenfield projects, which would take too long to 
build to meet Jordan's medium-term energy needs.  Bataineh 
predicted the IPP needed to be on-line by 2006 to meet 
Jordan's future electricity needs, and was asking bidders for 
new proposals that could build on the work already completed 
by Tractebel. 
 
------------------------------- 
Happiness is Multiple Pipelines 
------------------------------- 
 
11.  (c)  Looking even further ahead, Bataineh said Jordan 
would likely have to look to re-establish an oil relationship 
with a new Iraqi government in order to meet its energy needs 
in the most cost-efficient way.  Bataineh did not suggest 
that new oil concessions were in the cards, but looked rather 
to oil sector investment as a means to renew the relationship 
to mutual advantage.  He said first that the Iraq-Zarqa 
pipeline was still on the books, and that the GOJ was eager 
to see a new Iraqi government in place that could meet its 
commitments under the terms of the deal (which includes, 
inter alia, delivery of loading stations by the developer to 
Iraqi government control). 
 
12.  (c)  In addition, he said he had received a number of 
expressions of interest from developers looking to revitalize 
an idea from the mid-1980's to run a crude pipeline from Iraq 
to Aqaba, and to build additional refineries in Aqaba.  Such 
a plan, he said, would bring Jordan revenue from transit fees 
and would reduce transportation costs for oil used 
domestically.  He denied flat out, however, that there was 
any plan or discussion to restart a Mosul-Haifa crude 
pipeline as reported in the press.  Any such talk, he said, 
was ridiculous, since the pipeline no longer exists as such. 
 
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Comment 
------- 
 
13.  (c)  The war has clearly brought additional costs to 
Jordan's energy sector.  While those costs are not yet easily 
quantifiable, they are apparent, from the significant damage 
to Aqaba's new bypass highway to the fees associated with 
feeder ships, to say nothing of the looming elimination of 
subsidies on crude imports.  Bataineh's plans for the 
sector's future appear sound, if somewhat ambitious.  But if 
successfully completed, they would ease somewhat the burden 
of shifting to market prices for crude.  In the short term, 
though, and especially after Gulf concessions cease in three 
months, Jordan will face serious financial strains from the 
cessation of its sweetheart oil arrangement with the Saddam 
regime. 
GNEHM