The Kingdom of Jordan may be on track to become the third Middle East nation after Egypt and Israel to leave the liquefied natural gas market as more regional pipeline gas becomes available.
The only outcome that could stop Jordan no longer being an LNG importer at its facility at Aqaba is the withdrawal of Israeli pipeline gas supplies, which analysts believe is unlikely.
Jordan is an important market for Israel’s surplus gas and in fact an anchor for development of the first phase of the Leviathan gas project offshore Israel, according to an analysis from the consultancy, FACTS Global Energy.
“A short distance pipeline also provides Israel the highest netback for pipeline gas exports compared to other markets such as Egypt, and even Turkey,” said the report.
“The transportation cost for the Israel-Jordan section is estimated to be only US$0.12 per million British thermal units and the current netbacks are around US$5.90-US$6.40 per MMBtu,” added the report.
Jordan National Electric Power Corp. (NEPCO) is currently buying LNG from Shell based on a mid-term contract that expires in 2020.
However, the pipeline contract price agreed with Israel is lower than the LNG price per tonne for the country.
“NEPCO’s contract with Israel’s Leviathan consortium is linked to Brent prices and currently translates to a gas price of around US$6.00-6.50 per MMBtu (at US$70 per barrel Brent price), around US$2.20-2.70 per MMBtu lower than the MT LNG contract prices,” stated the FACTS report.
For Jordan, it makes economic sense to buy pipeline gas that is priced lower than LNG.
Jordan has already committed to import up to 350 million standard cubic feet per day of pipeline gas from Israel from December 2019, when the Leviathan gas project begins operating.
“The construction of a new 65-kilometres pipeline between Jordan and Israel is ahead of schedule and will be completed by the third quarter of 2019,” noted the report.
The Leviathan gas development project is also more than 80 percent completed and is set to start operation by the end of 2019. Jordan is already receiving small volumes of 10-12 mmscf/d of gas from Israel’s offshore Tamar gas field, owned by Noble Energy of the US and its main partners, subsidiaries of the Delek Group of Israel.
Jordan has also resumed gas imports by pipeline from Egypt on the back of new gas supply from the Egyptian Zohr gas field in the East Mediterranean.
The original contract was to import 250 mmscf/d of gas at a price of around US$2.50 per MMBtu.
However, following a gas supply shortage in Egypt, the pipeline flow to Jordan dropped substantially and was finally halted in late 2015.
During 2016 and 2017, NEPCO reversed the pipeline flow, and purchased 10 additional LNG cargoes per year to send to Egypt via the existing pipeline.
In August 2018, Jordanian and Egyptian Energy Ministers agreed to resume gas supply to Jordan and Egypt started sending interruptible volumes of gas to Jordan from September 2018.
“The current price of the Egyptian gas is estimated to be around US$5.00 per MMBtu, which is lower than Israel’s gas prices but the volumes are still negligible,” said the report.
Jordan’s pipeline gas imports from Egypt have been increasing in 2019 and are expected to reach 100 mmscf/d by the end of this year. Post-2020, gas imports from Egypt may reach 200 mmscf/d.
However, given the current supply/demand balance outlook for Egypt, it is difficult to see more gas supply to Jordan.
“Based on our estimates, Egypt will not have more than 200 mmscf/d of gas left for pipeline exports post 2020,” said the FACTS report.
“Interestingly, Egypt will also start importing Israeli pipeline gas from December 2019. Egypt has two contracts to import up to 640 mmscf/d of gas from Israel,” it added.
If everything goes as planned for pipeline deliveries, Jordan will reduce its LNG imports in the next couple of years and they can finally cease.
Jordan would still have flexibility to import occasional LNG cargoes post-2022 as the Golar floating storage and regasification unit contract with NEPCO is expiring in around 2025 and the Jordanians can keep the vessel until then.
“Jordan could decide to keep the FSRU for a longer period and import LNG or simply approach Israel for additional pipeline imports,” said the report.