During our university education, a professor of economic geography told us that Jordan sits on a lake of oil. The information was not comprehendible 30 years ago, thus raising our curiosity to ask him to give more details. He then explained that this type of oil only exists between rocks — a fact that the professor concluded after examining images and the compositions of rocks there.
Our professor was from a developed country, whose analysis was based on satellite data along with his own analyses. As a university professional now, I recalled this detail recently after the circulation of information indicating that oil-bearing rocks in Jordan contain 40 billion tonnes of oil, enough for hundreds of years, while Saudi Arabia has demonstrated its interest in investing in manufacturing operations there.
If oil is extracted from rocks in commercial quantities, especially as high oil prices justify the feasibility of the steep cost in production, this will have implications for the development of the energy industry in the region. Seismic surveys that were conducted in areas geographically close to Jordan confirm the correctness of the data, with huge quantities of gas having been discovered in Occupied Palestine, Lebanon and Cyprus, in addition to Syria.
Extra resources
This is good news for Jordan, which is in need of extra resources to fund development projects which are currently reliant on foreign assistance, particularly from the GCC, the US and the EU. On the other hand, the entry of a new country into the oil market may lead to a shift in the balance of the regional economic and strategic powers, with consequences for the different countries.
Referring to some of the implications of these developments in the field of energy, the ‘World Economic Outlook’ issued by the International Monetary Fund, said: “The increasing shale oil production, especially in the US, and the expected decline in global demand, pose potential threats to oil production in the member countries of Opec as well as to oil prices”. But these effects will vary from one country to another.
The GCC, for example, was able to create huge financial reserves that will enable it to cope with any difficulties or shocks caused by low prices in the case of increased oil production and decline in world demand.
At the same time, other countries such as Nigeria, Iran and Iraq and Algeria will face serious difficulties in coping with their declining oil revenues, because of the huge expenditure on non-productive sectors, corruption and their failure to create financial reserves in the past eight years, which saw record highs in oil prices.
High cost of production
It is not expected that oil prices will drop below $80 per barrel because of the high cost of production; spending rates in oil producing countries have doubled to reach record levels in recent years. However, it is difficult for oil producing countries to reduce expenditure as they are committed to completing their mega development projects, as well as bearing the cost from high salaries, particularly in the public sector. On the other hand, extracting oil from rocks needs huge investments that many countries do not have, including Jordan. However, excellent historical ties with the GCC will offer important sources of financing that would enable Jordan to embark on the production process, as funding operations will take a practical nature.
This is part of the complicated picture for the energy industry, which will see rapid changes, with declining shares of some countries and the emergence of others that in determining the trends in energy markets. This may explain some of the current international conflicts, including the one in Ukraine which is rich in shale gas.
— Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
