The Bank of China and the Industrial and Commercial Bank of China (ICBC) are to lend US$1.6bn to a shale oil project in Jordan.

An Estonian-Malaysian joint venture will use the money to construct a 470MW electricity plant in the southern region of Attarat Um Ghudran, which will be operational by the end of 2019. In total the project cost will exceed US$2bn and could represent the largest financing in Jordanian history, according to the minister for energy and mineral resources Ibrahim Saif.

The consortium has been set up by Enefit of Estonia and YTL International of Malaysia and the plant will help reduce Jordan’s imports of heavy oil and diesel.

The relatively nascent shale oil sector is expected to make a real dent in energy over the coming years and Jordan is expected to be a key player. The country has virtually zero reserves of conventional oil and gas but has the fourth largest reserves of shale oil in the world. It’s thought that 70% of the country sits on top of the energy source. It’s hoped that by 2020, shale oil will provide 14% of the country’s energy mix, and that Jordan will become a net exporter of energy in the future.

A recent study of the shale oil market found that only Australia, Jordan, Morocco and the US are expected to achieve commercial production before 2022. The Jordanian government has entered into agreements with companies from Brazil, China, Russia the UAE and the UK among others, in order to access the source.

Shale oil comes from organic rich rock that yields oil when heated to 500 degrees Celsius. There are 600 known reserves in the world, with the International Energy Agency estimating that there may be the equivalent of 5 trillion barrels of shale oil, one trillion of which is “technically recoverable”. By comparison, the Institute of Mechanical Engineers estimates there to be 1.3 trillion barrels of conventional oil in reserve, which at present rates will last around 40 years.

The Chinese lending package comes at a time when question marks have been raised over the levels of indebtedness of US shale producers. Last year, low prices and high yield loan repayments led to a reported cash shortfall of more than US$30bn in the industry.

Citi’s global head of commodities research Edward Morse describes small US shale producers as “in the worst cashflow positions of all the energy and petroleum firms” and also slammed the practice of increasing their indebtedness in order to address issues of over-leverage.

It’s been reported that bank lending into the area has dried up, with producers turning to capital markets and private equity firms for funding. This deal bucks the trend in serious fashion.