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Diversification remains top priority
Investing heavily in the LNG sector
Oman is heavily dependent on oil revenues, accounting for around 75 per cent of export earnings and almost 40 per cent of gross domestic product (GDP). With the maturing of oil fields, however, diversification is a top economic priority.
Oman is not typical of Gulf oil producers. Oman’s oil fields are also generally smaller, less productive, and more costly per barrel. The average well in Oman produces only about one-tenth the volume per well of its neighbours.
Oman uses a variety of enhanced recovery techniques. While they raise production, they increase cost. The figures are low by world standards but remain substantially higher than in most other Gulf states.
Oman has proven recoverable oil reserves of 5.5 billion barrels, the bulk of which are located in the country’s northern and central regions. The largest and traditionally most reliable fields are in the north. These fields, which include Yibal, Fahud, al-Huwaisah, and several others, are now mature.
Estimates suggest that the amount of oil originally in place in Oman is around 50 billion barrels and finding ways to increase recoverability is a top priority.
Petroleum Development Oman (PDO) is the country’s second-largest employer after the government. The company is comprised of the Omani government (60 per cent), Shell (34 per cent), Total (4 per cent), and Partex (2 per cent). It holds over 90 per cent of the country’s oil reserves, and accounts for about 94 per cent of production.
PDO’s main hopes involve increasing recovery rates and discovering and exploiting new fields, particularly in the south. Among southern prospects, PDO has the most hope for a cluster of fields that includes Ghafeer, Sarmad, and Harweel. PDO estimates there may be reserves of 250 million barrels, with a potential maximum production level of 100,000 bbl/d. One small new find was reported in July 2004, in the Shuaiba area in northwestern Oman , which tested at 2,600 bbl/d.
Several foreign companies are involved in Oman ‘s oil sector, particularly in offshore exploration.
In March 2002, Total signed an oil and gas exploration and production-sharing agreement with the government, covering a block of around 4,250 square miles. Maersk Oil Oman (a subsidiary of Danish energy group AP Moeller), Mitsui & Co. (Japan), Occidental (US) and Hunt Oil (US) have also committed to offshore exploration.
China’s CNPC acquired a foothold, taking a 50 per cent stake in Block 5 which it acquired after it was relinquished by the Japanese firm Japex. The other major Chinese oil company, Sinopec, acquired two onshore exploration blocks in southern Oman in August 2004.
Most of Oman’s crude oil exports go to Asia, with China, Japan, South Korea, and India the largest importers. China’s share of Oman’s oil exports has risen rapidly, running at over 300,000 bbl/d during the first half of 2004.
Refining and petrochemicals
In 1982, Oman constructed its first refinery, at Mina al-Fahal. The plant’s capacity is now 85,000 bbl/d. Output from the facility, which is operated by the state-owned Oman Refinery Company (ORC), is used to meet local product demand. A second refinery is under construction near the northern city of Sohar. JGC Corporation (Japan) was awarded the contract in 2003.
Oman announced plans to build a $1 billion pipeline that will run the 162 miles between the ORC and the new refinery in Sohar. When both the pipeline and the refinery begin operation in 2006, the line is to transport a mixed feedstock of crude from PDO and long residue from the Oman Refinery to Sohar for processing.
The refinery’s capacity is expected to be 51,000 bbl/d of gasoline and 30,000 bbl/d each of diesel and fuel gas. The plant will also have a facility for extracting sulphur from gasoline and a catalytic cracker that will produce gas and gasoline from the leftover elements of the normal refining process.
Ferrostaal (Germany) signed a contract with the Omani government to build a methanol plant in Sohar. The deal is estimated to be worth over $420 million and is a joint venture with the Omani Oil Company and a private Omani group, Omzest.
The project will utilise some of the five trillion cubic feet (tcf) of gas made available to new industries in Sohar. The plant has a projected production capacity of 5,000 tons of methanol per day.
Natural gas
Exploration has raised proven natural gas reserves from only 12.3 tcf in 1992 to 29 tcf in 2004. Most of Oman’s reserves are in PDO-owned areas. Most gas in Oman is associated with oil but even non-associated is often located close to the oil fields.
More than 10 tcf of Oman’s non-associated natural gas is located in deep geological structures, many of which are beneath active oil fields. In 2002, Oman is estimated to have produced 530 billion cubic feet (bcf) of natural gas. A number of foreign firms are involved. In 2003, Atlantis, a subsidiary of the Chinese firm Sinochem, began to drill a gas find containing up to 300 bcf.
Oman’s gas network has been placed under the authority of Oman Gas Company (OGC), set up by the government to oversee the sultanate’s gas development programme.
In 2001, Oman awarded a contract to operate the country’s natural gas transportation and distribution infrastructure to Canada’s Enbridge and BC Gas (now Terasen). The contract includes a provision for technology transfer and training, so operation can be shifted to Omani staff after five years. Oman would like to enlarge its existing pipeline network. In 2002, the contractors completed two lines to connect the reserves in the middle of the country to the coast. One cost $124 million and connects with Sohar. The other cost $180 million and connects with Salalah.
There is also an older 500-mile gas trunk line connecting the central fields with power plants and the processing facility of the Oman Liquefied Natural Gas Company (OLNGC), a consortium whose shareholders are the government (51 per cent), Shell (30 per cent), Total (5.54 per cent), and Korea LNG (5 per cent), Mitsubishi (2.77 per cent), Mitsui & Co. (2.77 per cent), Partex (2 per cent), and Itochu (0.92 per cent).
Oman is one of the participants in the $3.5 billion Dolphin project being led by Dolphin Energy Limited, a joint-venture between the UAE government, Total, and Occidental. The goal is to link the gas networks of Qatar, the UAE, and Oman. OGC began supplying gas to Dolphin in the fourth quarter of 2003. Deliveries will continue for a period of up to five years.
Plans call for the pipeline to eventually reverse direction, supplying natural gas from Qatar to petrochemical and fertiliser plants in Oman.
LNG exports
LNG constitutes a large part of Oman’s plan to develop its natural gas sector, and the country is investing heavily. Oman’s LNG programme is being coordinated by OLNGC. In 2003, Oman’s total LNG production was 324 bcf.
Since 2000, production has been evenly split between between two liquefaction plants located at Qalhat, each with a capacity of around 170 bcf per year.
A third train is expected to increase production capacity by 50 per cent when it comes on line in late 2005. It will be a joint-venture between the Omani government (56 per cent), OLNGC (37 per cent), and Union Fenosa (Spain, seven per cent).
At present, the two Qalhat trains are operating almost at the limits of their capacity, and Union Fenosa has already signed a 20-year contract for half of the third train’s output once it comes on line. Other major LNG purchasers are Kogas (South Korea), Daghol Power (India), and Osaka Gas (Japan). Occasional spot cargoes are delivered to Europe and the United States.
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