OMAN — A COUNTRY ON THE MOVE
The country has embarked on an ambitious
programme of privatisation, diversification and expanded utilisation
of natural gas reserves to help alleviate its dependence on oil.
Oman, a country of 309,500 square kilometres, is heavily dependent
on oil revenues, which account for nearly 80 per cent of export
earnings and 40 per cent of gross domestic product (GDP).
Natural gas projects include a liquefied natural gas (LNG) project
in Sur, which began exports in April 2000, an aluminum smelter and
petrochemicals plant in Sohar, and a urea fertiliser plant in Sur.
Foreign investment incentives include a 5-year tax holiday for
companies in certain industries, an income tax reduction for publicly
held companies with at least 51 per cent Omani ownership, and soft
loans to finance new and existing projects.
Oman became a member of the World Trade Organization (WTO) in October
2000 and has undertaken a programme of modernisation and constitutional
reform.
OIL
Oil was only discovered in commercial quantities in 1962. The
oil fields are generally smaller, more widely scattered, less productive,
and more costly per barrel than those in neighbouring countries.
Omani oil wells average about one-tenth the volume per well compared
to neighbouring countries and a variety of enhanced oil recovery
(EOR) techniques are used to minimise the costs of exploration and
development.
The northern and central regions hold most of the 5.5 billion barrels
in proven oil reserves.
In the North, the Yibal, Natih, Fahud, al-Huwaisah and Lekhwair
fields combined account for almost half of Omani oil production.
Yibal, which produces around 180,000 bbl/d, is the largest oil field
in the country. The crude oil found in this region is mainly medium
or light. Northern oil is usually found with natural gas.
Heavier oil is found in southern Oman, particularly in the Nimr
and Amal fields. Oman's main oil export blend is a medium sour crude.
Petroleum Development Oman (PDO), the country's second-largest
employer after the government, holds over 90 per cent of the country's
oil reserves, and accounts for about 94 per cent of production.
PDO is a consortium comprised of the Omani government (60 per cent),
Shell (34 per cent), Total (4 per cent), and Partex (2 per cent).
However, Shell operates most of Oman's key fields, including Yibal
and Lekhwair.
PDO is developing additional exploration and recovery techniques
to increase oil reserves. The company is aiming to double its average
recovery rate to 50 per cent (a goal known as “Target 50”)
by investing over $1 billion in enhanced recovery projects over
the next five years.
Crude oil production fell in the first half of 2002, averaging
918,425 bbl/d, down from an average of 959,816 bbl/d for 2001. This
was partly due to a 40,000 bbl/d cut in output from 1 January, 2002
in support of OPEC production cuts but may also reflect declining
production at mature fields.
Yibal, discovered in 1962, is the largest producing oil field and
supplies about one-quarter of PDO's total production.
In 1986, the field's output was boosted from 120,000 bbl/d to more
than 140,000 bbl/d with the installation of water injection facilities.
The completion of the $200-million Yibal Shusiba Phase II project
in 1994 increased production further.
The project involved drilling 96 wells, mostly horizontal, and
modifications to production stations B, C, and D, which included
the installation of gas injection facilities. Yibal currently produces
around 180,000 bbl/d.
Oman's second largest oil field, Nimr, was discovered in 1980 and
is located in the southern part of the country. Nimr currently produces
about 178,000 bbl/d from more than 307 wells.
Foreign companies recently awarded concessions for exploration
include France's TotalFinaElf, which signed a deal for a 100 per
cent stake in Block 34 in southern Oman in March 2002, and Hunt
Oil, which was awarded a concession in May 2002 for Block 51 in
the Sharqiyah region.
China's CNPC also has acquired a foothold in Oman in 2002 with
a 50 per cent stake in Block 5 which it acquired after it was relinquished
by Japex.
Most of Oman's crude oil exports go to East Asia, with China, Japan,
and South Korea the largest importers. India also is a significant
importer of Omani crude oil.
Refining and Petrochemicals
Oman constructed its first refinery in 1982, at Mina al-Fahal.
The 50,000-bbl/d plant has since been expanded to 85,000 bbl/d.
SK Engineering of South Korea was awarded a contract in June 2002
for the construction of a new desulfurization unit at Mina al-Fahal.
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 planned, near the northern city of Sohar. Bids
for construction of the project were solicited in March 2002.
A final selection of a construction contractor has still to be made.
Investing in petrochemical production is part of an effort to diversify
the economy and develop value-added industries. Oman is moving ahead
with plans to construct a large-scale joint-venture petrochemical
project in Sohar for the production of polyethylene and fertiliser.
Natural Gas
Natural gas, for export and domestic gas-intensive industries,
is the cornerstone of Oman’s diversification and economic
growth strategy.
As of 1 January 2002, Oman's estimated proven natural gas reserves
were approximately 29.3 trillion cubic feet (Tcf), up from only
12.3 Tcf in 1992, largely of associated gas.
Many of these reserves are in areas owned by PDO, which produces
the majority of Oman's natural gas. More than 10 Tcf of Oman's non-associated
natural gas is located in deep geological structures beneath active
oil fields.
The existing natural gas pipeline network is also being extended.
Two contracts were awarded for projects connecting natural gas deposits
in central Oman to the coastal cities of Sohar in the north and
Salalah in the south. India's Dodsal Company completed construction
of a $124-million line to Sohar in August 2002. A consortium including
Italy's Snamprogetti and Saipem completed the $180-million line
to Salalah in August 2002.
In April 2001, Oman awarded a contract to operate the country's
natural gas transportation and distribution infrastructure for the
next five years to Canada's Enbridge and BC Gas. The contract includes
a provision for technology transfer and training, so operation can
be transferred to Omani staff.
The Dolphin Project
The first Dolphin Energy project to come on stream will be a new
natural gas pipeline between Al Ain and Fujairah, to be commissioned
in September 2003.
The pipeline crosses 182 kilometers of desert and mountain to provide
gas to the new power and desalination plants of the Union Water
and Electricity Company (UWEC) in the UAE’s East Coast Emirate
of Fujairah.
Initially the natural gas being supplied will come from Oman. For
the first time gas will flow from one GGC State to another as an
estimated 120 million cubic feet of gas per day are supplied for
3½ – 5 years.
The Oman Oil Company will deliver the gas to the Oman-UAE border.
Dolphin Energy will supply it to UWEC’s 656 MW power generation
plant and 100 million gallons-per-day desalination plant through
the 24-inch pipeline being constructed between August 2002 and September
2003.
Dolphin’s new pipeline system from Qatar will be in operation
by 2006 and Qatar natural gas will flow directly to Fujairah via
ADNOC’s existing land lines to Al Ain and thereafter the new
Dolphin link. Dolphin will also be able to supply natural gas to
support Oman’s future industrial development projects in the
north east of the Sultanate, as and when required.
Oman could also serve as a transit corridor for gas exports from
the Dolphin Project to Pakistan through a subsea pipeline.
Liquefied Natural Gas (LNG) Exports
Oman began exports of LNG in early 2000 with the completion of
a 6.6-million-ton-per-year liquefaction plant located at Qalhat.
Developed by the Oman Liquefied Natural Gas Company (OLNGC) the
project was a joint venture of the Omani government, Shell, TotalFinaElf,
Korea LNG, Mitsubishi, Mitsui & Co, Partex, and Itochu.
Korea Gas Corporation (Kogas) is the anchor customer for the LNG
project, having contracted for 4.1 million tons per year of Omani
LNG over a 25-year period.
Japan's Osaka Gas Company is another client, and will receive 700,000
tons per year for 25 years. The Dabhol power project in India is
the third client.
The spot market for LNG is relatively strong. In the first half
of 2002 new sales agreements were concluded with Union Fenosa of
Spain and Gaz de France for LNG supplies which will become available
with the completion of the third train.
Oman has also signed a number of joint venture agreements for exploration
and development activities. Canada-based Gulfstream Resources Ltd.
is planning to invest more than $60 million over the next eight
years to develop a gas field in Haffar Block 30. In November 1998,
Occidental, Amoco and Neste Oy of Finland announced the establishment
of a joint venture firm to develop, explore and produce natural
gas reserves in northern Oman. The area consists of five blocks,
covering approximately 3,150 square miles. Target markets include
the city of Sohar and the northern UAE through the large natural
gas supply hub located in Sharjah. The project will include development,
well drilling, construction of a gas collection system and processing
plant, as well as building gas transmission lines to Sohar and the
Sharjah gas hub.
Conclusion
Oil reserves remain the driving force of the economy and Oman is
vulnerable to fluctuations in the oil price.
There is also some debate on the effectiveness of reforms aimed
at reducing the country’s dependency on oil, generating employment
opportunities for an increasing population and broadening the economic
base.
But the future outlook remains stable. Moody’s Baa2 currency
ceiling for Oman reflects a long track record of economic growth,
price stability and modest debt levels.
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