Oman Oil and Gas Industry Overview: Middle East Oil Producers
Summary: Oman is the largest non-OPEC oil and gas producer in the Middle East, with proven oil reserves of about 5.3 billion barrels, the 22nd largest in the world. Compared with other Middle East producers, Omani fields are harder to develop, which has given rise to favourable government terms and a flourishing enhanced oil recovery (EOR) sector.
1. Energy Overview
Oman lies on the Arabian Peninsula close to the Arabian Sea, the Gulf of Oman and the Persian Gulf, which links the country to some of the world's most important energy corridors and strengthens its position in global energy supply chains. Oman also plans to use this strategic location to build a world-class refining and storage site near Duqm, outside the Strait of Hormuz, a key oil transport chokepoint.
Like most Middle Eastern countries, Oman's economy depends heavily on its oil and gas sector. According to the Central Bank of Oman, in 2014 oil and gas accounted for 84% of government revenue and 47% of GDP.
Oman is the largest non-OPEC oil and gas producer in the Middle East, with proven oil reserves of about 5.3 billion barrels, ranking 22nd in the world. Because Omani fields are relatively difficult to develop, the government offers favourable terms and EOR technology has flourished. The Alam-West field in southern Oman is the first solar EOR project in the Middle East. As domestic gas demand keeps rising, Oman may gradually become a net gas importer.
2. Oil and Other Liquid Fuels
2.1 Sector organisation
Ministry of Oil and Gas: coordinates the government's role in the Omani oil and gas industry; final policy approval and investment decisions, however, rest with the government of Oman.
Petroleum Development Oman (PDO): holds most of Oman's oil reserves and accounts for more than 70% of national crude production. The government holds 60%, Shell 34%, Total 4% and Portugal's Partex 2%.
Oman Oil Company (OOC): a wholly state-owned company responsible for energy investment inside and outside Oman.
Oman Oil Refineries and Petroleum Industries Company (ORPIC): controls the country's refining sector; both of Oman's operating refineries belong to it.
2.2 Reserves
According to Oil & Gas Journal, as of January 2016 Oman held proven oil reserves of about 5.3 billion barrels - seventh in the Middle East and 22nd in the world. In 2012 the US Geological Survey estimated that the South Oman Salt Basin in southern Oman holds undiscovered resources of more than 370 million barrels of crude, 315 billion cubic feet (Bcf) of natural gas and more than 40 million barrels of natural gas liquids (NGL). With production rising, a growing petrochemical sector that depends on LPG and NGL, and new potential resources, the country is unlikely to reduce its dependence on hydrocarbons significantly in the near term.
2.3 Exploration and production
After years of decline in the early 2000s, Omani oil production rebounded, and EOR technology is what made that possible. Occidental Petroleum is the largest foreign company operating in Oman; other majors with Omani interests include Shell, Total, Partex, BP, CNPC, KoGas and Repsol. According to the Ministry of Oil and Gas, by the end of 2013 all 31 exploration blocks in Oman had exploration and production activity. Almost all Omani output comes from the Oman Basin, which underlies most of the country.
Oman ranks seventh in the Middle East in production of oil and other liquids and is among the world's top 25 oil producers; it is the largest non-OPEC crude producer in the region. Production of oil and other liquids peaked at 972,000 barrels per day in 2000, fell to 715,000 b/d in 2007, and then recovered to average 1.002 million b/d in 2015. New discoveries contributed some of that increase, but EOR was the main driver. The government hopes to hold output at current levels for at least five more years through continued EOR and careful cost management.
Recent discoveries may support further growth. Notable examples include Circle Oil's announcement of a 7 billion barrel discovery in Block 52 (offshore) and Occidental's Block 53 at the Mukhaizna field, which can produce about 44 million barrels a year. Occidental began one of the world's largest steam-flood projects in Oman in 2005.
2.4 Enhanced oil recovery
The growth in Omani oil and gas output depends heavily on EOR. Techniques commonly used in Oman include polymer flooding, miscible flooding and steam injection. Given the relatively high production cost, the government has created incentives to encourage international oil companies to explore and develop difficult acreage: foreign companies are invited into new exploration and production projects, and blocks that require cutting-edge private-sector technology and expertise are offered on generous terms. Because of the technical difficulty of producing Omani oil, contract terms for international oil companies are more favourable than elsewhere, and some agreements grant foreign partners substantial project equity.
EOR methods such as steam and miscible flooding have been the main engine of production growth. Block 6, operated by PDO, is where EOR is most concentrated: the Marmul field (polymer flooding), Harweel (miscible flooding), Qarn Alam (steam flooding) and Amal-West (solar) bring four EOR technologies together in a single block. The Amal-West solar heavy-oil EOR project in southern Oman is the first solar EOR project in the Middle East; it was completed by GlassPoint Solar in 2012 and came on stream in early 2013.
In 2014 GlassPoint secured a US$53 million investment led by the State General Reserve Fund, Oman's largest sovereign wealth fund, with participation from Shell and its original venture investors (RockPort Capital, Nth Power and Chrysalix). GlassPoint's solar project uses solar energy to produce steam with zero emissions and feeds that steam directly into existing EOR operations, reducing the natural gas that EOR would otherwise consume. Working with PDO, GlassPoint is building Miraah, one of the largest solar plants ever built, with peak thermal output of 1,021 MW. Miraah is more than 100 times the size of the pilot plant and will produce 6,000 tonnes of solar steam per day once complete.
2.5 Consumption and refining
Although Oman plans to expand refining capacity in the coming years, it is not a major exporter of refined products. Oman hopes to exploit its strategic position on the Arabian Peninsula by expanding refining and storage. A large bunkering and storage terminal near Sohar was scheduled for completion in 2017; located next to the Strait of Hormuz, it would make the site attractive to international crude carriers.
Oman has two refineries, Mina al Fahal and Sohar, with combined nameplate capacity of 222,000 b/d, and planned additions of 81,000 b/d by 2018. According to IHS Energy, average refinery utilisation in 2014 was about 96%. Preliminary estimates put 2014 Omani consumption of oil and other liquids at 164,000 b/d, most of it produced by Omani refineries and a small share imported. Oman also exports small volumes of refined products to international markets.
As part of the Sohar Refinery Improvement Project (SRIP) led by ORPIC, the Sohar refinery is being upgraded. Capacity at Sohar was expected to rise from 116,000 b/d to 197,000 b/d by the fourth quarter of 2016. Oman also plans a refinery near Duqm with capacity of 230,000 b/d by 2019, together with a crude storage terminal at Ras Markaz with 200 million barrels of capacity, scheduled to start up in 2018 and set to be one of the largest crude storage facilities in the world.
Oman has no international oil pipelines, although it plans to expand domestic pipeline infrastructure. Plans include the Muscat-Sohar Pipeline Project (MSPP), a 174-mile refined-products line connecting the Mina al Fahal and Sohar refineries and due for completion in 2017, which would reduce tanker traffic between the two coastal plants. Later phases include new storage to keep 30 days of Omani oil stocks.
2.6 Exports
Oman exports a single crude grade, Oman Blend, a medium-light, high-sulfur crude. Oman is an important crude exporter, particularly for Asian markets. In 2014 it exported about 800,000 b/d of crude and condensate, of which 72% went to China.
3. Natural Gas
3.1 Sector organisation
In 2013 Oman merged Oman LNG and Qalhat LNG, simplifying the structure of its LNG sector.
PDO has an even larger share of the gas sector than of oil, supplying almost all Omani gas, with small volumes from Occidental and Thailand's PTT.
Oman Gas Company (OGC) handles gas transmission and distribution; it is a joint venture of the Ministry of Oil and Gas (80%) and Occidental (20%).
Oman LNG (OLNG), owned by a consortium including the government, Shell and Total, controls all LNG activity in Oman through its three liquefaction trains at Qalhat near Sur.
3.2 Exploration and production
Backed by several promising new projects, Oman's gas production has substantial growth potential. According to Oil & Gas Journal, as of January 2016 Oman held 24.3 trillion cubic feet (Tcf) of proven gas reserves. Total gas production rose above 1.13 Tcf in 2013 before easing to 1.09 Tcf in 2014; according to government data, about 81% of 2014 output came from non-associated gas fields. The gas sector has become increasingly important over the past two decades, largely thanks to two LNG plants that started up in 2000 and 2005. The 2000 plant boosted dry gas production from 322 Bcf in 2000 to 1 Tcf in 2014.
The largest growth potential lies in Block 61, the Khazzan-Makarem field owned by BP. The field is a tight gas reservoir; BP believes recoverable gas in place is between 15 and 20 Tcf, possibly as much as 100 Tcf. In November 2014 Oman brought the Abu Tabul field in Block 60 on stream, along with other projects, to help meet short-term gas demand. Abu Tabul targets 90 million cubic feet per day of gas and 6,000 b/d of condensate.
3.3 Imports
Oman has only one international gas pipeline, the Dolphin pipeline, which runs from Qatar through the United Arab Emirates to Oman. Although Oman imported about 7.3 Bcf of gas from Qatar through Dolphin in 2014, it is not a major gas importer. Dolphin imports are needed to meet rising domestic demand: between 2004 and 2014 volumes rose from 23.6 MMcf to 72.1 MMcf. Rising consumption has led Oman LNG to announce that by 2024 it will redirect to the domestic market all the gas it currently exports.
In March 2014 Oman signed a memorandum of understanding with Iran for a gas import contract due to start in 2017, running 25 years with a total value of US$60 billion. Once effective, Iran would deliver 10 billion cubic metres of gas a year to Oman through a subsea pipeline across the Gulf of Oman.
