Focus: Energy

On the Improve

On the Improve

Jan. 30, 2014

Oman's fortuitous geography strengthens its international clout, but oil and gas production will have to maintain growth and overcome costly extraction techniques in order to secure the country its oil and gas prominence in the region.

Oman may only appear to peek out from under the skirt of the larger, more reserve-heavy Saudi Arabia, but the country warrants its own place in the world of oil andgas. Outside of OPEC, Oman is the largest producer of oil and natural gas in the Middle East and is blessed with a geopolitically favorable location, which gives it access to the Arabian Sea, the Gulf of Oman, and the Persian Gulf. The application of enhanced oil recovery techniques (EOR) and the ever-expanding port of Duqm will keep oil and gas relevant to Oman's economy in the near future, as well as make it the envy of trade hubs around the world.


According to BP's Statistical Review of World Energy 2013, at end-2012, Oman boasted 5.5 billion barrels of proven oil and 900 bcm (33.5 tcf) of natural gas reserves and reached a production level 922,000 barrels of oil per day (bbl/d) and 29 bcm (1 tcf) of natural gas per year. The bulk of the country's reserves are found in the north and central onshore regions of Oman, with the remainder scattered throughout the country across unique terrain requiring exceptional recovery technology.

Oman's economy is largely dependent on hydrocarbons. In 2012, hydrocarbons contributed to 86% of governmental revenues. Meanwhile, oil and gas revenues made up some 40% of the country's GDP.

The main purveyor of Oman's oil and gas industry is the Ministry of Oil and Gas, which is second only to the Sultan in authority. Petroleum Development Oman (PDO) has a tight rein on Oman's exploration and production activities. The company has a hydrocarbons output of more than 1 million barrels of oil equivalent per day (boe/d), which surpasses 70% of the country's total oil output. PDO currently operates 126 oil fields and 14 gas fields. PDO also exerts dominance in the gas industry, spanning nearly the entire natural gas supply in Oman.

Since 2000, the Oman Gas Company (OGC) has managed the transmission and distribution of natural gas. The OGC is 80% owned by Oman's Ministry of Oil and Gas and 20% owned by the OOC. The LNG sector ranks as the second-largest source of income for the government following that coming from oil. All LNG-related activities going on in the country's three LNG trains in Qalhat are operated by Oman Liquefied Natural Gas, a company jointly owned by the government, Shell, and Total. The three-train operation has a capacity of 10.4 million metric tons per year.


The country's distinctive geology has summoned the use of secondary and tertiary oil extraction techniques that often come at a high cost. However, pricey efforts to increase production have paid off.

In 2000, the country's oil output hit its stride at 970,000 bbl/d. But by 2007, this figure hit a low of 710,000 bbl/d. EOR efforts boosted production to 919,000 bbl/d in 2012, and now Oman is aiming for 940,000 bbl/d by the end of 2013. PDO's hydrocarbons production in 2012 reached a historical high of 1.24 million boepd, exceeding its former peak in 2001 of 1.21 million boepd. Despite a slight drop in natural gas production from 27.1 bcm to 26.5 bcm in 2010 to 2011, respectively, Oman regained its footing, producing 29 bcm in 2012.

According to a 2012 study released by the US Geological Survey, Oman's future will rely on oil and gas—the mean undiscovered energy resources in the South Oman Salt Basin reached approximately 370 million barrels of oil, 8.9 bcm of natural gas and more than 40 million barrels of natural gas liquids.


PDO announced plans to invest more than $11 billion over 10 years in some 16 significant oil projects in order to add another 1 billion barrels of oil to the country's output. To do this, PDO will increase the EOR fraction of its portfolio from the current 3% to 16% by 2016 and 27% by 2021.

Despite Oman's plans to import gas from Iran via a $60 billion pipeline over the next 25 years, Oman has its own gas prospects. Energy giant BP retains a huge influence in the region with its Khazzan tight gas project. It is among the company's top-five upstream projects in the world and the largest of its kind in the Middle East. The Makarem gas field, also on Block 61 in central Oman, and the Khazzan field will cost $650 million to develop and have potential gas reserves of 2.8 tcm to 3.4 tcm.

Meanwhile, ORPIC is working on it $3.6-billion Sohar plastic project as part of the Sohar refinery's expansion. Expected to reach completion by 2018, ORPIC will essentially lay ground for a plastics industry in Oman, comprising, among other things, a gas extraction plant in Fahud and a 300-kilometre pipeline. It will get some 60% of its feedstock from the Sohar refinery, which is currently in the process of raising its refining capacity by 70% and another 60,000 bbl/d by 2016.

Also setting a precedent is the OOC's attempt to become a vertically integrated global chemical leader. In October 2013, the OCC completed its 100% acquisition of the word's largest oxo chemical products supplier OXEA. The deal became the first of its kind for the OOC and stood as an example of Oman's strategy to vary its oil-dependent economy.


What is poised to set Oman apart from other oil and gas hubs in the region is Duqm Port. Finance Minister Darwish Al Balushi told Reuters that $18 billion worth of projects have been built or are planned to be built there. The port's $1.5 million, 4 kilometer-long dock is the second largest in the Middle East and may soon rival Dubai's ascendancy as a trading center. Once a relatively vacant fishing village, Duqm is rapidly developing into an industrial base.

In 2011, the OOC entered an agreement with Abu Dhabi's International Petroleum Investment Company to build a $6 billion, 230,000-bbl/d refinery in the port of Duqm that would feed a petrochemicals complex. In 2012, Oman announced its plans to build the largest crude oil storage facility in the world, with a nearly 200-million-barrel oil capacity.

The building of a $1 billion storage facility at Duqm is another indicator of Oman's intentions to secure oil supply and provide an alternative route to that of the Strait of Hormuz. The highly controversial waterway and sole passageway into the Gulf has been at the mercy of frequent power plays between foreign powers, endangering the GCC's crude and natural gas from accessing global markets. With one-fifth of all the petroleum and more than one-third of petroleum traded by sea passing through the strait, an alternate route is welcomed. Duqm will offer a much-needed secure means of delivering oil to world markets.