GAS IS KING

Oman 2017 | ENERGY | FOCUS: NATURAL GAS

With oil hitting the lowest prices seen in years, the heavily oil-reliant energy sector of Oman is looking to improve the development of the natural gas industry.

In addition to being a source of great oil wealth, Oman is also home to sizable natural gas deposits. The country is drawing upon natural gas to fill the cash void created by the landslide in oil markets. This is a smart move for many reasons, but principally due to the fact that Oman can and should increasingly use its influence in the region to create a natural gas hub, seeing as it is surrounded by much larger oil-producing GCC neighbors. The government has reported an increase in the production of natural gas by over 8% in 1Q2016 compared to the same time in the previous year. Of this figure, the NCSI reported that non-associated gas rose by 8.1%, while associated gas production grew by 9%.

Improving the country's availability of natural gas could not come at a better time. In addition to the plentiful economic benefits that potential natural gas exports could bring to the country, the consumption of gas is necessary in key growing sectors of activity, such as electricity, power generation, and desalination projects. All of the new power plants that are coming online to develop a more efficient and advanced domestic infrastructure need natural gas feedstock. The oil sector of Oman also relies to a certain extent on natural gas, often using it as a fuel-injection tool. The overall domestic demand for natural gas is expected to undergo a sharp rise over the next five years.

In the interest of increasing the national natural gas output, BP and Oman Oil have signed an agreement to expand the production and development of the 2,700sqkm Khazzan natural gas field by an additional 1,000sqkm. This project will provide 1.5 billion cubic feet of gas per day and is a 60-40 partnership between the two companies, with BP holding the majority stake. Official plans for the development are up to the government of Oman for approval, and phase one of the project is set to deliver gas in 2017, while phase two is slated to come online in 2020. The expansion at Khazzan will increase Oman's natural gas production by 40% and make Oman a serious international player in its own right.

Oman is also taking further steps toward a huge natural gas development through the construction of a 175km subsea natural gas pipeline plan that is in the works to connect Muscat to Tehran. While the actual construction of the pipeline has not yet commenced, many different aspects of the plan are being continually evaluated by interested parties. Officials from Iran have stated that the feasibility studies and the front-end engineering design for the project would conclude in 2016. The beginning of 2017 is the planned start date for the engineering, procurement, and construction work, and the project's goal is to deliver gas to Oman by 2019. The pipeline is not a small feat of engineering; its initial capacity is capable of delivering 1 billion cubic feet of natural gas per day, with the possibility of raising this number to 2 billion depending on regional and domestic demand.

While this pipeline project is not aimed at growing natural gas production domestically, it is still, nonetheless, providing Oman with the natural gas that it desperately needs to power its domestic industries, especially true for mining. One of the noted deficiencies in the mining sector is the aggravating shortage of natural gas that it needs to fuel smelting and other vital processing activities in the mining sector. This pipeline will help mitigate this issue. In addition, the pipeline is a part of a much larger and important strategy, namely that Oman will suddenly become a hub for natural gas among countries in the GCC. As a country that has historically managed to maintain strong relations with all of its neighbors, despite being in a conflict prone and divisive region, this is more reason to think that Oman's influx of natural gas will be warmly welcomed by all its gas-hungry neighbors.