Despite a gas feedstock shortage, Oman’s supportive governmental policies and incentives have fostered an export-culture and aided the private sector in adopting an outward-oriented strategic vision
Oman has witnessed a dramatic swing in the balance of supply of its gas feedstock, as it turned from exporting gas to the UAE in 1994, to importing Qatari gas via the UAE through the Dolphin Energy pipeline in 2008 to meet increasing domestic demand.
“We have been supplying Ras Al Khaimah with offshore Omani gas from 1994, and then we signed three years contract in January 2004 to supply it with gas from our onshore gas field,” says Yousuf Mohamed AL Ojaili, CEO of Oman Gas Company. “This was necessary to cover gas requirements in the UAE till Dolphin gas started operation,” he adds.
But the growing demand for gas in Oman from the industrial and the domestic sectors, led the Sultanate to import gas from Qatar. “We started importing gas from Qatar using the existing export pipeline of the Dolphin project,” he adds. “The Dolphin gas complements Oman’s domestic gas consumption, and is also consumed in Sohar’s large industrial complex,” he explains.
In addition, Oman had committed too much of its limited gas production to long-term liquefied natural gas (LNG) export contracts. As a result, the government was trying to boost production by taking smaller and less productive gas fields away from Petroleum Development Oman (PDO) — 60% owned by the government and 34% owned by Royal Dutch Shell — and awarding them to international companies such as British Gas and BP.
In 2007, Oman signed a concession agreement with BP to develop tight gas fields, which contains complex and deep formations that are difficult to exploit. “BP believes that Oman has a considerable amount of untapped gas,” says Dr Jonathan Evans, general manager, BP Oman.
“We hope that our Khazzan tight gas project will be the first significant new source of gas into Oman and will help to ensure that Oman doesn’t need to worry about gas shortages for many years to come,” he adds.
BP has previously said that output in 2011 could reach 200 million to 300 million cubic feet per day (cfd). The two fields BP is developing are the Khazzan and Makarem fields.
But, despite the gas shortage, Oman is determined to honor its commitments toward existing projects. “We will honour our obligations to supply gas to existing projects,” says Nasser al Jashmi, Oman’s undersecretary of the oil and gas ministry.
Oman has also slowed projects that require gas feedstock, until it is sure that it will have the fuel to supply them. “We have engaged in the last few years not to encourage any gas consuming projects until we are sure our gas reserves can absorb the incremental demand,” al Jashmi adds.
The gas shortage has affected the expansion plans of many companies operating in Oman. Oman India Fertiliser Company ‘’Omifco’’ is one of the companies affected by the gas shortage as it suspended its expansion projects due to gas feedstock shortage.
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“The expansion is still on paper, we are negotiating to source gas from the government. Once we are able to secure the needed feed stock, we will be able to go ahead with the expansion,” says Ahmed al-Awfi, CEO of Omifco.
Omifco is a joint venture between Oman Oil Company and Indian Farmers Fertiliser Cooperative Limited ‘’IFFCO’’ and Krishak Bharati Cooperative Limited.
Omifco currently owns and operates a two-train ammonia and urea manufacturing plant located in the Sur Industrial Estate in the Sultanate of Oman, 150km south of Muscat. The company sells its products in the Indian market.
“We signed an off-take agreement of urea with the Indian Government,” says al-Awfi. “In addition, we also signed another off-take agreement for ammonia with the Indian Farmers Fertilisers Cooperative (IFFCO),” he notes.
These off-take agreements allowed the company to meet the challenges associated to price fluctuation and marketing. “We don’t face any challenge as the off-take agreement with the Indian Government is valid until 2020,” he explains.
While Omifco’s expansion project is pending, Oman Oil Refineries and Petroleum Industries (ORPIC) expansion project is gaining momentum, as the company has recently announced that three additional units will be included in the proposed Sohar Refinery Expansion Project.
The new expansion supported by the Government of Oman is expected to improve the Sohar Refinery’s product quality and increase output by more than 70%.
“The latest additions to the Sohar Refinery Expansion Project came to enhance the production of petroleum products for local market and increase the gross margin for the refinery. Also the addition came in view of the latest improvised operating experiences gained at Orpic,” says Musab al Mahruqi, CEO of Orpic.
Orpic’s brand was launched in June 2011. It is one of Oman’s largest companies and it includes Oman Refineries and Petrochemicals Company LLC (ORPC), Aromatics Oman LLC (AOL) and Oman Polypropylene LLC (OPP).
As part of its expansion project, Orpic has selected UOP/Foster Wheeler technology to help process heavy oil and expand fuel and petrochemicals production at a refinery in Sohar. The new unit will process 2.5 million metric tonnes per year of heavy crude to significantly increase the refinery’s production of valuable petroleum products.
“This project allows Orpic to significantly increase its yields of transportation fuels from heavy, difficult-to-upgrade feedstocks,” said Keith Aspray, general manager for Honeywell’s UOP Middle East Company.
“Together with Foster Wheeler, we have significant experience with this solution and we are confident that it will help Orpic to achieve its goals.”
While the majority of downstream’s expansion projects in Oman are subject to the availability of gas feedstock allocations, OCTAL Petrochemicals, manufactures high-performance PET resin and sheet, is expanding its production capacity and set to be the world’s largest PET producer.
“Our fourth and fifth manufacturing facilities are currently under construction and scheduled for completion in May 2012. This will add an additional 527,000 tons per annum of PET bottle grade resin to OCTAL’s current production capacity to reach 927,000 tons per annum, making it the largest in the world on one site,” says Nicholas Barakat, CEO of OCTAL Petrochemicals.
The Omani government has also tailored its economic strategies to match the needs of investors. “The government’s supportive policies and incentives have fostered an export-culture and aided the private sector in adopting an outward-oriented strategic vision,” explains Barakat.
“As a company, we have harnessed our strategic geographic location with access to crucial East-West shipping lanes and the vast advantages and capabilities of the Salalah Free Zone as a world-class manufacturing and logistics hub to meet the breadth and depth of customer demand,” he concludes.
