Government support and strong logistics links are helping drive Oman’s downstream diversification plan.
When oil prices fell below $10 per barrel in 1998, the Omani authorities launched a diversification programme known as Vision 2020, which involved gas sales to finance infrastructure projects.
In the meantime, Oman has opened a high-tech transshipment seaport to tap container traffic like in Salalah and Sohar, as a part of its long term ambition to attract international petrochemical producers to the Sultanate to benefit from the well developed logistics infrastructures.
Oman used to export gas to the UAE starting from 1994, but since 2008 this situation been reversed, after it started importing gas from Qatar via the UAE through the Dolphin Energy pipeline to meet the 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.
Early Dreams
Oman has been keen on having a petrochemicals industry since the early 1990s. But in view of the huge costs and market risks involved, along with the feedstock limitations, the Sultanate has been extremely cautious on this.
It had a big setback in October 1999 as BP Chemicals pulled out of a JV with Oman Oil Company (OOC) to have a polyolefins complex built at Sohar. BP withdrew mainly because OOC was insisting that it build and own a costly gas separation plant nearby to provide the complex with ethane feedstock.
Since then, the scale of investment in the petrochemical industry has increased, Oman Oil Company plays a major role in the sector, investing in many petrochemical projects inside the Sultanate as well as outside its national borders.
The start up of the Oman Polypropylene’s 340 000 tonne per year grassroots facility in 2006 was the first of more than half a dozen petrochemical projects under development at Sohar industrial port, in what the government hopes will be a vibrant petrochemicals cluster and a key element in its diversification drive, Propylene feedstock for Oman Polypropylene is supplied by Sohar Refinery Company (SRC), which is currently constructing a new 116 000 barrels per day deep steam conversion refinery on an adjacent site.
Oman Polypropylene is typical of the model used for the first round of investments in the regional petrochemical grassroots projects.
The shareholder structure OP is a mix of government and international companies, Oman Oil Company has 60%, South Korea’s LG International (LGI) 20% and Kuwait based Gulf Investment Corporation controls the remaining 20%; the product marketing is split between Oman Polypropylene and LGI, about 35% to 40% of the polypropylene to be produced is destined for China and about a third for European markets.
Foreign presence
Though Oman can’t compete with Saudi Arabia and other GCC countries from a feedstock price perspective, some foreign companies prefer the Sultanate for other reasons, especially for those whose primary feedstock is not based on gas.
“Government support to industries, the strength of the rule of law, strong contractual laws, property rights, and the Free Trade agreement between Oman and the United States are all important factors that contribute to the value of OCTAL’s location in Oman,” says Nicholas Barakat, managing director, OCTAL Petrochemicals.
“We selected Oman because it offers a strategic location for receiving raw materials from the Middle East and Asia, and access to key markets in Europe and the US,” he explains.
“The proximity of the location to the trade routes was critical, as the position of Salalah outside the Straits of Hormuz allows for ready access to international shipping lanes circling the globe,” he adds.
“The port of Salalah and the Salalah Free Zone (SFZ) also played a major role in our decision. Less congested than typical import-export ports, the port of Salalah has faster turnarounds for OCTAL shipments and fewer delays from where it can access most markets within 14 days,” Barakat explains.
But, the logistics element for the petrochemical industry is not as vital as feedstock. The whole industry is based on feedstock availability. “The production cost depends heavily on gas price,” says Sanjay Sharma, Dubai-based project manager at US petrochemicals consultant Chemical Markets Associates Incorporated (CMAI).
“Oman has varied gas pricing for different projects unlike Saudi Arabia,” he adds.
“Oman ports like Salalah do boast a strategic location, but I do not believe any investment decision is driven by port location alone, though it does form an integral part of decision making; for majority of commodity petrochemical products logistic costs are too low to influence the investment decision. Large petrochemical investments are driven mainly by feedstock pricing” he added.
Integrating downstream projects
Omani companies try to overcome the problem of high cost of the feedstock, by integrating their project with refineries such as Oman polypropylene.
“The Oman Polypropylene (OPP) plant and the Sohar Refinery which produces its feedstock were conceived as value addition to the crude and long residue from existing refinery,” says Dr Hamed Al-Dhahab, CEO of Oman Polypropylene.
“The OPP plant is also meant to serve as a platform for further downstream polypropylene converting industries to create jobs and business opportunities,” he adds.
Boosting this trend, Oman is currently considering building a large refinery and petrochemical complex at Al Duqm in southern Oman, which would be geared toward export markets.
Duqm Refining & Petrochemical Complex is also expected to include a cracker, one of the world’s largest polypropylene plants and mixed feedstock aromatics facilities. Commercial production is planned for 2012.
The project is being developed by Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company.
The future of the Duqm refinery had been in doubt because of rising costs. In 2007, it was feared that its planned capacity of 300 000 bbl/day would be slashed to 150 000 bbl/day.
However, government support for the project is strong. It is the fourth economic zone to be developed, after similar projects at Sohar, Salalah and Muscat.
Last October, Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company announced agreement to assess feasibility to develop Duqm complx. “We anticipate commissioning the necessary studies, including important feasibility and marketing analysis for the project, in the very near future,” said Ahmed Al Wahaibi, CEO of Oman Oil Company, during the signature of the agreement.
Ambition of Oman doesn’t stand in investing only inside the country, as Omani companies are also investing in gas rich countries, such as in Algeria, where Suhail Bahwan Group has entered into a joint venture with Sonatrach for a world scale fertiliser plant in Algeria.
The 2020 vision will certainly put Oman on the right track and reach its ambition in building an oil independent economy.
