Daniel Canty meets with His Eminence Mohammed bin Hamad Al Rumhy, Minister of Oil and Gas of the Sultanate of Oman, to uncover what’s driving one of the region’s most challenging and rewarding E&P environments, and how gas is making an important if somewhat overlooked contribution
Oman is famed for its striking scenery born of its dramatic geology, but its subsurface composition has also made it a challenging and exciting hydrocarbon environment too.
The country has achieved remarkable success with its enhanced oil recovery programmes, and can lay claim to be one of, if not the only hydrocarbon landscape where all three major enhanced production techniques are in execution, and the results have been astounding.
Under the stewardship of His Eminence Mohammed bin Hamad Al Rumhy, Minister of Oil and Gas of the Sultanate of Oman, who took on his current portfolio in 1997, the country has reversed field decline and is actually producing 17% more oil than it was in 2007. An achievement made all the more remarkable when you consider production fell 27% between 2001 and 2009.
“Oman has a difficult geology, a difficult terrain, both on the surface and subsurface. It’s intellectually very stimulating and exciting. Financially, its very expensive and technically difficult too,” says Al Rumhy.
Just as exciting as the oil developments in Oman is its gas story. Looking back on the journey which has made Oman one of the top ten biggest exporters of LNG in the world, HE. Al Rumhy reflects that fortuitous timing and excellent project execution turned a once benign resource into such an important revenue stream for the Sultanate.
“The gas industry is very complicated, and as times have changed so too has the outlook for gas. When we discovered gas over and above material volumes in the early 1990s the main question on everybody’s lips was: How can we monetize that resource for the good of the country?” he says.
The conclusion reached was for the Government of Oman to take a majority stake in a new company, Oman LNG, and for partners Total and Shell (5.54% and 30% respectively) as lead upstream shareholders, based on long-term sales agreements with three key Asian buyers.
“At that stage the thinking was to go for LNG, and I think that was the right decision at that juncture. We have been very successful, and it was partly down to luck that we discovered gas when we did in the early 90s,” says the Minister.
“We began exporting into the LNG world at the end of the century, and ever since the LNG market has been very healthy and probably exceeded, our expectations at that time.”
HE Al Rumhy observes that the swift decision-making process enabled construction to begin in the late 90s, which was good timing project-wise, predating the regional mega-project scramble of the 2000s.
“We managed to construct the two LNG trains of OLNG, and all that goes with it, including the pipelines and infrastructure at a good time. I really believe the timing of the whole LNG business in Oman came at the right time in our history and since then we’ve never looked back.”
The diversification of industries in Oman, whether on the LNG side, the petrochemical side and steel clusters shows the importance attached to gas. Gas-associated industries have contributed to Omani employment, and current estimates suggest LNG and the domestic gas-based industries, including the Oman Refineries & Petroleum Company, which OLNG supports, contribute over 15% of Sultanate’s overall revenue.
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Finding the right Partners
The economic imperative for the project was achieved by forming lengthy contracts with customers in Korea and Japan. Korea Gas Corporation (KOGAS) dominates the volumes committed, taking an annual quota of 4.1 million tonnes of LNG each year in a deal running from April 2000 to December 2024.
Osaka Gas of Japan and Itochu Corporation are signed up for 700,000 tonnes apiece until 2024 and 2025 respectively.
“We formed some very good sales and purchase agreements with our friends in Korea and Japan, and since then we have established a fantastic relationship with our partners in the upstream, midstream LNG- the likes of Shell, Total and Partex as well as a great partnership with the buyers,” HE Al Rumhy notes.
“With regards to the LNG project and contracts we really have never looked back. In fact the excitement of the whole thing led us to go ahead with the third train five years later – In 2005.”
Having to balance Oman’s own domestic demand is an issue which has constrained further LNG development for now, but the Minister is happy to concede this is a problem born out of the country’s domestic economic success.
“Fiscally it is a very good and attractive project. For now our results are constrained. This is because fortunately the country has been growing economically at a very fast rate, which means the need for gas domestically has grown as well, so we find ourselves with a fantastic problem. We are growing well, the market is good, and we have to optimise and maximise our potential and our gain in both areas,” the Minister beams.
For Oman LNG, the Minister says his priority is to continue to meet the obligation it committed to the buyers. “We do actually have spare capacity in our three trains, but it’s a nice problem to have.”
Having the infrastructure in place to liquefy any additional or surplus discovered and produced gas adds impetus for the government to spend more on our exploration activities, he says.
“One of the big questions when you discover gas reserves is: Who or Where is that gas for? Through Oman LNG we have a suitable and attractive outlet for around 1.5 to 2 million tonnes of additional LNG exports each year, so new resources can very quickly be monetized which is fantastic.”
“When we’re looking for oil nobody asks the question – What If We Find Gas? Because we have the answer right here. We have the LNG outlet which is very healthy and gives us a degree of freedom in our future thinking towards gas.”
The company has averaged an export schedule of around 100 cargoes a year for the last decade, and has regularly been able to take advantage of redirecting cargoes to non-contracted international markets. Oman LNG has sold shipments to China, India and Thailand in Asia, and before the North American shale boom, cargoes had been diverted to the US too.
The constantly changing dynamics of the global gas market could be a cause for concern for an important producer of LNG. HE Al Rumhy is undeterred by the evolving shale scenarios.
“To be honest with you every gas player is following the shale gas story very closely.
Personally, I prefer to look at the very big picture. I am not concerned as a citizen of the world.
Could we make more money in a more energy constrained world? Probably. But that is a price worth paying if every country has access to energy. I hope those who are starved of energy find new sources – I think the world will be a much better place if the world has plenty of energy.”
The Minister is keen to point out that the potential demand picture for global gas is just one consideration looking at future energy flows.
“On the supply side we have well-established possibilities and opportunities. Recent events, such as the Japanese Tsunami have led to the last nuclear power station there being shut-in. This year Germany turned its back on any future nuclear development too. Today many people are questioning the wisdom of going nuclear – so as the debate continues, the demand for LNG continues to grow.”
“Oman LNG is a great success for Oman, and looking at the years ahead of us, it is great for me to be able to sit with our friends from IOCs and discuss more opportunities. We want to see companies like Total in Oman doing more. We have built excellent relationships and we would love to see an even bigger IOC presence here,” he concludes.
