Oman’s gas sector is set to go through a period of unparalleled expansion in the coming years, as the sultanate aims to maintain crude export revenues and meet growing domestic energy consumption.

Gas production has risen from an average 800 million cubic feet a day (cf/d) in 2000 to 2.8 billion cf/d last year, helping Oman to develop a world-class liquefied natural gas (LNG) export industry.

However, net gas exports have dropped from almost 450 billion cubic feet in 2007 to about 400 billion cubic feet in 2012, according to the US’ Energy Information Administration (EIA), illustrating the challenge Oman faces in continuing exports while meeting rising domestic demand.

This has led to the development of one of the Middle East’s most ambitious energy projects to tap tight gas reserves at the onshore Khazzan and Makarem fields in Block 61.

Commercial framework

UK energy major BP won the concession for Block 61 in Al-Dhahirah governorate, west-central Oman, in 2007 to carry out a commercial appraisal on the Khazzan reserves.

BP has completed its early work at the $15bn-20bn megaproject, but the company and Oman’s Oil Ministry are still hammering out the final investment deal.

In June 2013, the UK firm reached an agreement with Muscat on the overall commercial framework of the Khazzan project. The two parties had been negotiating for months over the retail price of the gas, which will be more costly to extract than conventional reserves due to the requirement to use unconventional drilling and stimulation techniques. Gas from Oman’s existing hydrocarbon sources, largely produced by government-controlled Petroleum Development Oman (PDO), is sold to the domestic market at artificially low prices.

“This commercial agreement, details of which are confidential, provides a strong basis for BP to move ahead towards a final investment decision on Khazzan, which we hope to accomplish by the end of 2013,” said a BP spokesman in June. “The next steps include working with the government to award key contracts for full field development.”

The final investment decision will pave the way for a 30-year partnership on an operation expected to produce about 1 billion cf/d of sales gas by 2017-18, boosting Oman’s gas supplies by about third.

Khazzan is one of the world’s first greenfield tight gas projects. The reserves are trapped at 4.5-5 kilometres below the surface and because the gas does not flow to the surface naturally, BP will have to hydraulically fracture the formations to release the gas.

Joint-venture partners

It emerged in October that state-owned Oman Oil Company (OOC) is set to acquire a significant stake in the project after the final investment decision has been made.

Oman’s Oil & Gas Minister Mohammed bin Hamed al-Rumhy said the two companies would form a joint venture, with OOC taking a 40 per cent share.

“We hope to have everything in place before the coming Christmas break; so by very early to mid-December, we are looking to have all the agreements signed and sealed,” Al-Rumhy was quoted as saying by media.

“Then [the government and BP] will declare commerciality, upon which work will start on the drilling, building of facilities, pipelines and all that goes with it,” he added.

In June, BP asked for the contact details of companies with the right capabilities interested in constructing gas production well-site facilities, a gas-gathering pipeline system, a gas export pipeline, and water disposal pipelines.

The UK energy major will select interested firms before tendering engineering, procurement and construction (EPC) contracts for some of the scheme’s major packages at a later stage.

BP plans to drill about 300 wells at the field over a 15-year drilling campaign and has requested companies interested in fabricating and constructing gas production well-site facilities. About 35 well sites will be constructed to support the first gas requirements by the fourth quarter of 2016, with another 15 needed to support operations to the end of 2017.

The well site facilities include all equipment and utilities needed to deliver well fluids from the well head to the gas-gathering system. Construction is expected to start in the final quarter of 2015.

A separate package for the construction of the gas gathering pipelines will cover a large, dispersed, buried gathering system to transport multiphase gas condensate from the well sites to the proposed Khazzan central processing facility (CPF). It will comprise more than 400km of pipelines, with construction starting on the first 200km in the first quarter of 2014 to support the first gas requirements in 2016.

BP also asked for details from companies interested in building the gas export pipeline to transport sales gas from the CPF to the domestic market. The package will connect Khazzan to the gas network at Saih Nihayda via a 60km, 36-inch pipeline. Construction is expected to start on the pipeline in early 2015 with completion set for the third quarter of 2016.

Additionally, the company plans to build two separate water disposal pipelines to transport produced water and reverse osmosis reject water from the CPF to disposal wells. These pipes will be built in 2015.

BP is expected to award and proceed with the EPC contract for the CPF after the final investment decision has been made for the project.

The company has received commercial bids for the estimated $1.5bn CPF package led by US-based groups Bechtel and CB&I, South Korea’s Hyundai Engineering & Construction, UK-based Petrofac and France’s Technip, according to industry sources.

BP has also received bids for the project management consultancy from Australia’s WorleyParsons and US groups Jacobs and KBR.

Other projects

Oman has several other schemes planned to maintain and increase output from its existing gas-producing fields. PDO is preparing to execute three major field developments each valued in excess of $1bn: Rabab-Harweel Integrated Project; Yibal Khuff; and Budour.

In addition to increasing the flow of gas from onshore reservoirs, the sultanate is preparing significant investments in infrastructure and optimisation of the existing gas network.

About $3.5bn will be spent on improving gas infrastructure and optimising gas usage through the state-owned Oman Gas Company (OGC), according to the group’s chief executive officer, Yousuf bin Mohammad al-Ojaili.

OGC will focus on extracting liquefied petroleum gas (LPG) and natural gas liquids (NGL), establishing more petrochemicals and gradually replacing LPG usage in homes with piped gas.

“A large opportunity exists to extract valuable components and expand the petrochemicals industry in Oman,” said Al-Ojaili, speaking at MEED’s Oman Projects Forum in Muscat on 29 October.

Al-Ojaili outlined several projects OGC plans to undertake, including a 230km pipeline linking PDO’s Saih Nihayda gas-processing plant to the emerging port of Duqm on the central coastline. The pipeline is expected to be completed in 2017.

OGC, which is fully owned by OOC, transports about half of Oman’s domestic gas, with the other half handled by PDO. The company is also planning to build an LPG extraction plant at the southern industrial hub of Salalah by 2018. The feasibility study for the project has been carried out by Spain’s Tecna, and OGC is expected to float the front-end engineering and design (feed) tender during November.

The scope of work includes an extraction plant, cryogenic storage and fractionation units, auxiliary services and ship-loading facilities. The planned plant capacity is 7-10 million cubic metres a day.

“The facility will produce something like 700-800 tonnes of butane, propane and condensate from the gas system,” said Al-Ojaili. “We take this LPG out of the gas pipeline and we get methane for industrial consumers in the Salalah free zone region and petrochemicals industries based on the LPG itself.”

Al-Ojaili said the first LPG extraction project would be in Salalah, but this would be followed by other locations.

“Many downstream industries can be using LPG feedstock,” he said.

Gas loop line

OGC is also preparing to start construction of a gas loop line to meet the increasing demand for gas in the Dhofar governorate.

The 85km loop line will complement the Nimr gas pumping project, which has increased the volume of gas pumped to chemical and industrial facilities around Salalah.

Muscat-based Gulf Petrochemical Services & Trading has emerged as the frontrunner to win commercial EPC work on the scheme.

Meanwhile, in the north of Oman, OGC is planning a project to extract NGLs from pipeline gas to feed a $3.6bn proposed petrochemicals project in the industrial hub of Sohar.

“This project is at the feasibility stage… the feed phase will commence shortly, next year,” said Al-Ojaili at the conference. “There is an opportunity to extract ethane, LPG and condensate from pipeline gas.”

The project will be built at the Fahud oil and gas field in north central Oman, with the liquids exported to Oman Refining and Petroleum Industries Company’s (orpic’s) proposed steam cracker complex in Sohar. Al-Ojaili said the project would be executed by OGC on behalf of Orpic.

Orpic is planning to build a $3.6bn petrochemicals complex in Sohar to produce polyethylene and other commodity plastics. The state-owned company tendered the feed contract in the third quarter of 2013.

Insufficient gas supply has been a key concern of the government in recent years, but projects are now in place that should help address this.