Khazzan gas project nears investment decision

23 January 2013

The UK’s BP has almost completed initial work on the $20bn complex tight gas project and the main construction packages are currently being tendered ahead of a final investment decision

The rapid expansion of the non-oil industrial sector is essential for securing Oman’s post-crude future, but comes with its own burden on the country’s hydrocarbon resources.

In lowering its dependence on oil revenues, the sultanate is consequently increasing its reliance on gas to fuel other industries, such as petrochemicals and metals manufacturing, as well as meeting soaring demand for electricity and desalinated water.

Oman’s current gas production is enough to export 8.8 million tonnes a year in the form of liquefied natural gas (LNG) to Asia and Europe, but this strategy is coming under strain as demand from domestic industries grows.

The sultanate’s net gas exports have dropped 47 per cent from 465 billion cubic feet in 2007 to 317 billion cubic feet in 2011, according to the US’ Energy Information Administration (EIA).

Gas demand

Meanwhile, the country’s gas consumption has doubled since 2004 to 619 billion cubic feet, and is expected to rise further as Oman expands its industrial footprint.

Muscat has backed several projects to secure additional gas supply, including the Dolphin Energy pipeline, which imports gas to Oman from Qatar via the UAE. But the most important strategic initiative is the estimated $15bn-20bn Khazzan tight gas project.

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

The British company’s early work on the project is now nearing an end and a profit-sharing agreement is expected to be signed with Oman’s Oil & Gas Ministry later this year. Bids have been invited on the project’s main engineering, procurement and construction (EPC) packages.

Tight gas, a type of unconventional reserve, is trapped in impermeable rock and requires fracturing and directional drilling to extract, making production costly and technically challenging. At Khazzan, one of the world’s only purely greenfield tight gas projects, the reserves are trapped at 4.5-5 kilometres below the surface.

“We are continuing with a comprehensive appraisal drilling and testing programme for the Khazzan project,” BP spokesman Oliver Broad tells MEED.

“The appraisal programme has involved the construction of an extended well test facility, which came on line in 2011, allowing us to conduct a long-term testing programme.”

The initial viability phase is spent finding the optimum position to drill the wells in order to maximise the amount of gas that can be recovered. Several different techniques are then employed to ease the journey of the gas into the wells. Broad says that BP has completed drilling 10 wells on the Block 61 concession.

“Commercial discussions with the Oil & Gas Ministry are progressing. We’re optimistic that a declaration of [commercial feasibility] for the Khazzan project will occur during 2013,” he adds. If an agreement is finalised, BP will sign a 30-year deal to produce from the reservoirs.

The proposed plant is expected to produce about 1 billion cubic feet a day (cf/d) of sales gas from 275 to 325 wells drilled in the field. The initial phase of development in Block 61 will target about 7 trillion cubic feet of recoverable resource.

Construction of the Khazzan development has been separated into several EPC packages due to the massive scale of the operation, with the largest being the surface facility covering central processing facilities, the gas-processing plant, flowlines, pipelines and associated facilities.

BP received commercial proposals on the package on 18 January from four consortiums led by US contractors Bechtel Corporation and CB&I, UK-based Petrofac and France’s Technip. Technical bids were submitted earlier in the month.

BP, which limited prequalification to a handful of international bidders, is expected to award this contract in the coming months after the proposals have been assessed.

Other contracts include the early development phase, gas-gathering, wellsides and export system facility, off-plot, and the building and infrastructure works.

Commercial proposals were also submitted for the building and infrastructure works in January, according to industry sources. Bechtel, Oman-based Carillion Alawi and Australia’s WorleyParsons are among the companies involved in the bidding.

Oman’s strategic project

The development of tight gas is a leap into the unknown for Gulf economies, which largely have an abundance of gas reserves, but Oman’s potential for conventional hydrocarbons expansion is limited.

While expensive and technically challenging, the Khazzan project will completely change the supply picture in the sultanate. The first gas from the scheme is expected in 2016.

At a capacity of 1 billion cf/d, Khazzan would represent a 28.6 per cent increase on Oman’s current gas production of about 3.5 billion cf/d. This should allow Muscat to allocate further fuel and feedstock to non-oil industries and also maintain its LNG export commitments.

Many countries in the Middle East are facing a similar gas crunch to Oman and unconventional reserves such as tight gas, sour gas and shale gas are looking increasingly attractive despite the costs.

In numbers

1 billion cf/d: Estimated production capacity of the $15bn-20bn Khazzan tight gas project

2016: Date for the first gas output from the Khazzan scheme

cf/d=Cubic feet a day. Source: MEED

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