Muscat invests in megaprojects

06 October 2013

Schemes pushed back to 2014 should make it a bumper year

Oman’s oil and gas projects market has been relatively quiet over the past six years, with few major projects being tendered. Activity has picked up in the past two years, however, and is set to increase further. In 2012, energy companies in Oman awarded an estimated $1.3bn-worth of engineering, procurement and construction (EPC) contracts, compared with $1.1bn the year before and just $306m in 2010.

According to regional projects tracker MEED Projects, as much as $5.5bn-worth of oil and gas EPC contracts could be awarded in 2013, although much of this is likely to be delayed until next year.

The drivers of Oman’s increase in oil and gas project activity are the $15bn-20bn Khazzan tight gas project in the central northern region of the sultanate, increased use of enhanced-oil-recovery techniques in older fields, and a drive to develop downstream refinery and petrochemicals projects in Sohar and Duqm.

Upstream developments

Despite relatively small investments in the oil sector in recent years, Muscat has managed to increase crude production year on year. Petroleum Development Oman (PDO), the country’s biggest oil and gas producer, averaged 1.24 million barrels of oil equivalent a day (boe/d) in 2012, compared with the previous high of 1.21 million boe/d in 2001.

PDO increased aggregate production for the fifth consecutive year after recovering from a trough of less than 1.1 million boe/d in the middle of the last decade.

Oman is aiming to sustain oil production in the medium term with investments of more than $1bn each in three onshore megaprojects being developed by PDO: Rabab Harweel integrated project, Yibal Khuff and Budour.

Oman’s top 5 planned oil and gas projects
ProjectOwnerBudget ($m)Main contract award due
Duqm oil refinery (various packages)International Petroleum Development Company/ Oman Refineries & Petroleum Industries Company6,000End 2014
Liwa steam cracker and polyethylene plant (various packages)Oman Refineries & Petroleum Industries Company 3,600Early 2015
Khazzan gas development, central processing facilityBP2,000Early 2014
Khazzan gas development, gas production and well site facilitiesBP2,000Early 2015
Sohar refinery expansion projectOman Refineries & Petroleum Industries Company 1,500End 2013
EPC=Engineering, procurement and construction. Sources: MEED Projects, MEED

PDO is preparing to tender the main packages on the Rabab Harweel integrated project before the end of the year. The firm expects to award the off-plot contract in the third quarter of 2014 after receiving EPC bids. The oil field is located in PDO’s Block 6 concession in onshore central Oman.

UK-based oil and gas group BP, which is developing the Khazzan tight gas project – the first of its kind in the region – has asked interested contractors to provide contact details for the tendering process on several major packages.

BP has yet to reach a final deal with Muscat on the Khazzan project. The two parties signed a heads of agreement and reached a deal on the price of retail gas for the project in June, but are yet to hammer out the final commercial contract for the full-field development.

The Oman Oil & Gas Ministry expects a deal to be finalised by the end of the year, which must happen before any EPC contracts can be awarded, likely pushing contract awards on Khazzan some way into 2014. The final investment decision is expected to pave the way for a 30-year partnership on an operation expected to produce about 1 billion cubic feet a day of sales gas by 2017-18, boosting Oman’s gas supplies by a third.

Downstream developments

The downstream project pipeline is also looking strong in the sultanate, with Oman Refineries and Petroleum Industries Company (orpic) preparing to award the Sohar refinery expansion, and the new Duqm Refinery and petrochemicals complex on the horizon. However, Duqm project owners Oman Oil Company (OOC) and Abu Dhabi’s International Petroleum Investment Company (Ipic) have yet to announce a front-end engineering and design (feed) contract for the project, which looks likely to be delayed.

Petrochemicals

In July, Orpic announced and tendered the feed for a new $3.6bn steam cracker and petrochemicals project named Liwa Plastics in Sohar. This will give Oman the capacity to produce polyethylene for the first time, as well as polypropylene and smaller amounts of polyethylene terephthalate, polyvinyl chloride and polystyrene.

If all of Oman’s planned oil and gas schemes progress as intended, 2014 will be a bumper year for EPC contractors in Oman’s oil and gas projects market, with over $10bn-worth of contracts. This would make it one of the biggest spenders in the Middle East and North Africa region.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.