Oman’s oil and gas sector is the GCC’s second smallest after Bahrain. It has also faced some of the region’s biggest challenges in recent years, experiencing an oil production slump in 2001-07 and an increasingly tight gas market. Output has been restored since then with the use of enhanced oil recovery (EOR) technology.

The country has about 5.5 billion barrels of oil reserves, which at current rates of extraction will last less than 20 years. Much of the reserve base is located in difficult geological structures and in marginal fields, increasing the need for EOR.

Offsetting losses

Oman has been fortunate that the growth in EOR production has coincided with historically high oil prices. These also helped the government to offset the loss of revenue from a 25 per cent slide in crude and condensate output during 2001-07.

Since then, a series of major field upgrades and developments have resulted in a strong recovery, with production averaging 941,949 barrels a day (b/d) in 2013.

Muscat’s challenge on the oil front will be to maintain production over the medium term while at the same time increasing its reserve base. The sultanate’s main producer, Petroleum Development Oman (PDO), is planning to spend an estimated $3bn a year over the coming decade to maintain output and has drawn up plans for three major EOR projects.

At the same time, the Oil & Gas Ministry has been actively tendering exploration blocks among international oil companies in a drive to maximise the sultanate’s energy potential and secure technical expertise and investment.

Oman’s gas sector has faced even greater challenges. An over-estimation of reserves in the late 1990s, coupled with a wave of gas allocations being granted for new industry, led to shortages emerging in 2006/07.

The arrival of Dolphin gas imports from Qatar the following year provided some temporary relief, as did the decision to limit liquefied natural gas (LNG) exports and place a number of industrial expansions on hold. However, the fact remains that if the sultanate is to create much-needed employment through the expansion of its industrial base and meet rising gas demand from both the oil and utility sectors, additional supplies are required.

In 2012, Oman produced an estimated 2.8 billion cubic feet a day of gas, of which about 40 per cent was sent for LNG production. In the same year, gas reserves totalled 33.5 trillion cubic feet.

As with oil, the ministry is pinning its future supply hopes on the development of unconventional and difficult gas plays. By far the largest project planned is an estimated $16bn development of the Khazzan tight gas field by the UK’s BP, which finalised a deal with the Oil & Gas Ministry in December 2013. PDO is also assessing the development of several sour and tight gas reservoirs.

Until gas availability improves, the development of new petrochemicals capacity will remain constrained. Future growth will largely be tied to the go-ahead of two major refining projects: the expansion of the Sohar refinery and the construction of the grassroots Duqm refinery. Both will deliver significant volumes of naphtha, potentially for use by the local petrochemicals sector.

In March, MEED revealed that the US’ Foster Wheeler had won the contract for the front-end engineering and design (feed) on the estimated $6bn Duqm refinery. The 230,000-b/d project is owned by Duqm Refinery & Petrochemical Industries, a 50-50 joint venture of state-owned Oman Oil Company (OOC) and Abu Dhabi’s International Petroleum Investment Company.

A senior manager at OOC said last October that the project is expected to be completed by the end of 2018, pushing the scheme back from a previous start-up target of 2017.

Plastics facility

In 2013, Oman announced it would invest $3.6bn to build a new petrochemicals complex in Sohar, named Liwa Plastics, using naphtha from the Sohar Refinery Expansion along with gas as feedstock.

The feed deal and cracker technology licence were awarded to US-based CB&I, while Engineers India won the project management consultancy contract. In July, project-owner Oman Oil Refineries & Petroleum Industries Company (Orpic) awarded another five technology licensor contracts worth $80m.

The project has a planned capacity of 1 million tonnes a year (t/y) of plastics. After its completion, Orpic will have the capacity to produce 1.4 million t/y of polyethylene and polypropylene.

By regional standards, Oman’s oil and gas projects market is small, delivering on average $1.4bn a year of major engineering, procurement and construction awards since 2006. However, a significant expansion is on the cards, provided PDO’s EOR programme, BP’s Khazzan gas and the refining and petrochemicals projects proceed. Project spending over the next 20 years will total about $50bn, with the peak years being between 2014 and 2020.

On the Khazzan project, BP has so far awarded one of the major packages, with a consortium of the UK’s Petrofac and Athens-based Consolidated Contractors Company winning a $1.2bn deal to build the central processing facility. Other main packages, such as gas gathering pipelines and export pipelines, are expected to be tendered later in 2014.

Oman is aiming to sustain oil production in the medium term. PDO is forecasting its crude production to stabilise at about 550,000 b/d in the next 10 years. But with declining production at existing fields as well as the difficult geology, it will be a challenge.

To deliver the target, PDO is planning to implement three major EOR schemes, which will add almost 200,000 b/d of capacity and offset the natural declines in existing fields. The three – the Rahab Harweel integrated project (RHIP), the Yibal Khuff/Sudair field scheme and the Budour full field development – are each expected to cost in excess of $1bn and be implemented over the next eight to 10 years.

The first major contract on these schemes was awarded in March to Petrofac, which won a $1bn engineering and procurement deal on the RHIP project in the south of the sultanate.

Integrated scheme

Located in the Harweel cluster of onshore fields, the RHIP will include sour gas processing facilities, associated gas injection systems and export pipelines. The facility has the capacity to export 4.9 million cubic metres a day (cm/d) of sweet gas and 9,700 cm/d of condensate, in addition to about 16 million cm/d of high-pressure sour injection.

While international expertise will undoubtedly be required, the government is intent on awarding as much as possible of the planned projects to the local market as part of its job creation drive.

As a result, clients are increasingly adopting procurement models in which international contractors have to team up with local partners or they are limiting bidding for construction packages to Omani companies.