Oil hopes fall on new techniques in Oman

18 September 2008

With declining reserves, Oman has no option but to invest in enhanced oil recovery methods. But it could turn this to its advantage by exporting its newly acquired expertise.

While Oman is making great strides towards diversifying its economy, the hydrocarbons sector remains by far the biggest contributor to gross domestic product (GDP).

In 2007, oil and gas accounted for about 45 per cent of GDP, 62 per cent of revenue and 58 per cent of exports.

Oil production in Oman has declined by 25.9 per cent since 2000, when it peaked at 350 million barrels a year, while the growth of industrialised activities under the sultanate’s diversification programme has increased demand for oil and gas.

To address concerns that reserves could run dry within two decades, the Oil & Gas Ministry announced in April 2006 that the government planned to invest $10bn in upstream oil and gas projects over the next five years. One-third of this is in enhanced oil recovery (EOR) to improve recovery rates.

Gaining experience

Spearheading the effort is Petroleum Devel-opment Oman (PDO), 60 per cent of which is government-owned. The remaining 40 per cent is in the hands of international oil companies, including the UK/Dutch Shell Group.

Today, PDO has more than 20 EOR projects planned or under way and is one of the few oil companies in the world that is executing major projects in each of the three types of EOR: thermal, chemical and miscible gas.

The most high-profile of these are the Qarn Alam steam-injection project, the world’s first full-field steam injection project in a fractured carbonate field, and the Harweel miscible-gas injection project.

The Qarn-Alam project is expected to produce about 20,000 barrels a day (b/d), while the Harweel project is expected to deliver about 100,000 b/d. By 2010, some 20 per cent of PDO’s production will come from these two projects.

In May 2007, work began on the Marmul polymer flooding project. This involves adding polymer to water to make it more viscous and increase recovery. In Marmul’s case, production is expected to increase by 10 per cent.

PDO says recovery from its oil fields will range from 4-20 per cent with EOR, but as these methods become increasingly sophisticated, it could be as high as 50 per cent. Consequently, PDO forecasts about one-third of its oil production will be extracted using EOR techniques by 2016, compared with virtually none today.

Output from primary extraction techniques, which rely on the natural internal pressure of the field and account for more than half of Oman’s current output, will decrease to about one-third over the same period, as will secondary techniques, where water or gas is injected to increase pressure in the reservoir to aid extraction.

Oman now has one of the most advanced upstream programmes in the world. In addition to the $10bn investment, the government has opened up fresh onshore and offshore oil and gas concessions to foreign investors to accelerate the exploration and production process.

The number of oil companies investing in Oman had risen to about 20, including India’s Reliance and the UK’s BP.

BP signed a major production-sharing deal in January 2007 to develop the Khazzan and Makarem fields, which could yield up to 30 trillion cubic feet (tcf) of tight gas.

Early production is expected to begin in 2010 and there is a clear sense of urgency surrounding the project.

Indeed, the outcome of this project will have significant ramifications for Oman, given its impending gas shortfall. The rapid expansion of gas-based industries, such as petrochemicals, power generation and the use of gas as a feedstock for EOR projects, are all placing increasing pressure on the supply chain.

Consequently, the sultanate has had to start importing gas. Muscat has signed an agreement to import up to 200 million cubic feet a day (cf/d) of gas from Qatar through the Dolphin pipeline, which began flowing in October 2008.

In May 2007, Oman signed a memorandum of understanding with Iran to import 1 billion cubic metres a day of gas.

For the time being, EOR projects offer the greatest returns, but maintaining them poses problems. “EOR technologies have offered us a lifeline, but they come at a considerable cost and require intensive technical management,” says John Malcolm, managing director of PDO.

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