Oman digs deep to provide feedstock for growth

27 June 2011

UK-based BP is making positive noises about its tight gas project and Oman will be keen to come to an agreement on price

In a region known for its crude production, natural gas has quietly made its way to the top of the priority list.

A chronic shortage feedstock used to generate electricity has translated into a range of projects to extract gas from reservoirs. Some of them are technically very challenging and costly, such as the Shah Gas project in Abu Dhabi.

Recent developments in Oman mean that the sultanate, like neighbouring Abu Dhabi, will get its very own technically complex and expensive gas megaproject.

UK-based BP announced “very encouraging” results from its extended well testing (EWT) programme conducted in the tight gas formations of Block 61, comprising the Khazzan and Makarem reservoirs.

The reservoirs, rock formations with low permeability between 4,000-5,000 metres below ground, hold about 30 trillion cubic feet (cf) of recoverable gas. To extract it, BP says it will have to invest about $15bn.

BP will be submitting a full field development plan early in 2012. It targets a production of 7 trillion-8 trillion cf in the first phase, which would deliver about 1.2 billion cubic feet a day (cf/d) for 10-15 years from 2016. This would boost Oman’s production, now at 3 billion cf/d, by about a third.

For exploration works to begin in earnest, BP and the Omani government will have to come to an agreement over the price the company receives for gas produced in Block 61. Such negotiations have led to disappointment in the past, with disparities between company expectations over remuneration for capital intensive projects and the amount governments are willing to pay for its gas.

The UK’s BG Group did not go ahead with its Omani tight gas project in Abu Butabul after a price could not be agreed, for example.

The chances are that Oman will not allow this project to fail. “The popular protest at the start of the year will have further impressed on the government that the strategic and overall importance of the project for the sultanate is too high to let negotiations about the margins allow the project to fall through,” says Samuel Ciszuk, Middle East analyst at IHS Global Insight.

BP will also be keen to commence work. Gas is of growing importance for energy majors. BP’s UK/Dutch rival Shell will produce more gas than crude by 2012, for instance, and has invested massively in gas and gas-related projects, such as the $19bn Pearl GTL (gas-to-liquid) project in Qatar, that is currently being commissioned.

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