Oman looks downstream to counter oil price slump

18 April 2017

More sophisticated products will make sultanate’s resources more valuable

Oman is bearing the crunch of the oil price more acutely than its GCC peers, save Bahrain. With its maturing oil fields and high breakeven price for oil, its upstream assets have become less attractive for further exploration.

When oil prices dipped below $50 levels in 2015, several international exploration and production companies such as the Norwegian DNO as well as the Irish Circle Oil exited their Omani concessions.

Last year, Oman tendered some of these concessions in its ongoing bid round. While Oman’s oil and gas ministry confirmed interest of foreign firms in these concessions with MEED, the deadline for declaration of results has long passed. Oil and gas ministry undersecretary Salim al-Aufi has said that the tendered blocks 30, 31, 49 and 52 will be awarded later this year.

At the annual oil and gas ministry media briefing, Oman announced its reserves of crude oil and condensates had decreased by 2.4 per cent in 2016, in comparison with the previous year. The reason for this decrease, it said, was due to re-classification of resources considered non-commercial.

While the sultanate did make three oil and gas discoveries in Block 60 in 2016, the yield is not considerable. One of the fields Bisat was tested to produce around 1,000 barrels a-day (b/d) of light oil, while Abu Butabul South-1 yielded around 600 b/d. Gas field Abu Butabul North-1 tested for around 25 million standard cubic feet a day of gas.

Oman’s exploration for oil and gas in its ageing fields and difficult terrain is proving challenging. While the ministry confirmed there had been no relinquishment of hydrocarbon assets last year, it awarded Block 7 to Omani firm Hydrocarbon Finder. Earlier this year the energy ministry awarded Block 48 to Oman Oil Company Exploration and Production as the sultanate veers towards domestic firms to develop these concessions.

Oman is spending on its upstream sector, however. Al-Aufi announced spending commitments in 2017  of around $16bn - with $12.6bn for the upstream sector and the remainder for downstream.

For Oman to continue to monetise its oil and gas assets, the way forward is more sophisticated development of its downstream sector. As one of the speakers at the biennial Oman Downstream conferencelooks downstream to counter oil price slump mentioned, there is a pressing need to “make every molecule count”.

In order to develop an integrated downstream industry, the sultanate is making use of its position outside the Strait of Hormuz to develop several small towns into world-class port cities.

Salalah, which faces the Indian Ocean, is getting a new ammonia plant. Sohar in the north, is revamping its refinery’s capacity from 82,000 b/d to 198,000 b/d to produce naphtha, gasoline, and diesel.

While Duqm is being groomed to accommodate Oman’s largest single-phase development. The 230,000 b/d refinery at Duqm is being developed jointly by Oman and Kuwait - the first intra-GCC collaboration on such a project. The refinery, which will award main contract and reach financial close this year will use 65 per cent Kuwaiti export crude, with the remainder from Oman.

The biggest challenge for Oman is accessing finance, particularly so with its negative credit ratings. Duqm Refinery is understood to be open to more investors, while the Luban ammonia plant in ammonia is yet to reach financial close, even after engineering works have started.

It is a challenging environment for all Gulf states, with project work being downsized to conform with economic reality. The way forward for Oman is to perhaps follow similarly positioned Bahrain and tap into alternative forms of finance such as export credit to help monetise its molecules into high-value downstream products.

 

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