OMAN - The Local Market.

The power plants and water desalination complexes in Oman are the biggest users of energy, mainly natural gas. Consumption by the expanding utilities sector is to rise rapidly, with most gas-fired power plants to be built by the private sector in various parts of Oman.

The state's Financial Affairs & Energy Resources Council, headed by Sultan Qaboos and set up in early 1998, focuses on new gas infrastructure projects and is determining where future industries are to be located, with Sohar to house heavy industry. Anticipating local demand and meeting needs is the Consumption Planning Department at the Oil and Gas Ministry.

Oil consumption is limited to about 70,000 b/d. It has only risen by 15,000 b/d since early 2000, when 55,000 b/d of crude oils were processed into 2.2m ton/year of products, compared to 40,000 b/d in 1994. Crude oil is processed at the country's refinery in Mina al-Fahal, with the Sohar oil refinery to come on stream in 2006 being for export (see DT No. 6).

The domestic oil retail network includes Shell, BP, and the state controlled al-Maha which was created in 1994. In 2000 the government sold 35% of al-Maha, a first step towards its privatisation, and ended a moratorium on retail sites imposed in 1994 on BP Oman and Shell Oman Marketing Co. The 35% stake was bought by ABS, an Abu Dhabi-based firm owned by Shaikh Sultan bin Khalifa who is an ambitious and powerful son of Abu Dhabi's Emir and UAS President Shaikh Khalifa bin Zayed who rose from being crown prince in late 2004 when Shaikh Zayed died. ABS produces the Top Lube brand of lubricant and markets it in the UAE and Oman. BP's products being marketed in Oman are packed in Dubai's Jebel Ali free zone. With the economy expanding rapidly, oil consumption will reach 100,000 b/d or more by 2010.

Consumption of natural gas has risen sharply since 1988 to reach 64 MCM/day, with gas production in Oman now averaging 64 MCM/day. A 20 MCM/day of gas output capacity came on stream in 2005. Local demand for natural gas is expected to peak at 84 MCM/day by 2010. Oman is to import Qatari gas from late 2001 and Iranian gas from 2008 (see gmt7OmanLNG-Feb13-06).

The sultanate began exporting ammonia on April 20, 2005, when the Maharshi Shivatreya tanker left Sur bound for India, loaded with the first shipment from Oman India Fertiliser Co. (OMIFCO).

The consignment, representing the first petrochemical shipment to depart from Omani shores, was significant in view of OMIFCO's protracted gestation period, which began more than a decade ago. If all goes according to plan, exports of petrochemicals will exceed 6m t/y by 2008, and Oman will have joined the major league of Gulf producers (see DT No. 6).

Concerns about long-term gas feedstock availability have eased considerably. Over the past decade, proven gas reserves have risen steadily to more than 35 TCF. The state-controlled Petroleum Development Oman (PDO), in which Shell is the technical leader, is committed to a government plan to find more gas at top speed so that the proven reserves may reach 50 TCF by 2010. In tandem, the government has drawn up alternative supply options, which can be exercised if additional volumes are required in future.

With Oman supplying 135 MCF/d to the nearby Emirate of Fujairah and to Abu Dhabi's city of al-Ain which is close to the Omani border, the sultanate's gas grid is connected to the UAE's, which means Muscat can easily import gas from Abu Dhabi's Dolphin Energy. At the same time, it has the option of buying Iranian gas under an MoU signed with Tehran in 2005. The state-owned Oman Oil Co. (OOC) OOC has its own trading arm and can offtake gas from the two neighbouring countries - with Iran having the world's second largest gas reserves next to Russia and Qatar being No. 3.

The location of petrochemicals projects at Salalah, Sur and Sohar - with the latter having an oil export refinery on stream later this year - reflects Muscat's determination to further accelerate economic diversification and spread development evenly across the regions. Oman has an extensive gas pipeline network.

Although Sur is the site of the OMIFCO complex, its location is viewed as the hub for the LNG industry. Salalah may well see further petrochemicals investment, but it is Sohar which is to become the chemicals centre of the sultanate. With five confirmed projects at the northern port, economies of scale are improving, especially in terms of shared infrastructure and greater integration. This is highlighted by an aromatics project which will take residue as feedstock from the export refinery.

Now it is contractors who benefit from Oman's capacity drive in terms of more project opportunities. But in less than four years, it will be the entire economy, as the sector of chemicals will provide much needed jobs and a new stream of export revenue.

A projection in 1998 said Oman's gas needs over a 25-year period would rise from an average of 800 MCF/d then to a total of 21 TCF, of which 9 TCF would be required for two LNG ventures consisting of three trains at Qalhat in Sur, 4 TCF would be used by industry and 8 TCF would be consumed by the domestic market. The study forecast a gas shortage of up to 500 MCF/d in 2002. But in fact there was no shortage in that year. At any rate Oman will stop exporting gas to Fujairah and al-Ain in early 2007 as both the neighbouring emirates and the sultanate will have started receiving Qatari gas through the Dolphin Energy project from late 2006 - which by then will have a marine pipeline to the UAE. The pipeline system to Fujairah and al-Ain will reverse course to pump Dolphin gas from a section of Qatar's offshore North Field being developed by Dolphin's upstream division. Occidental of the US and Total are partners in Dolphin.

Beicip-Franlab, part of Institut Francais du Petrole, in 1999 did for the government a long-term Gas Master Plan assessing potential supply and demand by sector and by location and evaluating the viability of each gas-dependent venture. Based on the distribution of gas reserves in Oman, BF recommended construction of gas extraction and treatment facilities, as well as a new generation of gas-based industries, which would be required before 2020.

Domestic gas distribution is being handled by Oman Gas Co. (OGC), which was established in 1999. Owned 80% by the government and 20% by OOC, OGC is marketing through a 635 MCF/d Government Gas Transmission System (GGTS). About 87% is supplied from the Yibal/Natih non-associated gas reservoir. The rest is associated gas from the Shuaiba reservoirs of the Yibal and Lekhwair oilfields of PDO, which produces the bulk of the sultanate's oil and gas. More than 90% of the gas supplied through the GGS is used for power generation and water desalination. Apart from the expanding utilities, gas consumption is to increase in the coming years in view of a rapid population growth and rising industrial investments.

In 1999 Muscat granted OGC a 27-year concession to operate the GGTS and signed with it a tariff agreement. OGC will offer 40% of its equity to investors eventually on the Muscat Securities Market (MSM). OGC has two gas pipelines completed in late 2003: (1) A 305 km, 32-inch line can carry up to 550 MCF/d from the Fahud production and processing centre to the Sohar industrial zone. This was built by Dodsal of India under a contract signed in March 2000. The pipeline should be expanded at a later stage to 805 MCF/d with the installation of new compression facilities. (2) A 670 km, 24-inch line can carry 268 MCF/d from the Saih Nihayda production and processing centre to a new industrial zone in Salalah, capital of Dhofar province in the south. This was built by a group of Saipem, SnamProgetti and CCC. The pipeline should be expanded later to 490 MCF/d.

These now allow major power plants and industries to be built at Sohar and Salalah and other zones along their routes. Big gas users at Sohar will include a giant aluminium smelter and petrochemicals producing plants to be on stream by 2008-09 (see DT No. 6).

The Northern Oman Gas Pipeline to al-Ain and Fujairah was inaugurated officially in March 2005 by Sayyid Haitham bin Tariq al-Sa'id, minister of heritage and culture, who presided over a ceremony held in the wilayat (governorate) of Ibri in the Dhahirah region, where the Safah oil and gas field is located and operated by Occidental Oman of the US (Oxy) in partnership with Mitsui of Japan. The Oxy-Mitsui E&P venture is known officially as Northern Oman Gas Project (NOGP). Present at the ceremony were Dr Muhammad bin Hamad al-Romhi, minister of oil and gas; other ministers; undersecretaries; Shaikh Abdullah bin Mustahail Shimas, wali of Ibri; and members of the State Council, heads and directors of government establishments and departments in Ibri and other dignitaries. Nasser bin Khamis al-Gashmi, under-secretary at the Oil and Gas Ministry, gave an opening address, in which he said the NOGP, the biggest of its kind to be implemented by the private sector in Oman, represented an important step in the sultanate's strategy to reduce the flaring of associated gas and utilise it as source of energy. He added the project enhanced existing brotherly relations between the sultanate and other GCC states in general and with the UAE in particular as the produced natural gas was being exported to al-Ain city and Fujairah. Gashmi said the NOGP was developing reserves of associated and non-associated gas in E&P Block No. 9 which are estimated at more than 400 BCF. The block's associated liquids are estimated at about 1.9m barrels. NOGP's pipeline to the UAE was built at a cost of $120m and under a sales and purchase agreement (SPA) signed on April 29, 2003, between the government and the JV. Gashmi added the implementing company would provide the government with 120 cfpd of gas, saying that the company succeeded to complete the project four months ahead of the set date. The general manager of Occidental Oman said the Northern Oman Gas joint venture aimed to develop associated and non-associated gas reserves in block 9 which had an estimated 400 bn cf of gas stock and around 1.9 mm barrels of associated liquids.

The NOGP's 120 MCF/d gas sale and purchase agreement (SPA) was signed on April 29, 2003, with the government. It provided for the sale to start from July 28, 2004. Gashmi noted gas deliveries began in March 2004 - four months ahead of schedule, and the volume of its output and sale to OGC later increased to 130 MCF/d. Oxy holds 65% in the NOGP and Mitsui has 35%. Gashmi praised the NOGP as it had a 170-strong staff and "gave the absolute priority to increasing the number of its Omani employees and to technology transfer to the sultanate". He said the Omani nationals constituted 88% of the total NOGP workforce. Dr Romhi said the NOGP was encouraging small E&P companies operating outside PDO's concession.

Sayyid Haitham said the NOGP was "one of the huge investment projects which attracted great attention from the government". In effect, this helped Oxy win the Mukhaizna oilfield in June 2005 as the state transferred its development from PDO to a partnership of Oxy and Liwa Energy of Abu Dhabi (see gmt6Fields-Feb6-06).

Coal could be an important source of energy in the coming years. The sultanate is developing some of the 122.7m tons of reserves in the Galan province with the participation of local and foreign companies. Coal would be used in power generation and for export.