Oman's Oil Refining & Petrochemicals Businesses Are Expanding With Focus On Sohar.

Muscat projects the port of Sohar as the first anchor for a journey that will make Oman a key maritime centre between three continents. Industries built there include a complex oil refinery and plants to produce a variety of petrochemicals. There will be an export-bound polypropylene (PP) venture, plants to produce fertilisers and methanol, a giant aluminium smelter - all being built at the Sohar industrial zone, 220 km north of Muscat. A fertiliser complex has been built in the coastal town of Sur in the south, near a complex exporting LNG which in late 2005 had a third train on stream.

That the sleepy town of Sohar will become "the Rotterdam of the Middle East" may sound ambitious. But Sohar once was the busiest port in the Muslim world and the centre of an Omani maritime trading empire from Zanzibar in East Africa to China.

Sohar Industrial Port Co. (SIPC), a 50-50 JV between Rotterdam Municipal Port Management and the Muscat government, is developing a giant port. In its hinterland, a huge industrial zone is housing the projects mentioned above and many more to be launched by private firms.

A 300-km pipeline feeding this zone with 1.5 MCM/d gas from Fahud field was inaugurated on Jan. 3, 2004. The line is part of a grid running to the border of the UAE, which until Aug. 1, 2007, used to carry Omani gas to Fujairah and al-Ain contracts with Dolphin Energy Ltd (DEL), a JV of the Abu Dhabi state-owned Mubadala Development (51%), Occidental Petroleum of the US (Oxy) with 24.5% and Total with 24.5%. This pipeline's run is being reversed to bring in gas from Qatar developed and to be supplied by DEL from 2008. Sohar industries will have plenty of gas feed stocks for a long time.

Oman Refineries & Petrochemicals Co. (ORPC) was set up in October 2007 - owned 75% by the Ministry of Finance and 25% by Oman Oil Co. (OOC) - under decrees issued in the previous month by Sultan Qaboos bin Sa'id which merged Sohar Refinery Co. (SRC) with Oman Oil Refinery Co. (OORC). This also underlined the need to integrate the state-owned and state-controlled refining and petrochemicals industries in the sultanate.

The two refineries have a combined capacity of 222,400 b/d. The Arab Bank Group, along with regional and international banks, on Oct. 10, 2007, signed with ORPC a $1.37 bn loan agreement, refinancing loans to SRC and OORC.

In parallel, the government is developing the coastal area of Duqm, south of Muscat, into a major industrial hub - where an integrated 200,000-300,000 b/d refining and giant petrochemicals complex is intended to be built in partnership with an international firm. But the mega-project now is estimated privately to cost over $15 bn, more than double the $7 bn estimate made in February 2007 and way above $5 bn anticipated in late 2005. As a result, the Ministry of Oil and Gas (MOG) has been considering a revised plan dividing the project into phases, with the initial state to have 150,000-200,000 b/d refinery and a smaller petrochemical complex.

As the plan was first conceived, on the basis of which Jacob's Engineering of the UK a feasibility study in March 2007, the refinery was to convert heavy/sour crude into light fuels for export. The petrochemicals complex was to have a mixed-feedstock cracker for ethylene for the world's largest PP plant with a 1.2m-1.5m t/y capacity, a 2.8m t/y aromatics plant, and a 700,000-800,000 t/y styrene unit. The project's final configuration is yet to be decided. Duqm is to include a crude oil export terminal and a strategic fuel storage tank farm, a free trade zone, downstream industries as well as a dry dock, a harbour, an airport, commercial and residential areas and a tourism centre.

Apart from integrating refining and petrochemical industries, Oman and fellow GCC states are seeking to expand petrochemical production downstreams into more complex, higher-value plastics. But this is a high-risk strategy. Besides limited availability of gas feedstock, rising project costs have driven up the capital requirements to manufacture sophisticated products. This is causing concern for investors. Analysts question the benefits of processing base chemicals into derivative products; they argue that, wit each step downstream, producers are diluting the profitability of a region whose major advantage is cheap feedstock.

Yet Muscat and other GCC states have to develop the region's leading manufacturing industry, taking a long-term view in which diversifying the petrochemical sector allows them to tackle their greatest challenge: creating jobs. The presence of the Gulf's top petrochemical producers at the November 2007 Dusseldorf K Show plastics exhibition emphasised their commitment to think in global terms, targeting the giant markets of Europe, the US and China to keep growing. But care must be taken to engage in joined-up thinking where production is concerned, to be sure that competing with each other to sell the same products into the same international markets does not pose another tough challenge. But a polyolefins complex to be built in Sohar is on hold due to high costs.

ORPC and Oman LNG Co. (OLNG) in late 2007 signed a long-term deal for the sale and procurement of condensates. OLNG was to supply 24,000 t/m of condensates to ORPC's plant at Mina al-Fahal in Muscat via the vessel 'Massirah' to be arranged by ORPC.

The price of plant gas charged by state-owned Oman Gas Co. (OGC) for industries is competitive, despite a quadrupling of world crude oil prices since 2002. Together with excellent infrastructure in Sohar and low power/water tariffs, plus relatively low-cost manpower and fiscal incentives, the gas price should encourage industrialists to relocate their plants there. The CIF price of gas exported to the UAE until Aug. 1, 2007, and the one to come from Qatar in 2008, was in 2004 said to be $1.30/m BTU, plus a 1.5%/year escalation. This is way below what industries in Europe and Asia are paying for their gas and less than a quarter of the average annual gas price in the US.

The 700-km Salalah gas pipeline was formally inaugurated on Jan. 11, 2004. The line pumps 4 MCM/d from the central gas fields (see gmt6OmanFields-Feb4-08) to Salalah in the south. It provides energy to power plants in the Dhofar governorate, industrial facilities in Raysut and the Raysut Cement Factory.

A Free Trade Agreement with the US in 2006 has promoted knowledge-based industries in the sultanate, besides giving a boost to bilateral trade. Commerce, Industry and Minerals Minister Maqbool bin Ali bin Sultan on Feb. 3, 2006, said: "The FTA will further open the already liberal market of Oman to goods, services and investments from the US thus benefiting the US economy". As soon as the FTA came into force, 100% of bilateral trade in consumer and industrial products became duty free, with a phase-out of the remaining tariff in a 10-year period. The agreement also covers agriculture products with a broad array of such goods having become duty free (see down6Oman-RefPetchFeb6-06).

Oman Oil Marketing Co. (OOMCO), is a leading retailer of fuels and lubricants in Oman and sells under the brand name of OmanOil. OOMCO in November 2007 signed a ten-year contract Sohar Aluminium (SA) for the operation of all vehicles on the latter's site and as back up fuel for the turbines at its power station in the event of a gas shortage. Valued at RO8.7m, the contract was signed by OOMCO's CEO Eng. Omar Ahmad al-Qahtan and SA's CEO Tony Kinsman. SA's diesel consumption is expected to be about 4m litres/year.

Kinsman said SA will be the world's first smelter to pioneer the use of Alcan's AP35 technology, considered to be the most efficient and environmentally friendly smelter technology ever, with a capacity of 350,000 t/y of liquid metal.