Muscat: Oman will double natural gas prices for some industrial consumers by 2015, with a rise of 33 per cent for 2013 alone, Oman’s minister for financial affairs told Reuters on Monday in a rare Middle Eastern move to slash fuel subsidies.
The Omani government and some major industrial consumers have agreed that gas prices will rise from $1.5 per million British thermal units (mmbtu) in 2012 to $2/mmbtu in 2013, Darwish Al Balushi said.
In 2014, prices will rise to $2.5, then hit $3 in 2015 with further rises expected in years beyond that, he said.
Gas-hungry industry has flourished in the Middle East on fuel priced at a fraction of international levels but its future growth is in doubt unless more sources can be developed.
Omani gas production has risen sharply over the last decade and the non-Opec oil producer remains a net gas exporter. But rampant demand growth at home means it must tap trickier and more costly gas deposits to maintain exports of liquefied natural gas while satisfying its own gas needs.
Key to Oman’s quest to boost production is the Khazzan project. Developer BP has been haggling with the government over how much it can sell any gas produced and the sales price increases announced for the next few years should help make BP’s business case.
Rock-bottom gas prices prevalent in the Middle East are a remnant of when gas was a plentiful by-product of the region’s oil fields and Saudi consumers still only pay $0.75/mmbtu.
According to industry estimates, total upstream conventional gas production costs are around $3/mmbtu, but the cost of projects like BP’s tight gas project are thought to be much higher.
Although some big gas users in the region fear that higher feedstock prices could harm their competitiveness, even Oman’s plan to double prices by 2015 should not make Omani industry uncompetitive on the global market.
Thanks to an unmatched revolution in North American shale gas production, the price of gas for US industrial users tumbled from highs of around $13 per mmbtu in 2008 to a record low of about $3 per mmbtu in April 2012, according to the US Energy Information Administration (EIA).
The slump in US prices has worried many petrochemical producers in the Gulf, but US prices have already rebounded and the EIA expects industrial consumers be paying over $5/mmbtu again in 2013, far more than Omani industry will have to pay by 2015.
With the region’s cheap gas now largely accounted for, Saudi Arabia could follow Oman’s lead on gas prices too this year, although the price rise is likely to be small to protect Saudi industry’s huge advantage, especially over competitors in Asia some of which have to pay well over $10/mmbtu.