Oman is making good progress on the oil storage terminal being built in Duqm. The location will be of strategic interest to the oil industry. (Picture used for illustrative purposes.) Image Credit: Agency

Muscat: Oman's goal of building the biggest oil-storage facility in the Middle East is finally progressing, more than seven years after the sultanate announced the plan.

Oman Tank Terminal Co. has almost finished constructing eight tanks to store crude for a new refinery near the town of Duqm on the Arabian Sea. It's now pushing ahead with others that could be used by oil companies and traders.

That would eventually increase Duqm's capacity to at least 25 million barrels, according to OTTCO's website.

The Ras Markaz Crude Oil Park could provide an alternative for energy traders and exporters eager to avoid the Strait of Hormuz, a choke-point that's seen numerous flareups in recent years, including Iranian seizures of tankers. The Omani facility lies roughly 966 kilometers from the waterway.

"Crude storage that anybody can use outside the Strait of Hormuz, that can go either east or west, is probably a good thing," said Alan Gelder, vice-president for refining, chemicals and oil markets at consultant Wood Mackenzie Ltd. Iraq and Kuwait, a co-investor in the refinery, might see Duqm as an attractive place to park their crude outside the Gulf, he said.

Need for space

Oil storage shot to prominence in March and April when coronavirus lockdowns caused demand for energy to collapse. Traders and producers struggled to find enough space for their unwanted crude, with many turning tankers into makeshift, floating warehouses to absorb the unprecedented glut.

Terminal operators at Fujairah in the UAE - the region's  largest hub with 14 million barrels of commercial crude-storage capacity - had to turn down requests for storage in April because they'd run out.

Duqm missed an opportunity to take advantage because its schedule for Ras Markaz slipped, said Robin Mills, founder of Dubai-based consulting firm Qamar Energy.

"Storage economics were very good this year," he said.

A potential cash cow

Security of shipping in Hormuz is now a bigger concern - several tankers were attacked or seized near the strait in 2019 - but Oman's weakened finances could deter investors, Mills said.

Leasing the tanks would provide extra revenue for Oman, whose economy has been battered this year by the virus and fall in oil prices. Its budget deficit is forecast to swell to 17 per cent of gross domestic product in 2020.

A seven-year stretch

When OTTCO unveiled its plans in 2013, it said Ras Markaz would eventually be able to store 200 million barrels. 

The Duqm refinery is scheduled to start next year and the eight tanks will be able to hold 5.7 million barrels. They should be ready by the first quarter of 2021.

OTTCO's plans for the expanded tank farm still hinge on finding co-financiers as well as companies to book the storage.

Excluding the refinery, Oman invested about $350 million in the first stage of the Duqm special economic zone, where Raz Markaz is located. Some three-quarters of that was funded by the Asian Infrastructure Investment Bank, whose largest shareholder is China. 

OTTCO faces a more immediate challenge. Duqm, including the economic zone, was sealed off from the rest of the country for three weeks starting June 13 due to a spate of virus infections, further complicating planning and construction.