GCC Insights: LNG helps transform Omani economy

Oman's proven gas reserves stand at 29 trillion cubic feet, though it's not comparable to 500 trillion cubic feet Qatar has, the Sultanate has made momentous strides in developing the sector, notably the liquefied natural gas industry.

Progress in the sector is one of the successful efforts by Omani authorities to reduce the economy's dependence on oil. Its development dates back to 1992 when the government approved findings of a feasibility study by Shell.

Oman LNG was set up in 1994. In 1996, Korea Gas Corp agreed to buy 4.1 million tonnes per year of LNG for 25 years. The agreement paved the way for the construction of two trains in Sur, south of Muscat, with 6.6 million tonnes per year capacity for $2.6 billion.

Oman LNG raised $2 billion for the project, making it one of the largest loans ever for a single project in the Gulf. The firm has since refinanced the loan.

Another major client is Osaka Gas Co, which has agreed to buy 0.7 million tonnes per year for 25 years.

To its credit, Oman LNG has weathered failure of a deal to supply 1.6 million tonnes per year to Dabhol Power Co. This followed the collapse of Enron Corp of the U.S., the parent company of the Indian firm.

Instead, Oman LNG managed to export spare quantity to European clients. Recently, TotalFinaElf signed an agreement to buy six cargoes of LNG on ex-ship basis.

Lakshmi, a tanker hired by Oman LNG, will be used to transport 0.6 million tonnes. The French oil major has traded several spot cargoes with Oman LNG.

Oman's gas demand stands at 40 million cubic metres per day. Of this, 26 million cubic metres per day is destined for Oman LNG's plants.

Petroleum Development Oman, which produces gas, projects output to double by 2010 to keep pace with demand for LNG and industrial projects and plans to drill more wells to increase supply.

Oman LNG plans to increase output through enhanced operations and construction of a new plant. De-bottlenecking of trains 1 and 2 should raise output by 10 per cent.

Also, a third train with 3.2 million tonnes per year is proposed partly to meet exports to Union Fenous of Spain from 2006. In all, these efforts will raise LNG capacity to 10.4 million tonnes per year.

The finance ministry is looking for tankers to transport LNG to Union Fenous.

The government has shown considerable interest in expansion. Pipelines are planned from the central Oman field to Sur to supply 10 million cubic metres per day of gas needed for the third train.

In the GCC, Oman has one of the most open energy sectors with significant participation from multinationals.

Oman LNG is owned by the Omani government with 51 per cent stake followed by Royal Dutch/Shell (30 per cent), TotalFinaElf (5.54 per cent), Korea LNG (5 per cent), Partex (2 per cent), Mitsubishi (2.77 per cent), Mitsui (2.77 per cent) and Itochu (0.92 per cent).

In 2001, the first full year of operation, Oman LNG generated a turnover of $1.18 billion and a net profit of $692 million, which gave nearly 44 per cent average return to shareholders.

The oil sector contributes 75 per cent of government revenue and 26 per cent to gross domestic product. In 2000, the gas sector contributed five per cent of the GDP. The national economy ministry projects that by 2020 gas will constitute 10 per cent and oil nine per cent of GDP.


Bahrain-based analyst Dr. Jasim H. Ali is an expert on GCC socio-economic affairs.