GCC Insights: LNG offers an alternative economic lifeline for Oman

Liquefied natural gas (LNG) is helping Oman attain its goal of diversifying the economy, partly by making it less dependent on oil.

The continued slide in oil production adds to the sense of urgency to develop the gas sector. Press reports had suggested that Oman's oil production capacity (excluding condensate) experienced considerable decline in the last few years.

Crude oil output fell from 849,000 barrels per day (bpd) in mid-2001 to 750,000 bpd by late last year and currently stands at 700,000 bpd. Worse, the forecast calls for a drop to around 650,000 bpd unless the authorities commit fresh investments.

Fortunately, Petroleum Development Oman (PDO) has revealed plans to invest up to $2 billion over the next five years to boost capacity to 800,000 bpd by 2007.

Current LNG production stands at 6.6 million tonnes per year produced from two trains. Chiyoda Corp and Foster Wheeler are constructing a third train, which should increase the capacity to nearly 10 millions tonnes per year by 2006. And plans are being drawn up for a fourth train.

The industrial area of Sur near Muscat serves as home to Oman's LNG projects.

Clients

New customers are signing up to lift LNG from Oman. Currently, LNG is supplied to two major clients, namely 4.1 million tonnes per year to Korea Gas Corp and 0.7 million tonnes per year to Osaka Gas Co.

Additional sales are made on the European spot markets. Union Fenous is one of the main clients of the third LNG project. Recently, BP agreed to purchase 3.6 million cubic metres over a six-year period starting from next year.

Oman LNG owns the first two trains while Qalhat owns the third train, which is under construction.

Oman LNG has substantial owners. The Omani government owns a 51 per cent stake followed by 30 per cent for Royal Dutch/Shell plus other minority shareholders including TotalFinaElf, Korea LNG and Mitsubishi and Mitsui of Japan.

Oman LNG, the government and Union Fenosa Gas of Spain own Qalhat LNG.

2001 marked the first full year of operation for Oman LNG. Last year, turnover amounted to $1.05 billion, down about 9 per cent compared with 2001 due to tight prices in the international markets. This constitutes about 10 per cent of total exports.

Apart from supplying gas for the production of LNG, the majority of 44 million cubic metres per day is extended towards the needs of power and water desalination plants. Other uses include helping in the production of refining and petrochemicals and other gas-based projects located in the industrial area of Sohar.

Royal Dutch/Shell has a 34 per cent stake in PDO, which produces gas.

Reserves

Efforts to enhance reserves have yielded results. Proven gas reserves amounted to merely 12.3 trillion cubic feet in 1992, marked as the year the government approved findings of a feasibility study to develop LNG.

The current level of reserves is estimated at anywhere between 22.4 and 30 trillion cubic feet. But there is no easing up in the hard work to increase levels. PDO is currently drilling five wells at Faal, Al-Huwaisah, Burhaan West, Budour and Wafi, due to be completed by the end of next year. Also, the Kauther field, which was discovered in May, 2001, and regarded as a prize, is due to be developed.

But the Sultanate has a long way to go to increase reserves to a level close to that of Qatar, which has a mighty 500 trillion cubic feet. Progress in the gas sector is the culmination of one of the most successful efforts by Omani authorities to diversify the economy.

Vision 2020, the blueprint for Oman's economy, aims to reduce dependence on the oil sector. Currently, the petroleum sector accounts for some 75 per cent of revenues and 40 per cent of gross domestic product.

The writer is assistant professor, College of Business Administration, University of Bahrain