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Oman  

Last Updated: October 10, 2013  (Notes)

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Overview

Oman is the largest oil and natural gas producer in the Middle East that is not a member of the Organization of the Petroleum Exporting Countries (OPEC).

Located on the Arabian Peninsula, Oman's proximity to the Arabian Sea, Gulf of Oman, and Persian Gulf grant it access to some of the most important energy corridors in the world, enhancing Oman's position in the global supply chain. Oman plans to capitalize on this strategic location by constructing a world-class oil refining and storage complex near Duqm, which lies outside the Strait of Hormuz (an important oil transit chokepoint).

Like many countries in the region, Oman is highly dependent on its hydrocarbons sector. In 2012, Oman's hydrocarbons sector accounted for 86% of government revenues, according to the country's Ministry of Finance. Further, revenues from oil and natural gas accounted for approximately 40% of Oman's gross domestic product in 2012, according to IHS Global Insight. Oman's fiscal breakeven price for oil in 2013 is approximately $104 per barrel, according to a 2012 government announcement, meaning that Oman's government needs the export price of oil to remain at or above that level to secure sufficient revenues. For reference, in 2012 the price for Omani crude was $109 per barrel.

The continued viability of developing Oman's oil and natural gas resources relies heavily on extraction technologies. Several enhanced oil recovery (EOR) techniques are already used in Oman, including polymer, miscible, and steam-injection techniques. Due to the relatively high cost of production in the country, Oman's government offers incentives to international oil companies for exploration and development activities in the country's difficult-to-recover hydrocarbon plays.

A report published by the U.S. Geological Survey in 2012 stated that the estimated mean undiscovered energy resources in the South Oman Salt Basin—located in the southern part of the country—totaled more than 370 million barrels of oil, 315 billion cubic feet (Bcf) of natural gas, and over 40 million barrels of natural gas liquids (NGLs). With rising domestic consumption, a growing petrochemical sector—which relies on liquefied petroleum gases (LPG) and NGLs—and additional potential resources, the country is unlikely to significantly alter its dependence on hydrocarbons in the short term. For context, in 2011 oil accounted for 71% of Oman's total primary energy consumption, while natural gas made up the remaining 29%.

Oman summary energy statistics
Oil (million barrels)
Proved reserves, 2013 Total oil supply, 2012 Total petroleum consumption, 2012 Reserves-to-production ratio
5,500 338 53 16
Natural Gas (billion cubic feet)
Proved reserves, 2013 Dry natural gas production, 2011 Dry natural gas consumption, 2011 Reserves-to-production ratio
30,000 937 619 32
Electricity
Generating capacity, 2010 (million kilowatts) Electricity generation, 2011 (billion kilowatthours) Electricity consumption, 2010 (billion kilowatthours) Distribution losses, 2010 (billion kilowatthours)
4.3 18.6 15.3 3.3
Source: U.S. Energy Information Administration
Map of Oman

Sector organization

Oman's Ministry of Oil and Gas coordinates the state's role in the country's hydrocarbon sectors. Final approval on policy and investment, however, rests with the sultan of Oman. Petroleum Development Oman (PDO) holds the vast majority of Oman's oil reserves and is responsible for 70% of its production, according to the Middle East Economic Survey. In addition to the government's 60% ownership stake in PDO, Shell (34%), Total (4%), and Portugal's Partex (2%) all own stakes in PDO. The Oman Oil Company (OOC), which is responsible for energy investments both inside and outside of Oman, is fully government-owned. The Oman Oil Refineries and Petroleum Industries Company (ORPIC) controls the country's refining sector and owns both of Oman's operating refineries.

PDO has an even greater presence in the natural gas sector than in the oil sector, accounting for nearly all of Oman's natural gas supply along with smaller contributions from Occidental Petroleum and Thailand's PTTEP. The Oman Gas Company (OGC) directs the country's natural gas transmission and distribution systems. The OGC is a joint venture between the Omani Ministry of Oil and Gas (80%) and OOC (20%). Oman Liquefied Natural Gas (OLNG)—owned by a consortium including the government, Shell and Total—operates all liquefied natural gas (LNG) activities in Oman through its three liquefaction trains in Qalhat near Sur.

The government enlists foreign companies in new exploration and production projects, offering generous terms for developing fields that require the sophisticated technology and expertise of the private sector. Given the technical difficulties involved in oil production in Oman, the contract terms for international oil companies (IOCs) have become more favorable in Oman than elsewhere in the region, some allowing significant equity stakes in certain projects. Occidental Petroleum has the largest presence of any foreign firm and is the second largest oil-producer in Oman. Other major players with interests in Oman include Shell, Total, Partex, BP, CNPC, KoGas, and Repsol.

The Authority for Electricity Regulation, Oman regulates the country's electricity and associated water sectors. Its primary functions include implementing general policy from the State, licensing, compliance, and coordination between the various Ministries, organizations, and stakeholders in the sector. The Oman Power and Water Procurement Company is the planning body for power supplies in Oman, and the Oman Electricity Transmission Company is in charge of the country's electricity transmission networks.

Oil

Enhanced oil recovery techniques helped Oman's oil production rebound from a multi-year decline in the early 2000s.

According to the Oil & Gas Journal, Oman had 5.5 billion barrels of proved oil reserves as of January 2013. Oman's only export crude stream is the Oman blend, which is a medium-light and sour (high sulfur) crude. After declining for several years in the early 2000s, enhanced oil recovery (EOR) techniques, such as steam injection and miscible injection, have been the key driver of Oman's rebounding oil production since 2007.

Oman's 5.5 billion barrels of proved oil reserves rank 7th in the Middle East, and 21st in the world, and, similarly, the country's crude oil production ranks 7th in the Middle East and 22nd in the world. Oman is the largest oil producer in the Middle East that is not a member of OPEC. Oman aims to capitalize on its strategic location on the Arabian Peninsula by expanding its refining and storage sectors. Plans to develop a major bunkering and storage terminal are moving forward, and the facility's location outside the Strait of Hormuz could make it an attractive option for international crude shippers.

Exploration and production

Oman's total oil supply reached 924,000 barrels per day in 2012, and the government hopes to produce more than 940,000 barrels per day in 2013.

As of 2013, there are exploration and production activities in 28 of Oman's exploration blocks, according to the Ministry of Oil and Minerals. Oman anticipates awarding 2 onshore exploration blocks in late 2013, and plans to put another 7 blocks (4 onshore and 3 offshore) to tender in the near future. Nearly all of Oman's oil production comes from the Oman Basin, which spans most of the country. There are also a few small fields in the northern exclave on the Musandam Peninsula, all of them located offshore. In November 2012, the first offshore production in the country occurred in Block 8 off the coast of the Musandam Peninsula.

Oman's average annual crude oil production peaked in 2000 at 970,000 barrels per day (bbl/d), but dropped to just 710,000 bbl/d in 2007 due to declining production at the country's fields. Oman successfully arrested that decline, and annual crude oil production rose each of the next five years, hitting 919,000 bbl/d in 2012. Improved EOR techniques helped drive this turnaround, although the country also experienced some additional production gains as a result of recent discoveries. Oman's government aims to produce an average of 940,000 bbl/d in 2013, and to hold production at that level for the next five years, according to the country's Ministry of Oil and Gas.

Several recent developments could contribute to future oil production growth in Oman. Some of the notable new developments include Circle Oil's January 2013 announcement of Block 52 (offshore) with its 7 billion barrels of oil in place and Occidental Petroleum's March 2013 announcement that Block 53 could contain hundreds of millions of barrels of oil in place.

Oman crude oil and lease condensate production, 1980-2012

Enhanced oil recovery (EOR)

EOR techniques are critical to Oman's future production plans, and, as such, developments in those technologies are important to Oman's future production. Block 6, operated by PDO, is the center of current EOR operations, with the Marmal field (polymer), Harweel field (miscible), and Qarn Alam field (steam) using all three of the major EOR techniques within the same block. In late 2012, Shell invested more than $25 million in a solar-powered EOR process, although it is not operating as of September 2013.

Miscible gas injection involves pumping gas, often toxic, that dissolves in the oil, facilitating higher flow rates. Oman's operators at the Harweel oil field cluster use this technique in their operations, and, as a result of EOR, Harweel could produce an additional 40,000 bbl/d. Thermal EOR methods are being deployed at Mukhaizna, Marmul, Amal-East, Amal-West and Qarn Alam fields. Thermal EOR entails the injection of steam in various ways and durations so as to facilitate the flow of heavier oil to the well. Thermal EOR could increase production at both Amal-East and Amal-West to 23,000 bbl/d by 2018. Furthermore, the steam injection at Qarn Alam should increase production by 40,000 bbl/d by 2015 through a novel process in which the steam drains oil to lower producer wells.

At projects such as Marmul, with its heavy oil, injecting polymer fluid is more effective than other EOR techniques. When reservoirs contain heavier grades of crude, the viscosity of the oil restricts its flow to the well. With such a heavy grade of crude, water injection might not prove effective, as the disparity in viscosity causes the water to pass the oil, instead of pushing it to the well.

PDO wants to increase recovery rates at Yibal, a mainstay of Omani production, to 55% through traditional water-flooding. The discovery of al-Ghubar South in 2009 is the most promising discovery for Oman in years. According to the Ministry of Oil and Gas, al-Ghubar South could add as much as 1 billion barrels to reserves. Two significant discoveries were also made at Malaan West and Taliah in the Lekhwair cluster in northwest Oman, which will broaden baseline production in the future.

Other large EOR projects include:

  • Karim Cluster - a cluster of 18 small oil fields all flowing to the Nimr production facility, which is operated by Medco (Indonesia). Currently producing 18,000 bbl/d, PDO is aiming to boost production to around 35,000 bbl/d in the short term.
  • Harweel Cluster - PDO estimates a capacity of 100,000 bbl/d from the current 44,000 bbl/d in the next five years.
  • Growth of up to 70,000-80,000 bbl/d from five clusters, such as the Rima Cluster, is expected through various efficiency gains and EOR applications.

Imports, exports, and consumption

Oman is an important oil exporter, particularly to Asian markets. In 2012, over 95% of the country's oil exports went to countries in Asia, with half going to China.

Oman is an important crude oil exporter, particularly to Asian markets. In 2012, Oman exported 278.2 million barrels of crude oil (762,000 bbl/d), of which approximately half went to China. Oman is not a major refined petroleum product exporter, although there are plans to expand the country's refining capabilities in the next few years.

2013 Oman oil exports, by country
Country Amount (thousand bbl/d)
China 382.8
Japan 104.4
Taiwan 91.3
Singapore 54.4
Thailand 51.9
South Korea 29.8
New Zealand 16.4
India 14.2
United States 5.5
Other 13.8
Total 764.5
Source: Oman Ministry of Oil and Gas

Oman does not currently import any crude oil, but it does import small volumes of refined petroleum products for use in the domestic market. In the year between September 15, 2012 and September 14, 2013, Oman imported approximately 50,000 bbl/d of petroleum products, according to GTIS tanker data. Just under half of those imports originated in other Middle Eastern countries, while Europe and Asia accounted for most of the other half.

With the exception of 2009, Oman's petroleum consumption rose steadily between 2003 and 2012. Petroleum products consumed in Oman include distillate and residual fuel oil as well as motor gasoline. With transportation fuel consumption nearly doubling between 2006 and 2012, the country's refinery capacity is no longer able to meet the country's domestic demand for transportation fuels.

Oman has two operating refineries, Mina al Fahal and Sohar, with a combined nameplate capacity of 222,000 bbl/d. There are plans to upgrade the facility at Sohar by expanding the capacity to nearly 200,000 bbl/d as part of a $1.5 billion ORPIC-led project. Further, Oman aims to construct a refinery near Duqm with 230,000 bbl/d capacity as well as a 200-million-barrel crude oil storage terminal in the same area. The storage terminal would be one of the world's largest, and its location outside the Strait of Hormuz in particular would make it important.

Oman does not have any international oil pipelines, although there are plans to expand the country's domestic pipeline infrastructure. Plans include building a pipeline that connects the planned storage terminal at Duqm with the existing export infrastructure in the center of the country. Another proposal, if executed, would connect Oman's two operating refineries in an effort to reduce tanker traffic between the two coastal facilities. The project's later phases include plans to construct new storage facilities, with the goal of enabling Oman to hold up to 30 days of fuel reserves.

Oman crude oil exports, 2000-2010
Oman petroleum consumption, 2003-2012
Oman total oil supply and total petroleum consumption, 2003-2012
Oman petroleum imports by region, September 2012-September 2013
Region Percent of total
Middle East 47%
Europe 27%
Asia 22%
Eurasia 2%
Africa 1%
Source: Lloyd's List tanker data, U.S. Energy Information Administration

Natural gas

Oman currently exports LNG from two liquefaction facilities, although rising domestic demand for natural gas could limit the volumes available for export in the future.

Oman held 30 trillion cubic feet (Tcf) of proved natural gas reserves as of January 2013, according to the Oil & Gas Journal. In 2011, the country was the 5th largest dry natural gas producer in the Middle East and the 26th largest producer worldwide. Oman uses a significant portion of its natural gas production in oil extraction, reinjecting 22% of its dry production in 2012, according to IHS Global Insight.

Oman's natural gas sector grew in importance over the past decade-plus, driven by the country's inauguration of two LNG facilities, in 2000 and 2005. Prior to 2000, when the Oman LNG facility opened, Oman produced small quantities of dry natural gas, averaging just 154 billion cubic feet (Bcf) between 1990 and 1999. With the continuing rise of Oman's natural gas demand (168% increase between 2002 and 2011), Oman plans to divert all of its LNG exports towards the domestic market by 2024.

Oman natural gas flows, 2002-2011

Exploration and production

Oman's potential for natural gas production growth may be substantial, supported by promising developments in several new projects.

The opening of the Oman LNG facility in 2000 helped spur Oman's dry natural gas production, which grew by 66% between 2000 and 2011. Official government data indicate that Oman's gross natural gas production grew to more than 1.2 Tcf in 2012, an increase of nearly 9% from the 2011 total. Nearly 83% of the country's production in 2012 came from non-associated formations, according to government figures.

The greatest growth potential for Oman's natural gas production may lie in the Khazzan-Makarem field in BP's Block 61. The field is a tight gas formation, and BP suggests that there are between 15 and 20 Tcf of recoverable natural gas resources in the play, and up to 100 Tcf of natural gas in place. The development plan anticipates first volumes in 2017, with eventual production of 1 Bcf of natural gas per day and 20,000 bbl/d of condensates.

Oman also has a gas-to-liquids (GTL) program, whereby Oman LNG supplies more than 250,000 tons of natural gas liquids (NGL) per year for transformation into motor gasoline. Despite this effort, Oman still faces a shortage of transportation fuels because of insufficient domestic refining capacity.

Imports, exports, and consumption

Oman recently combined the Oman LNG and Qalhat LNG companies in an effort to streamline the country's LNG sector. The new company, also called Oman LNG, controls the country's 10.4 million tons (approximately 500 Bcf) per year export capacity.

Oman has just one international natural gas pipeline, the Dolphin pipeline, which runs from Qatar to Oman via the United Arab Emirates. Oman is not a major importer of natural gas, although the country does import approximately 71 Bcf per year from Qatar via the Dolphin pipeline. The imports via Dolphin are necessary to meet the rising level of domestic consumption inside Oman, which grew by nearly 390 Bcf between 2000 and 2011. That rising consumption prompted the Oman LNG company to announce that it would divert all of its currently-exported volumes of LNG away from foreign markets and toward domestic consumers by 2024.

Oman is a member of the Gas Exporting Countries Forum (GECF) and exports natural gas as LNG via its two liquefaction facilities near Sur, in the Gulf of Oman. Nearly all of Oman's exports go to Japan and South Korea, although in 2012 a small amount also went to China. Oman exported a total of 131 LNG cargoes in 2012, as well as 45 cargoes of NGLs, according to the Middle East Economic Survey.

The process to combine Oman LNG and Qalhat LNG companies into a single entity under the Oman LNG banner began in September 2013. This merger will give Oman LNG control of all three of the country's LNG trains, with a combined capacity of 10.4 million tons per year (approximately 500 Bcf). In 2012, Oman produced and exported approximately 395 Bcf, which is roughly 79% of the country's total capacity.

In August 2013, Oman signed a memorandum of understanding with Iran on a natural gas import contract. If realized, it would be a $60 billion, 25-year supply deal beginning in 2015, and will connect the two countries via a pipeline under the Gulf of Oman. Oman reportedly plans to use over 350 Bcf per year of the contracted volumes for domestic purposes and to process additional volumes of Iranian gas for export from its LNG terminals.

Oman LNG exports, 2000-2012

Electricity

Oman's electricity sector relies heavily on the country's domestic natural gas resources. In 2013, natural gas accounted for more than 80% of the country's electricity generation.

Oman's electricity sector has two major networks, the Main Interconnected System (MIS) and the Salalah system. The larger of the two, the MIS, covers most of the northern area of Oman. The Salalah portion of Oman's grid covers areas in the south, while those areas outside of both networks get electricity from the Rural Areas Electricity Company, primarily through the use of diesel generators. According to IHS Global Insight, 97% of the country has access to electricity.

Oman's generating capacity more than doubled between 2000 and 2010, from 8.6 billion kilowatthours to approximately 18.6 billion kilowatthours. Electricity consumption over the same period grew at a similar rate, rising by roughly 8.6 billion kilowatthours. Oman produces electricity primarily from natural gas, although there is some diesel/distillate generation as well.

Oman is part of the Gulf Cooperation Council's grid interconnection system, which allows for electricity transfers between the six connected countries (Kuwait, Saudi Arabia, Qatar, Bahrain, the United Arab Emirates, and Oman). Oman and the United Arab Emirates established their connection in October 2011.

Oman has a nascent renewable energy sector, with several projects making progress in 2013. In its 2012 Annual Report, Oman's Rural Areas Electricity Company detailed five renewable electricity projects, of which three are solar and two are wind. The combined capacity of the five projects is over 6 megawatts, but none of the proposed facilities are ready to begin operations. While Oman does not currently have a nuclear energy program, the country joined the International Atomic Energy Agency in 2009. Currently, there are no plans to construct any nuclear generating facilities.

Oman generating capacity by fuel type, 2013
Fuel Capacity (gigawatts)
Natural gas 7.2
Waste heat 1.3
Diesel/distillate 0.2
Oil 0.1
Total 8.8
Source: IHS EDIN

Notes

  • Data presented in the text are the most recent available as of October 10, 2013.
  • Data are EIA estimates unless otherwise noted.

Sources

APEX Tanker Data

The Arab Fund

Arab Oil & Gas Journal

Authority for Electricity Regulation, Oman

BBC World Wide Monitoring

Bloomberg News

BP Statistical Review

Cedigaz

The Center for Strategic and International Studies

The Economist

Economist Intelligence Unit

Energy Intelligence Group

FACTS Global Energy

Financial Times

IHS CERA

IHS EDIN

IHS Global Insight

International Energy Agency

International Monetary Fund

Lloyd's List

Middle East Economic Survey (MEES)

NewsBase

Oil & Gas Journal

Oman Electricity Transmission Company

Oman Gas Company

Oman Ministry of Commerce and Industry

Oman LNG

Oman Ministry of Oil & Gas

Oman Ministry of Oil & Minerals

Oman Oil Company

Oman Oil Refinery Company

Oman Power and Water Procurement Company

Oxford Institute for Energy Studies

Petroleum Development Oman

Petroleum Economist

Platts

PFC Energy

Qalhat LNG

Reuters

Royal Dutch Shell

Rystad Energy

Total

United Press International

U.S. Energy Information Administration (EIA)

The World Bank