STIMULATING GROWTH

Buoyant oil prices have reduced the sizable debt that the Sultanate had accumulated over the past three years post the 2014 oil price crash. New discoveries have now scaled up Oman’s gas reserves to 25 trillion cubic feet (TCF). Oommen John P reports

Rising oil prices and comparatively better rates of oil and gas production in Oman are expected to provide a significant boost to the economy during the last quarter of 2018 and moving ahead in 2019.

The strong rally in crude prices, which have remained well above the $55 per barrel mark assumed by the government as the basis for Oman’s Budget 2018, has carted away the sizable debt that the Sultanate had accumulated over the past three years post the oil price cash in 2014. Following the recovery in oil prices, combined with governmentdriven efforts at fiscal consolidation, the fiscal deficit declined from RO 5.300 billion in 2016 to RO 3.760 billion in 2017. According to the Central Bank of Oman (CBO), the deficit is projected to further decline to RO 3 billion in 2018. The improving crude prices is certain to spur the government to spend more thereby stimulating private sector growth and creation of employment opportunities.

Government’s total revenues rose 23.5 per cent to RO4.94bn in the first half of 2018 from RO4bn in the same period of the previous year, mainly lifted by higher oil and gas revenues. At the same time, total public expenditure increased 5.7 per cent to RO5.96bn, the National Centre for Statistics and Information (NCSI) data showed.

Boosted by higher oil prices Oman’s net oil revenue surged 34.7 per cent to RO2.92bn in the first six months of 2018, while gas revenue rose 25.9 per cent to RO859.5mn. The average price at which Oman sold its crude during January – July period rose to $65.4 per barrel compared with $51.6 per barrel in the previous year. Oman produced 969,600 barrels per day (bpd)

of oil during the first seven months of 2018, slightly higher than 968,500 bpd recorded for the same period a year ago.

“The Sultanate will continue to develop new oil and gas projects irrespective of the prices,” according to HE Salim bin Nasser Al Aufi, Undersecretary at the Ministry of Oil and Gas. “Our system is resilient enough to produce oil even if prices drop,” he says. The Sultanate’s total gas reserves stood at 24.96 trillion cubic feet (TCF) by the end of 2017, primarily attributed to Khazzan and Ghazeer fields. Around 4.97 TCF of new reserves were added in 2017, up from 3.81 TCF in 2016. The Sultanate’s oil and condensate reserves stood at 4740 billion barrels at the end of 2017 down by 376 million barrels in 2016 despite the addition of 355 million barrels of oil and condensate from exploration activities and revaluation of some producing fields. The decline is attributed to the transfer of around

323 million barrels of reserves into recoverable quantities based on recovery in prices.

Oil and condensate production averaged 972,000 barrels per day in 2017, down from 1004K in 2016 demonstrating the Sultanate’s compliance with OPEC agreement to cut production. The price of the Oman Crude Oil Futures Contract

averaged $51.29 in 2017, which was up by $11.15 per barrel over 2016. While the highest price of $55.59 per barrel was recorded in December 2017, the lowest was $44.54 per barrel registered in January 2016. The daily gas production in addition to quantities imported from Dolphin averaged 112 million cubic metres per day, of which 88 million cubic meters was non-associated gas and 19 million cubic metres of associated gas and 5 million cubic metres of gas imported via the Dolphin, Aufi said.

The Sultanate’s oil and gas expenditure amounted to $11.4 billion in 2017, as against $11.3 billion in 2016. The total oil sector expenditure was $7.9 billion in 2017, which was similar to $7.9 billion in 2016. The gas sector expenditure was $3.5 billion, against $3.4 billion in 2016. Four oil blocks have been opened for tendering in the last quarter of 2017 and the ministry is currently in the process of evaluating the tenders submitted by local and international companies. The oil and gas sector has been mandated to create 5000 jobs for Omanis in response to the Royal Directives of His Majesty to the public and private sectors to provide 25,000 jobs for Omani jobseekers. However, we are confident of going beyond that, HE Aufi adds. Meanwhile, Oman Oil Company (OOC), a commercial company wholly owned by the government, is keen to explore the potential for partnerships with local and international investors especially in power and renewable energy in the Sultanate. OOC and Eni signed a MoU for cooperation in the oil and gas sector and another agreement was signed with Kuwait Petroleum International Limited (KPI) for the development of Duqm Refinery and Petrochemical complex.

Oman Oil Refineries and Petroleum Industries Company’s (Orpic’s) strategic growth projects that include Suhar Refinery Improvement Project (SRIP), Muscat Suhar Product Pipeline (MSPP) and Liwa Plastics Industries Complex (LPIC) are expected to transform

Orpic’s business model and product mix over the next years and will firmly reinforce Orpic as a recognised player in the international petrochemicals marketplace. The combination of the three projects represents a growth strategy that revolves around increased integration within the manufacturing complex, and the production of a broader slate of petrochemical products that will enable Orpic to extract more value from the oil and gas molecules of Oman.

Energy giant BP has said that achieving first gas from Khazzan Phase One is just the first step. Further development is needed in Khazzan and in the adjoining Ghazeer field to boost production to 1.5 billion cubic feet of gas per day by 2021.

Energy companies in the Sultanate have been spending a lot as part of their InCountry Value (ICV) commitments.

ICV has been a key element in many of the projects in order to extend the highest value for the community through Omanisation, using locally produced material and equipment, and assigning projects to SMEs. Hence, SMEs will continue to play a significant part in the development of the oil and gas sector in the years ahead.

The Sultanate is focusing a lot on producing solar and wind energy. Renewable energy definitely presents an enormous opportunity for Oman.

And PDO is committed to playing its part in helping to position the Sultanate as a regional leader and to develop the nation as a renewable energy centre of excellence and technology hub. PDO itself estimates that 15 per cent of its power requirements will be coming from renewables by 2030, with some saying that figure could go as high as 30 per cent. Certainly, the rise in crude prices in the recent past, has promising implications for Oman’s fiscal condition.