Oman

The depletion of the sultanate's crude oil reserves accelerated the government's bid to increase the use of gas in electric power generation and industry. In the early 1970s, the sultanate began to use gas in electric power generation. Gas pipelines were laid, and generators were converted from diesel to gas. This was done in the Muscat metropolitan area just before the second oil price shock despite resistance by importers of diesel. Plans were to increase gas use by extending the government gas grid linking the south and the east to the north. Power generation facilities north of Muscat in 1992 were using gas as a feedstock, and plans were to increase gas-fired units elsewhere.

Although the government has promoted the industrial use of gas, oil firms remain the principal consumers, using a total of 8.5 million cubic meters per day of associated gas. Gas is required for reinjection, compression fuel, and power generation to support facilities at producing fields. This is likely to continue in the short term, given the slow pace of switching industrial use from petroleum. The government's focus in the 1990s on exploiting natural gas reserves and increasing output to meet rising demand complements its priority in maintaining current oil output levels. It seeks to do this without depleting crude reserves by using gas produced in association with oil output for reinjection at mature fields to increase production and, by substituting gas for oil, to release greater volumes of crude oil for export.

On February 8, 1992, the Ministry of Petroleum and Minerals signed a cooperation protocol with Royal Dutch Shell for a comprehensive evaluation of Oman's gas reserves, estimated in June 1992 at 482 billion cubic meters, the bulk of which is in nonassociated form. According to the minister of petroleum and minerals, some studies indicate a reserve base as high as 935 million cubic meters. A preliminary feasibility study conducted by Royal Dutch Shell indicated the potential for exploiting gas reserves at a rate of 142,000 cubic meters per year as exports over a twenty-year-period and for meeting domestic demand for the next fifty years.

Most of the gas produced is in associated form and comes from PDO's Jibal field; smaller volumes come from the Natih and Sayh Nuhaydah fields in northern Oman and the Birba field in the south. Gas plants have been constructed in Jibal, Fuhud, Sayh Nuhaydah, Sayyala, and Rima, providing Oman with a gas-processing capacity of almost 18 million cubic meters per day. Despite increased gas production, gas throughput at these plants ran at about one-half of total capacity in 1989.

Evaluation of the commercial viability of the northern offshore Bukha natural gas and condensate field, discovered in 1986 by its concession operator, the International Petroleum Company of Canada, was completed in June 1992. The company estimates the life expectancy of the Bukha field at fifteen years, a capacity of 28 million cubic meters per day of gas and 5,000 to 10,000 bpd of condensate, and a requirement of an approximately US$60 million capital investment to bring the field onstream. Production was scheduled to begin in 1993.

The government planned to drill wells in the central fields (Sayh Rawl, Sayh Nuhaydah, Barik, and Mabruk) at a cost of RO47 million (US$18 million) between 1992 and 1995. Output from these structures will supply the US$9 billion LNG project, which was finalized on May 6, 1992, by a memorandum of understanding. In this project, the government will be responsible for all upstream (see Glossary) activities. A new consortium was established, comprising the Omani government at 51 percent, PDO's foreign shareholders (Royal Dutch Shell, Total-Compagnie Française des Pétroles, and Partex) at 42 percent, and three Japanese firms (Mitsubishi, Mitsui, and C. Itoh) undertaking downstream operations under a service contract. Deliveries of LNG are not expected to begin before 1999. The Japanese market is expected to be the most probable destination for output.

If increasing volumes of gas are lifted, the government may consider new gas-based industries such as methanol, fertilizers, and methyl tertiary-butyl ester (MTBE). During 1992 talks were conducted with Iran concerning joint development of the Bukha and Henjam offshore fields, where limited drilling has indicated a gas and gas liquids potential. Omani officials have also conducted talks with Qatar regarding the purchase of natural gas from Qatar's North Field. The proposal to build a gas line from Qatar to Dubayy may be expanded to include a spur line to Oman. Minister of Petroleum and Minerals Shanfari indicated that Oman is prepared to purchase a volume up to 113 million cubic meters per day of gas from Qatar if an acceptable price can be negotiated. The regional gas line proposal was being considered among gulf countries for much of the 1980s. As of early 1993, a definitive decision on a regional (Arabian Peninsula) coordinated, long-term gas plan that would rationalize supply and demand for decades had not been completed.

Data as of January 1993