Following the global oil price drop in 2014, Oman – like the other GCC states – is pushing ahead with its long-term national development plans that seek to diversify the economy.
The oil and gas sector is responsible for much of Oman's economic growth and government revenue; thus, changes in the industry tend to reflect greatly on the sultanate's overall development. Although recent years have seen a strategic shift towards economic diversification, activity in the hydrocarbons sector still attracts a large share of domestic and foreign investment, with this pattern likely to continue for some time. While the recent prolonged downturn in global oil and gas prices, coupled with the steady depletion of domestic resources, has given Oman some cause for concern, there are signs that the industry has turned a corner.
Oman's oil and gas industry will continue to play an important role in the economy and is poised for continued growth, owing to rising global demand leading up to 2050, more buoyant global energy prices, and renewed investment.
"Reserve discoveries, new concessions and efficient technology leverage steady growth in global oil indices." (The Report, Oman 2019, Oxford Business Group)
Currently, there are various projects that are being implemented, which are estimated to be worth US$ 22 billion.
Although hydrocarbon activity still attracts a lion's share of domestic and foreign investment, more efforts are diversified into expanding downstream capacity, heightened use of enhanced oil recovery (EOR) techniques and venturing into natural gas.
INDUSTRY FACTS AND FIGURES
- Oman is planning to invest about US$5.7 billion in 2019 in oil and gas production and exploration activities, nearly 6 per cent higher than 2018.
- The hydrocarbon sector accounts for about US$12.2 billion or 74 per cent of the total US$26.2 billion estimated overall revenue in 2019.
- Oman's real GDP growth is expected to grow by 2.7 per cent in 2019 up from 2.4 per cent in 2018. (Fitch Solutions Group)
- Oman's hydrocarbon production is set to rise considerably in 2019.
- Oman's crude production is seen to rise by 3.1 per cent in 2019, from 0.5 per cent in 2018. Production will largely stem from investments in EOR maturing fields.
- US$ 26 billion worth of mega oil field, petrochemical projects are seen to drive the country's growth.
- Focus on Enhanced Oil Recovery (EOR)
- Renewed investment along with global energy prices
- Industrial developments expand downstream capacity
- Source markets for crude exports continue to widen
Work at the MOG also forms part of the government's long-term development programme, Oman Vision 2020. This roadmap aims to boost the value of non-hydrocarbons economic sectors as a share of overall GDP through a converted process of economic diversification. The oil and gas downstream segment, in particular, is poised to be shaped by this, with petrochemicals and associated industries highly favoured for growth. One goal of Oman Vision 2020 is to reduce crude oil's contribution to GDP to less than 10% by the end of that year, and to raise that of natural gas to 10% and industry to 20%.
Oman's real GDP growth is expected to accelerate this year as a result of rising oil and gas production and robust fixed investments, according to Fitch Solutions Group, an affiliate of Fitch Ratings.
As per Fitch Solutions' forecasts, Oman's real GDP is expected to grow by 2.7 per cent in 2019, up from 2.4 per cent in 2018.
In its Middle East Monitor report, Fitch said Oman's hydrocarbon production is set to rise considerably in 2019, in spite of OPEC's recent decision to reimpose supply restrictions from first quarter of 2019. 'Our oil and gas team forecasts Oman's crude oil production to rise by 3.1 per cent in 2019, from 0.5 per cent in 2018, contributing to strongly improved net exports. Most of this production will come online in the second half of the year and will largely stem from investments in enhanced oil recovery at maturing fields.'
'Natural gas production from the large Khazzan field is also on track to continue expanding in 2019, although we caution that gains will be considerably smaller than they were in 2018', Fitch added.
Major private investments are on track to be implemented over the coming quarters as part of Oman's wide-ranging economic diversification programme. Fitch forecasts the construction sector to grow by 11.5 per cent in real terms in 2019, from 10.4 per cent in 2018 – second only to Qatar among the GCC countries.
'Major projects currently being undertaken include the US$7bn Duqm Refinery and Petrochemicals Complex, set against a 2021 deadline, which recently secured US$4.6bn of multi-source financing; further projects include the US$6bn Liwa Plastics Industries Complex, due for completion in 2020. These projects will contribute to relatively steady progress on the country's broader diversification agenda, which aims to boost output in the manufacturing, tourism and logistics sectors,' Fitch said.
"Oman's fiscal deficit will narrow only slowly over the coming quarters as weakening oil price growth restricts further revenue gains." It expects the sultanate's fiscal deficit at 7.4 per cent of GDP in 2019, down from 8.7 per cent in 2018.
Higher oil prices and better rates of oil and gas production in Oman are likely to provide a boost to the economy during the end of this year and most of the next, a new report has said.
Economic growth will pick up, directly leading to better financial conditions for people in Oman. "Economic growth will pick up over the coming quarters owing to higher hydrocarbon production," said the report. "Natural gas has provided most of the growth momentum in the year till date, thanks to the start of production at the Khazzan field in September 2017, with total national output expanding by 10.8 per cent between January and July." (The Middle East Monitor November 2018, Fitch Solutions)
Financial analysts and economists said this growth would lead to the government pressing ahead with many social and economic development programmes to help residents and citizens in the country and further negate the effects of the downturn.
OIL AND GAS PRODUCTION
Oman's total production capacity currently stands at 1m barrels/day (b/d) of oil (crude and condensates) and 110m cu metres of natural gas per day.
The sultanate's premier oil and gas producer, the state-controlled Petroleum Development Oman (PDO) had announced earlier in the year that, having achieved its highest oil output—610,170 b/d in 2018—since 2005, it intends to further increase production to 670,000 b/d over the next five years.
Natural gas is also playing an increasingly important role in Oman's energy mix, with a production-sharing agreement on the development of the Mabrouk gasfield in north-east Oman expected in late 2019. The sultanate to make steady progress in achieving its production-capacity targets by 2023.
With a total of 19 international and local companies engaged in exploration and production in 2019, state-controlled PDO no longer has the near monopoly on Oman's oil and gas sector it once had. However, PDO (in which the government owns a 60% stake, Royal Dutch Shell 34%, Total 4% and Partex 2%) remains by far the most important player, accounting for about 70% of the sultanate's total oil output and the bulk of its gas production.
Despite ongoing diversification, Oman's economy is still heavily reliant on hydrocarbons, which supplied over 75% of government revenue and over 60% of export revenue in the first 11 months of 2018. The company's current and future production is therefore of enormous importance to the sultanate. PDO's production levels were well above the 550,000 b/d plateau to which PDO committed itself over the past decade. PDO had a virtual monopoly on Oman's gas production until BP's huge Khazzan project came on stream in late 2017; PDO remains the largest producer of gas in Oman. The completion of the Rabab Harweel and Yibal Khuff mega-projects over 2019 21 will ensure that it remains so.