Thursday, January 25, 2007

Where did the gas go?

Wasn't natural gas supposed to be the panacea to all our economic ills?

In the mid-90's, the government announced that LNG was the key to the country's future economic sustainability. It was an integral part of the often quoted "Oman 2020 vision" which stated that crude oil's contribution to GDP will drop to 9% by the year 2020 while gas will contribute 10%. When the Oman LNG project was launched it was estimated that Oman's gas reserves stood at about 25 trillion cubic feet, and forecasted to rise to about 40 trillion cubic feet by the year 2015.

All the huge investment projects that were announced in the past few years, particularly the ones located in Sohar, rely on gas supplies to power them. All the new powerplants that were built in the past ten years such as Manah, Barka, Al Kamil, Dhofar Power, as well as the upcoming Sohar and Barka II use gas feedstock. And yet last year when Oman Cement Co wanted to increase its production capacity, it was told by the government that they are unable to provide additional gas supplies to them. No explanation was given at that time on why all of a sudden we had no more gas.

The December 15th issue of MEED had an article titled "Muscat Faces up to Gas Shortage" (subscription required) which states that:

Gas demand in the sultanate is forecast to reach 3,839 cf/d by 2010, compared with expected production of 2,659 million cf/d according to the latest figures from the Ministry of Oil & Gas (MOG). "IOCs (international oil companies) are central to increasing our gas production," MOG undersecretary Nasser Khamis Ali al-Jashmi told MEED on 10 December. "We're not able to unlock the gas without them. They bring financial capabilities and technological know-how, [and] they take the whole risk during the exploration phase."

Production has averaged 2,549 million cf/d so far this year, up from 2,027 million cf/d in 2005, and just above gas consumption of 2,472 million cf/d. Gas consumption in 2006 had been expected to reach 3,030 million cf/d, 558 million cf/d above supply.

"We bridged the gap because of a delay in [gas-based] projects. The gas plan included a polyethylene plant at Sohar that has been delayed," said Al-Jashmi.

Gas consumption increased in 2006 when Qalhat LNG's liquefied natural gas (LNG) train came on stream. The sultanate's three LNG trains account for more than half of consumption, using 1,341 million cf/d of gas. The national grid is the next biggest consumer.

Key to the gas expansion programme is the Khazzan and Makarem tight gas project in central Oman. The government is in negotiations with a shortlisted company, understood to be the UK's BP, to develop the fields.

Studies have estimated gas reserves in Khazzan and Makarem fields as high as 60 trillion cubic feet (tcf). "Potentially there is a huge reserve there," says Al-Jashmi. "It depends on the [company's] ability to extract the gas. The reservoirs have complicated characteristics."


A follow-up article, Oman: Strapped for Gas, repeated most of the previous article with a few more details on the expected supply from the Dolphin project.
Dolphin supplies are scheduled to arrive in Oman in early 2008, when the first flush of Qatari gas flows through the Maqta-Al-Ain pipeline into the sultanate. Though significant, the 200 million cubic feet a day (cf/d) of gas will only provide partial relief to the sultanate's looming gas shortage.

Muscat has looked at importing gas from other neighbours, including Iran, but its main focus is on a crash programme to develop its own fields with the help of international oil companies (IOCs). In late December, the quest to find more gas took a significant step forward when the UK's BP signed a production sharing agreement to develop two gas fields in the interior. The Khazzan and Makarem fields west of Saih Rawl could hold reserves of 20 trillion-60 trillion cubic feet (tcf), although how much can be recovered from the tight gas reservoirs remains to be seen. Initial production is set at 300 million cf/d, rising to 2,000 million cf/d.

..

"The [expected] demand was higher than supply in 2006 but we bridged the gap because of a delay in projects," says Al-Jashmi. "And the polyethylene plant at Sohar was due to be completed by 2009, but the date is not now realistic." The sultanate will experience significant demand growth when projects at Sohar industrial port, including an aluminium smelter, methanol facility and fertiliser plant, come on stream in the next two-three years. "If the polyethylene plant happens, there won't be any more gas-based industries to follow," says a source involved in the port's development.


And now, just over 10 years since the LNG dream began, all of a sudden, we're talking about coal power. With the prospect of no more gas supplies in the near future, PDO recently announced that they are appointing consultants to carry out a feasibility study on a $1 billion coal-fired power plant in Raysut. Coal a viable option in the 21st century? And in gas producing country no-less!

4 comments:

Balqis said...

We have a lot [they say]
Just we don't know how to take it out, as my simple mind understood
That's why we will take it from Qatar for now
Oh!!!man

Friend of Oman said...

Dear Muscati,

Good that you write about it, its a key issue for Omani economy.
And you didn't touch the worst aspect: Oman might loose up to half a billion dollars a year in the future: it oversold its gas for the next 15 years, trough long-term supply agreement to LNG importers, power stations and Sohar projects at price which is significantly lower than market prices.
This was not totally wrong, as it was the only way to attract investors in Sohar Industrial Port (you don't think Dow Chemicals, Siemens and others came with their billions to Oman for the nice beaches or for Muscat Festival?).
If Qatar and Iran -the only possible suppliers- will ask for the market price, Oman will have to buy gas at sometimes the double of the price it has sold its own gas.
Everybody in town knew it for a long while but her news take long time to get on newspapers, if they ever get there...
The 200.00O cf/d from Qatar APPEARS to be imported at market price, if it's true that's very bad news, but nobody bothers to inform the public about how much Oman is paying to Dolphin for this gas.
And Iran, why should they give it at cheaper prices, they are not even GCC brothers, if they do it, they might ask something in exchange, what will be the (political?) price?
Let's hope new gas is found by BP and the gap can be filled soon.

Balqis said...

Strange they said to press that we'll have from Qatar but according to my informations [and sounds logical as there's already the pipeline] it will come from Iran

Se7en said...

Hmm.. did anyone read a few years back when a number of articles came out how Shell had overestimated Oman's oil reserves as much as 40%.

Some extracts..

''Earlier this month, The New York Times reported that internal documents and other data indicated that Shell had over estimated its proven oil reserves in Oman by as much as 40 per cent. But that seems to have been done because everyone hoped that the latest drilling techniques would reach more deposits than in the past and merit upgrading the estimates of reserves.

The Oman estimates were based on assessments made in May 2000 by a senior Shell executive who was subsequently fired. He was among several executives who were said to have known about the unrealistic estimates of reserves and to have done nothing about it."

"In Oman, Shell seems to have fumbled on technology," said Ali Morteza Samsam Bakhtiari, a senior official with the National Iranian Oil Company.

Perhaps more ominously for the world's oil outlook, he added that the failure of Shell's horizontal drilling technology in Oman suggested that even advanced extraction techniques "won't bring back the good old days."

''As most of oman's oil reserves are in PDO owned areas and most of Oman's gas is associated with oil, thus a downward revision of oman's oil reserves would also mean a downward revision of oman's gas reserves''