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New technologically advanced extraction techniques have helped Oman increase oil production, giving the industry the ability to adapt to a new environment of low prices.

Hydrocarbons have been the lifeblood of the Omani economy since oil was first discovered in 1964. Since production began in full in 1967, Oman has developed a robust and technologically advanced oil extraction sector that has taken advantage of its geographical advantages to form connections with the Asian oil import market. The oil price boom of the mid-2000s corresponded with a new wave of development as the Sultanate sought to take advantage of rising prices, but more recent years have brought a shifting landscape. The fall in oil prices that began in 2014 has reached a new constant in recent years due to producers working together to cut supply, but industry participants are well aware that the days of selling at USD100 per barrel are likely gone. Oman has joined other Arab oil producers in working to develop a program of economic diversification, but the hydrocarbons industry is unlikely to be supplanted as the Sultanate’s chief economic driver any time soon. What will be critical is careful planning to increase efficiency, reach new export markets, and develop the downstream applications needed to get the most out of Oman’s energy resources.


Oman is unique on the Arabian Peninsula in that it is not a member of OPEC, a fact that should provide some insight on the government’s pragmatic and non-ideological approach to the energy sector. The Sultanate has worked closely in collaboration with OPEC in the past as conditions dictated, but engages in a policy of free trade that sees it draw upon its international relationships to improve infrastructure and develop export markets. The state-owned firm Petroleum Development Oman (PDO) owns most of Oman’s oil reserves and is responsible for around 70% of all crude production. The Omani government holds 60% ownership of PDO, with the rest split between foreign energy firms; a handful of foreign firms also operate a few fields, with US Occidential Petroleum the largest. Oman’s two refineries are also both owned in full by the government.
With proved oil reserves of 5.4 billion barrels, Oman has the seventh-largest reserves in the Middle East, but the Sultanate faces some challenges that make extraction more difficult than in neighboring countries; its oil reservoirs are among the deepest in the world. To overcome this, Oman has become a leader in technologically advanced extraction techniques, working with foreign firms to develop cutting-edge procedures to increase extraction efficiency. Enhanced oil recovery (EOR), for example, has been a key part of Omani production increases in recent years. EOR technology, which usually involves the injection of a fluid into a reservoir to increase recovery, has helped raise oil extraction efficiency from 20-40% to 30-60%. Foreign firms, drawn by offers of increased investment incentives to compensate for the difficulty of the extraction, have responded well to Oman’s call for help, and the sector currently has fields operating with a number of EOR techniques. These effect of these new strategies can be seen in the history of Omani oil production; after hitting a high of 972,000bpd in 2000, petroleum output dropped to 715,000bpd in 2007 but has since rebounded to a high of just over 1 million bpd in 2016; not coincidentally, Omani investment in EOR projects rose dramatically in 2011.
Yet the fall in oil prices has put the future of major EOR projects in some doubt. While already-installed EOR operations will continue, PDO announced in 2016 that it would delay expansion of EOR projects due to their high price, instead focusing on natural gas and conventional oil extraction operations. In late 2016, Oman came to an agreement with OPEC to cut production by 45,000bpd as part of a larger plan to limit oil supply and shore up prices. Oman stuck to this commitment through early 2017, producing just 967,000bpd in July, most of which was shipped to China. One area of focus for the Omani petroleum industry moving forward will be upgrading its downstream sector in order to obtain the fiscal and economic benefits of value-added production. Refinery production rose 13% YoY in July 2017 thanks to increased investment, and further projects are underway: a joint venture of Oman Oil Company and Kuwait Petroleum International is constructing a USD7 billion refinery project at the Special Economic Zone at Duqm, which is expected to have a capacity of 230,000bpd once completed in 2021. Diesel, jet fuel, and liquefied petroleum gas are planned to be among the refinery’s main outputs, with the ultimate goal of using the Oman’s pre-established crude shipping channels to generate new markets. A Chinese group is also conducting feasibility studies for a second refinery also to be located in Duqm. Though a longer-term project, this also bodes well for the future of the sector.


The Sultanate’s natural gas reserves, while small, are key to its energy mix and expected to become an even larger part of the economy in the coming years. The Sultanate held proved reserves of more than 23 trillion cubic feet as of 2016, and both production and consumption have been rising steadily in recent years. As the Omani economy continues to move away from oil, major construction projects have been placing new demands on the national grid, and natural gas, as the primary fuel for its power plants, has seen demand rise steadily. 2016 saw Oman’s consumption of natural gas rise 2.6% over the previous year, and this is expected to continue in the future; total natural gas demand for power generation is expected to grow at 3% per year through 2024, with peak demand expected to grow at an annual rate of 6% per year.
In order to increase production, the Omani government is adapting similar strategies as in the oil industry to boost efficiency and gain access to previously unreachable deposits. The most easily accessible gas reserves are already producing at capacity, so Oman has begun hydraulic fracturing, or “fracking,” to access deeper and tighter fields. Oman Oil Company signed a USD15 billion deal with British Petroleum in 2016 to develop the Khazzan natural gas field through a two-phase hydraulic fracturing project. If implemented well, Khazzan should become one of Oman’s most important natural gas production centers; BP has called the field one of the largest natural gas deposits in the Middle East and believes that production can reach 1.5 billion cubic feet per day, equal to more than a third of current Omani production. Gaining access to these tight fields would be greatly beneficial to the Omani economy by giving it a base for increased energy consumption and allowing it to continue meeting increased LNG demand in export markets. A member of the Gas Exporting Countries Forum, Oman has used its well-established shipping routes to generate export revenues by transporting excess LNG to Asian markets. As domestic demand has grown, LNG exports have slipped in recent years, but industry leaders are optimistic that new production will allow exports to become a more important part of the industry.

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