Oman Oil and Gas Minister interview: Mohammed Bin Hamad Al Rumhy

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HE Mohammed bin Hamad Al Rumhy

HE Mohammed bin Hamad Al Rumhy

Oman is famed for its striking scenery born of its dramatic geology, but its subsurface composition has also made it a challenging and exciting hydrocarbon environment too. The country has achieved remarkable success with its enhanced oil recovery programmes, and can lay claim to be one of, if not the only hydrocarbon landscape where all three major enhanced production techniques are in execution, and the results have been astounding.

Under the stewardship of His Excellency Mohammed bin Hamad Al Rumhy, Minister of Oil and Gas of the Sultanate of Oman, who took on his current portfolio in 1997, the country has reversed field decline and is actually producing 17 percent more oil than it was in 2007 - An achievement made all the more remarkable when you consider production fell 27 percent between 2001 and 2009.

“Oman has a difficult geology, a difficult terrain, both on the surface and subsurface. It’s intellectually very stimulating and exciting. Financially, its very expensive and technically difficult too,” says Al Rumhy.

Just as exciting as the oil developments in Oman is its gas story. Looking back on the journey which has made Oman one of the top ten biggest exporters of LNG in the world, Al Rumhy reflects that fortuitous timing and excellent project execution turned a once benign resource into such an important revenue stream for the Sultanate.

“The gas industry is very complicated, and as times have changed so too has the outlook for gas. When we discovered gas over and above material volumes in the early 1990s the main question on everybody’s lips was: How can we monetise that resource for the good of the country?” he says.

The conclusion reached was for the Government of Oman to take a majority stake in a new company, Oman LNG, and for partners Total and Shell (5.54 percent and 30 percent respectively) as lead upstream shareholders, based on long-term sales agreements with three key Asian buyers.

“At that stage the thinking was to go for LNG, and I think that was the right decision at that juncture. We have been very successful, and it was partly down to luck that we discovered gas when we did in the early 90s,” says the minister.

“We began exporting into the LNG world at the end of the century, and ever since the LNG market has been very healthy and probably exceeded, our expectations at that time.”

Al Rumhy observes that the swift decision-making process enabled construction to begin in the late 90s, which was good timing project-wise, predating the regional mega-project scramble of the 2000s.

“We managed to construct the two LNG trains of OLNG, and all that goes with it, including the pipelines and infrastructure at a good time. I really believe the timing of the whole LNG business in Oman came at the right time in our history and since then we’ve never looked back.” The diversification of industries in Oman, whether on the LNG side, the petrochemical side and steel clusters shows the importance attached to gas.  Gas-associated industries have contributed to Omani employment, and current estimates suggest LNG and the domestic gas-based industries, including the Oman Refineries & Petroleum Company, which OLNG supports, contribute over 15 percent of Sultanate’s overall revenue.

Finding the right Partners

The economic imperative for the project was achieved by forming lengthy contracts with customers in Korea and Japan. Korea Gas Corporation (KOGAS) dominates the volumes committed, taking an annual quota of 4.1 million tonnes of LNG each year in a deal running from April 2000 to December 2024.

Osaka Gas of Japan and Itochu Corporation are signed up for 700,000 tonnes apiece until 2024 and 2025 respectively.

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Posted by: Bob

In hindsight, the decision to export LNG has proved disastrous. Oman now finds itself in the odd and absurd position of exporting LNG to Asia while having to import gas from Qatar via the Dolphin pipeline. Because most of its gas is exported via LNG there is little available for downstream industrial development or even power generation requirements. The BP Khazzen project may solve this problem in the short term to medium, but the fact remains that the LNG investment decision while well-intentioned at the time is a good example of bad planning and inaccurate forecasting of local gas demand. Exporting gas limits job creation through energy intensive downstream investments such as petrochemicals, steel and aluminium, and has little value-add to the economy. It will be interesting to see what Muscat does when the long-term LNG export agreements expire in a few years time.

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