Oman ramps up gas production

A general view of Petroleum Development of Oman (PDO) facilities near Muscat is seen in this June 5, 2010 file photo. (REUTERS)
Updated 17 January 2018
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Oman ramps up gas production

LONDON: Oman will be among the countries in the Gulf region expressing the most relief about recovering oil and gas prices.

The Sultanate is more vulnerable to price shocks than others in the GCC as it holds less in the way of foreign exchange reserves.

“It doesn’t have the balance sheet strength of a country such as Saudi Arabia or Kuwait,” said Jason Turvey, a Gulf specialist at Capital Economics.

But Oman has something else up its sleeve that should act as a cushion in the years ahead — rising gas production.

The key to the Omani gas story is the giant Khazzan gas field, operated by BP in partnership with the Oman Oil Company on a 60/40 basis, respectively. The first phase of the project was completed in September and production is underway.

How important is Khazzan? It’s not a game changer as it won’t lead to an export bonanza — much of the increased gas will meet growing domestic consumption via ramped-up generating capacity that in turn will be used by industries being developed by Oman to cut its reliance on oil revenues.

When BP announced the first production from Khazzan in 2017, Isam bin Saud Al Zadjali, chief executive of Oman Oil, said: “This increment of gas supplies will provide feedstock for development of downstream and petrochemical industries.”

But Khazzan will definitely be a positive for the Omani economy going forward. The International Energy Agency (IEA) said in a 2015 report: “Oman has been facing gas shortages for some years, threatening the viability of its LNG exports and resulting in pipeline imports from Qatar.

“Khazzan will bring a much-needed 10 billion cubic meters per year (equal to one-third of the country’s current production), the IEA added.

Today, Oman exports liquefied natural gas (LNG) but imports some natural gas by pipeline from Qatar via the UAE.

“Developing tight gas from the country’s Khazzan field will partially offset natural gas imports,” said a 2017 report by the US Energy Information Administration (EIA).

So, Oman will benefit on two fronts. On the one hand, as the country’s domestic demand rises, it will need to import less gas, but as Khazzan is developed further it should be able to lift exports incrementally. At the same time, rising gas prices, which have gone up in tandem with oil, will also act as a growth catalyst.

Glen Ransom, Control Risks Middle East analyst, put it this way in an interview with Arab News: “The Khazzan gas project is vital to Oman as it will provide additional gas needed to power domestic electricity generation and energy-intensive industries that are part of plans to diversify the economy away from oil. The project is likely to boost export capacity, but increasing domestic consumption over the longer term will limit its ability to become a significantly larger gas exporter than it is today.”

More broadly, he added that Muscat is expected to use increased revenues in 2018 to support further investment and public sector spending, such as salaries and subsidies, rather than to reduce its deficit.

Turvey at Capital Economic told Arab News: “Large current and budget account deficits have opened up in Oman since 2014 when the oil price collapsed. What made matters worse, the country squirreled away a much smaller amount of the windfall during the oil boom.”

He estimated that Oman’s foreign exchange reserves amounted to 50 percent of GDP, while for KSA the figure was around 80 percent.

Kuwait was at the other end of the spectrum, with reserves four or five times in excess of GDP, he said.

Turvey added: “Before the price crash, Oman needed a break-even oil price of between $100/bbl and $110/bbl.

“But with the successful implementation of austerity measures and cuts to some subsidies, that number had come down to between $80/bbl and $90/bbl.”

In KSA, the number had been cut from more than $100/bbl to around $75/bbl, according to Turvey.

The Central Bank of Oman’s 2016 annual report, released in June 2017, illustrated the country’s continuing dependence on hydrocarbons. It said: “Oil and gas revenues as a percentage of GDP stood at 27.4 percent and accounted for 68.2 percent of government revenues and about 57.9 percent of total merchandise exports (including re-exports) during the year.

The report said: “In view of potential comparative advantage of value-added hydrocarbon-based industries in the country, the government has adopted an investment strategy that is based on promoting many petrochemical and energy-intensive industries (such as power generation and water salination). This policy is one of the major pillars of the country’s economic diversification initiatives.”

Richard Boxshall, an economist at PwC in Dubai, expects “cleaner” gas to account for a growing proportion of Oman hydrocarbons production, further diversifying energy resources away from oil.

He said: “Gas accounted for 30 percent of revenues in 2016. In previous years it has been lower, circa 15-20 percent. This was mainly because gas prices have been more stable than oil prices. Nevertheless, it shows that gas has become more important in terms of revenues even before the new capacity in Oman has come on board.”

Phase One of the Khazzan development is made up of 200 wells feeding into a two-train central processing facility. Phase One production is expected to plateau at 1 billion cubic feet of gas per day (bcf/d).

Once the second phase of the Khazzan is fully up and running, production is expected rise to 1.5 bcf/d. In total, about 300 wells are expected to be drilled over the estimated lifetime of the Khazzan field. Phases One and Two will together develop an estimated 10.5 trillion cubic feet of recoverable gas resources, said BP in a statement.

Going forward, the World Bank said: “Economic growth (in Oman) is set to modestly recover over the medium term. In 2018, a boost in the hydrocarbon sector will drive the recovery — as the “OPEC plus” restrictions on oil supply are lifted and the Khazzan gas project expands production capacity.

GDP growth is projected to rebound to 2.9 percent by 2019, said the World Bank.

However, with rising production levels and a growing petrochemical sector- which relies on liquefied petroleum gases and natural gas liquids –“the country is unlikely to significantly alter its dependence on hydrocarbons as a major revenue stream in the short term, according to EIA.


At Jordan border, Damascus seeks to revive trade

Updated 21 October 2018
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At Jordan border, Damascus seeks to revive trade

  • The government of President Bashar Assad took back control of the Nassib border post in July
  • By reopening a key land crossing with Jordan this month, the Syrian regime is inching toward a return to trade with the wider region

BEIRUT: By reopening a key land crossing with Jordan this month, the Syrian regime is inching toward a return to trade with the wider region as it looks to boost its war-ravaged economy.
The government of President Bashar Assad took back control of the Nassib border post in July from rebels as part of a military offensive that reclaimed swathes of the south of the country.
Syria’s international trade has plummeted during the seven-year civil war, and its foreign reserves have been almost depleted.
The reopening of Nassib after a three-year hiatus, on Oct. 15, is a political victory for the Damascus regime, said Sam Heller of the International Crisis Group.
It is “a step toward reintegrating with Syria’s surroundings economically and recapturing the country’s traditional role as a conduit for regional trade,” he said.
The Nassib crossing reopens a direct land route between Syria and Jordan, but also a passage via its southern neighbor to Iraq to the east, and the Gulf to the south.
“For the Syrian government, reopening Nassib is a step toward normalization with Jordan and the broader region, and a blow to US-led attempts to isolate Damascus,” Heller said.
International pressure and numerous rounds of peace talks have failed to stem the fighting in Syria, and seven years in the regime has gained the military upper hand in the conflict.
Assad’s forces now control nearly two-thirds of the country, after a series of Russia-backed offensives against rebels.

 

Syria faces a mammoth task to revive its battered economy.
The country’s exports plummeted by more than 90 percent in the first four years of the conflict alone, from $7.9 billion to $631 million, according to a World Bank report last year.
The Syria Report, an economic weekly, said Nassib’s reopening would reconnect Syria with an “important market” in the Gulf.
But, it warned, “it is unlikely Syrian exports will recover anywhere close to the 2011 levels in the short and medium terms because the country’s production capacity has been largely destroyed.”
For now, at least, Nassib’s reopening is good news for Syrian tradesmen forced into costlier, lengthier maritime shipping since 2015.
Among them, Syrian businessman Farouk Joud was looking forward to being able to finally import goods from Jordan and the UAE via land.
Before 2015, “it would take a maximum of three days for us to receive goods, but via the sea it takes a whole month,” he told AFP.
Importing goods until recently has involved a circuitous maritime route from the Jordanian port of Aqaba via the Suez Canal, and up to a regime-held port in the northwest of the country.
“It costs twice as much as land transport via Nassib,” Joud said.
Syrian parliament member Hadi Sharaf was equally enthusiastic about fresh opportunities for Syrian exports.
“Exporting (fruit and) vegetables will have a positive economic impact, especially for much-demanded citrus fruit to Iraq,” he told AFP.
Before Syria’s war broke out in 2011, neighboring Iraq was the first destination of Syria’s non-oil exports.
The parliamentarian also hoped the revived trade route on Syria’s southern border would swell state coffers with much-needed dollars.
Before the conflict, the Nassib crossing raked in $2 million in customs fees, Sharaf said.
Last month, Syria’s Prime Minister Imad Khamis said fees at Nassib for a four-ton truck had been increased from $10 to $62.
Syria’s foreign reserves have been almost depleted due to the drop in oil exports, loss of tourism revenues and sanctions, the World Bank said.
And the local currency has lost around 90 percent of its value since the start of the war.
Lebanese businessmen are also delighted, as they can now reach other countries in the region by sending lorries through Syria and its southern border crossing.
Lebanon’s farmers “used to export more than 70 percent of their produce to Arab countries via this strategic crossing,” said Bechara Al-Asmar, head of Lebanon’s labor union.
Despite recent victories, Damascus still controls only half of the 19 crossings along Syria’s lengthy borders with Lebanon, Jordan, Iraq and Turkey.
Damascus and Baghdad have said the Albukamal crossing with Iraq in eastern Syria will open soon, but did not give a specific date.
Beyond trade, there is even hope that the Nassib crossing reopening might bring some tourists back to Syria.
A Jordanian travel agency recently posted on Facebook that it was organizing daily trips to the Syrian capital by “safe and air-conditioned” bus from Monday.
“Who among us doesn’t miss the good old days in Syria?” it said.

FACTOID

BACKGROUND

Syria’s foreign reserves have been almost depleted owing to the drop in oil exports, loss of tourism revenues and sanctions, while the local currency has lost around 90 percent of its value since the start of the war in 2011.