Related Articles
Forward article link
Share PDF with colleagues

Oman fine tunes

With liquefied natural gas production approaching capacity again, the country is adapting to shifting market patterns

The Khazzan gas project, operated by BP, will produce 1.5bn cubic feet a day when the first two phases are on stream, equivalent to 40% of Oman's gas supply. One of the first companies to feel the benefit, even early in the first phase, has been Oman LNG. Chief executive Harib al-Kitani, told Petroleum Economist on the sidelines of its 2017 awards ceremony in London that "our three trains are now almost at full capacity of 10.5m tonnes a year. This is a great improvement compared to recent years—we'd been running the plant at 75% capacity. But from September we received more production from the upstream".

The Omani government allocates OLNG supplies from a number of gasfields. Over recent years, fast-rising domestic gas demand forced the authorities to divert some of the allocations for LNG exports to the home market, thus the drop in liquefied gas output. Now, OLNG is receiving extra supplies direct from Khazzan. This is "topping up from production from elsewhere in the upstream and enabling us almost to reach capacity", Kitani said.

So, after a few bumpy years, which saw the company's revenue decline, the prospects are much brighter. "Financially, 2017 wasn't bad, better than 2016," the OLNG chief executive said. "But 2018 will be a full year of full production. So, it will be a boost for our finances as well."

In the period when OLNG's three liquefaction trains at Balhaf on the Indian Ocean coast were operating below capacity, Oman began talks with Iran on importing gas via a pipeline from there. The gas would then be liquefied by OLNG for export. Kitani said the issue was still under discussion—but only between the two governments. OLNG wasn't involved in the talks because its role would only be to liquefy the gas once inter-government deals had been reached.

"LNG markets have changed and become more dynamic than they used to be"—Kitani, OLNG

But with Oman's output back close to capacity, would OLNG be able to handle the Iranian gas? "At the moment, no," Kitani said. "Because we're committed to the new gas from Khazzan until 2025. After 2025 there'll be capacity." In the event that the deal goes ahead sooner, "the government will have to re-juggle which gas they use for what. They could pull some gas out and use Iranian gas, or use that for something else".

Since Oman's LNG industry began, Japan and South Korea have been the main export markets, under long-term contracts. Kitani expects this pattern to continue, but with other markets rising in importance. "We have sold quite a big volume to Spain, to Union Fenosa, he said. "We are also diverting a lot of cargoes to other regions-China, India—as well as regional markets like Kuwait and Jordan. We're trying to sell more to portfolio buyers who take the cargoes to various destinations."

Kitani sees the shifting pattern of the LNG market, with an increasing number of countries setting up small-scale import and regasification facilities, as "a challenge, but also an opportunity. These floating LNG terminals can be put up in a very short period of time. They are flexible in terms of how much they receive. It also creates a sort of trader's market, where a trader can move a cargo from one place to another." In short, "LNG markets have changed and become more dynamic than they used to be," he said. "We can't ignore the new markets, so we may have to look at spot markets much more."

In 2013, the two companies producing LNG (Oman LNG and Qalhat LNG) merged to form OLNG. The Omani government owns 51% of the company, with Shell (30%) by far the biggest of the other seven shareholders. Assuming that supplies of natural gas are available, OLNG is secure until 2025, the year when the concessions of the two original firms expires. But Kitani doesn't expect this to be the end of the story. He believes that the company is in such good shape that it will be granted a new lease when the current one comes to an end. "The Qalhat plant is fantastic in its performance," he said. "We're doing some rejuvenation, and I think we can go for another 30 years after 2025. It has been a success story throughout."

Having survived during a difficult period when the plant was operating below capacity, Kitani says the mood within the company "is joyous".

He added: "We're doing well. The market is changing, but we're there, we've been there a long time. The government has found more gas, we're filling up our plant and everything's fine. We're really happy."

Also in this section
Liberian Registry hits out at proposed EU ETS shipping extension
15 October 2020
The world’s second-largest vessel registering service opposes what it sees as European overreach
Regulation to play a key role in India’s gas ambitions
15 October 2020
The US experience suggests building pipelines is not enough. An effective regulatory regime is also required
Apicorp sees more woes for Egyptian and Algerian LNG
13 October 2020
The multilateral lender flags risks of ongoing shut-ins and difficult contract negotiations