Oman leverages asset integration and green hydrogen for growth
By Tim Hard, senior vice-president, energy transition, Argus Media
Yee Ying Ang, senior market reporter, petrochemicals, Argus Media
Oman, the largest non-Opec oil and gas producer in the Arabian Gulf, is to expand its downstream refinery and petrochemicals, as well as renewable energy industries during the next five years, to strengthen its position in the global energy field. The resource-rich nation is expanding its petrochemicals production and developing green hydrogen, produced using renewable energy with no carbon emissions, as global demand shifts away from transportation fuels and as the world strives for a net zero emissions future. The nation has integrated its upstream and downstream assets that are important to ensure the optimum utilization of its conventional energy sources, while its simultaneous shift towards renewable energy sources will increase its capability to meet the rising demand for sustainable energy sources.
Location of Oman in the Middle East
Source: Argus Media
Oman boosts gas output, expands downstream
Oil and gas are the major driving forces of the Omani economy, which derives more than 70% of its annual revenues from its oil and gas production. These sectors, when combined, also account for around 30% of Oman’s gross domestic product. Natural gas is the main energy source in Oman, with it accounting for around 68% of Oman’s primary energy consumption and the remaining share comes mostly from oil, according to the US’ EIA.
Oman is to continue growing its gas production to support its rising domestic energy demand. The Sultanate saw higher gas output this year after the completion of the Ghazeer project, which is the second phase development of Oman’s Khazzan project in the block 61 concession. It came online in October 2020 and its gas output was raised to 500mn ft³/d (5.15bn m³/yr) plateau target in June this year.
The first phase, the Khazzan gas field, was brought on stream three years ago and has been producing at its 1bn ft³/d plateau target since mid-2018. BP has a 40% stake, while state-owned Oman’s OQ, Thailand’s PTTEP and Malaysia’s Petronas hold the remaining 30%, 20% and 10% stakes respectively.
Khazzan and Ghazeer are expected to deliver a total 10.5 trillion ft³ of gas and around 350mn bl of condensate by the time the block 61 concession expires in 2043. With an estimated 10.5 trillion ft³ of recoverable gas resources, the block has the capacity to deliver more than 30% of Oman’s total gas demand, according to BP. Gas from block 61 is distributed for domestic consumption through Oman’s national gas grid, used as fuel for power plants and as feedstock for other industries.
OQ also commissioned its new LPG extraction facility in Salalah in this year’s first quarter, which can produce up to 300,000 t/yr of LPG and has raised Oman’s LPG production by around 50%. Around 90% of the LPG output from this facility will be exported, while the remaining is expected to be consumed domestically.
Oman is producing record volumes of gas, which could feed and potentially drive its downstream petrochemicals expansion. The construction of the Salalah LPG facility allows Oman to maintain its LPG export volumes, while output from its existing Sohar LPG facility is used to feed a new petrochemicals complex located in Liwa.
The nation has also been expanding its refining capacity since 2017. State-owned refiner Orpic, now a subsidiary of OQ, expanded the Sohar refinery under the $2.7bn Sohar Refinery Improvement Project in late 2017, expanding the refinery’s crude processing capacity from 116,000 b/d to 198,000 b/d. Orpic also operates the 106,000 b/d Mina al-Fahal refinery.
OQ further invested in a USD 6.7bn Liwa Plastics Industrial Complex (LPIC) project, which comprises an 880,000 t/yr steam cracker that will process light ends produced by the Sohar refinery, as well as a 670mn ft³/d natural gas liquids (NGL) extraction plant in Fahud. The project also includes a linear-low density polyethylene/high-density polyethylene (LLDPE/HDPE) swing plant and a polypropylene (PP) plant. The polymers plants came on line in first-half 2021 and increased the country’s polymers production by more than fourfold to 1.5mn t/yr. The project represents a key part of the government’s plans to diversify its economy away from upstream oil and gas exports and boosts its downstream sector through investment in petrochemical projects. LPIC will enable OQ to utilize NGLs from its upstream gas extraction plants and downstream refineries to producer higher value petrochemicals, with demand to grow further even as the demand for transportation fuels slows.
OQ also partnered with Kuwait’s state-owned Kuwait Petroleum International to jointly build a USD 7bn 230,000 b/d Duqm refinery under a joint venture company OQ8. Construction of the refinery started in early 2019 and was expected to start commercial operations in 2022, although Covid-19 related restrictions have likely delayed the project. Duqm refinery reached 87pc completion in October this year and is expected to start up in first quarter of 2023 and will be the largest refinery in Oman.
Oman’s investments in various projects shows its dedication to expand the nation’s downstream sectors and readiness to diversify its products’ portfolio to seize advantage of rising petrochemicals demand.
Oman’s LPG and petrochemical projects
Source: Argus Media
PE and PP capacity in the Middle East
Source: Argus Media
China LLDPE prices under pressure from massive capacity additions in 2021
Source: Argus Media
China PP prices under pressure from massive capacity additions in 2021
Source: Argus Media
Integration as the key to ambitious growth
Oman in 2019 integrated its state-owned oil company OOC, refiner Orpic and seven other domestic energy firms and plans to invest over USD 28bn in the next 10 years. OQ was set up in 2020 to integrate the operations of the companies. OQ comprises OOC, Orpic, OOC’s upstream arm OOCEP, Oman Gas, OQ8, Salalah Methanol, Oman Trading International, oxo intermediates and derivatives producer Oxea and Salalah Liquified Petroleum Gas. Consolidation has been a major theme for Mideast Gulf petrochemical producers since 2019, with similar integrations occurring in Saudi Arabia and Qatar. The integration allows Oman to combine the financial and commercial capabilities of its upstream and downstream companies, utilize networks in both sectors to boost its commercial presence globally, as well as ensure feedstock security and increases cost competitiveness of its downstream oil and petrochemicals products.
Oman boosts its plastics production
LPIC has boosted Oman’s plastics production significantly, positioning OQ as a global producer, which sells domestically and exports its products to various regions. The new 880,000 t/yr LLDPE/HDPE swing plant at the Liwa complex is its first PE plant. Its new 300,000 t/yr PP plant adds to the 340,000 t/yr PP plant in Sohar, which obtains its feedstock from the Sohar refinery. The PE plant uses Univation’s Unipol technology, while the PP plant adopts LyondellBasell’s Spheripol technology. The LPIC project is expected to contribute to the nation’s economy through polymers exports and job creation.
OQ has offices worldwide with operations in 17 countries including the US, Brazil, Germany, Turkey, UAE, China, India and Singapore. The integrated producer exports its fuels and chemicals to more than 60 countries globally. OQ exports its polymers across the Gulf Cooperation Council region, Turkey and Asia and is looking to increase exports to other regions.
But the rapid growth in Asian PE and PP capacity in 2020-21 exerted pressure on global polymers producers, during a time of unprecedented global economic uncertainty caused by the Covid-19 pandemic. Container shipping bottlenecks have continuously led to shipment delays, making long-haul imports less attractive during periods of extreme price volatility. This shifted buyers’ preference for regional or prompt polymer supplies, making it challenging for Oman and other Mideast Gulf producers.
OQ8 suspended the design plans for a 1.6mn t/yr petrochemicals plant in late 2020. The petrochemical plant was earlier planned to be integrated with the Duqm refinery. The petrochemical complex will include a 1.6mn t/yr steam cracker, a butadiene extraction unit, an aromatics unit, an ethylene oxide/ethylene glycol unit, a 480,000 t/yr PE plant and a 280,000 t/yr PP plant, which was scheduled to come on line in 2026 before the project was put on hold for further assessment.
OQ also produces more than 70 oxo intermediate and oxo derivatives that are used in a range of industries for various applications.
The hydrogen opportunity
Oman’s reserves have always been in the shadow of regional hydrocarbon assets. The country holds around 0.6pc and 9pc of Middle East oil and gas reserves respectively. Its economy boomed throughout the 1970s and the country’s leader Qaboos bin Said used the revenues to modernize the country, always with an eye to diversifying its economy beyond petrochemicals.
While traditional interest has been focused below the ground, the advent of the hydrogen economy expands tradeable energy assets to renewables above the ground. The country has the same solar potential as its neighbors but a superior wind power asset base. The latter puts Oman to the forefront of green hydrogen developers, which seek consistent daytime power to provide high capacity utilization of electrolysers.
Regional neighbours are looking to blue hydrogen, produced from fossil fuels but with its carbon emissions being captured and stored, or reused, as a way to extend the life of reserves in a decarbonizing world. Oman is doing the same but has grabbed attention with its plans to expand energy exports through green, carbon-free hydrogen. Green hydrogen developers around the globe are rushing to secure the best daytime renewable generation sites.
Oman has four of the world’s 30 largest green hydrogen developments. OQ is participating in three of these, with Uniper and DEME partners in the 0.5GW first phase of Hyport Duqm. SalalaH2 plans 0.4GW of electrolysers between Linde and Dubai Transport. The largest is with InterContinental Energy and EnerTech in an as yet-unnamed 14GW project in Al Wusta governate. The country has also attracted plans from India’s ACME to deploy electrolysers powered by 3.5GW of renewable power at Duqm Tatweer.
The country will publish its hydrogen strategy later this month, with expectations for it to set a target to develop 10GW of hydrogen capacity over the next nine years.