Oil and Gas. Chapter Three

Transcription

1 Oil and Gas Chapter Three

2 OIL AND GAS Oil and Gas sector continued to be the key driver of growth in 2004, and it also remained as the predominant source of revenue for the Government and the leading export earnings for the country. High oil prices that prevailed in 2004 more than offset the dampening effects of declining oil production on the economy. The oil sector (crude oil and natural gas) accounted for about 42 per cent of nominal GDP, 66 per cent of government revenue and about 68 per cent of merchandise exports in Buoyant global demand, accompanied by a variety of supply-side factors, as well as market perceptions about spare capacity of oil producing countries and inventory reserve levels of advanced oil importing countries, led to a strong pickup in oil prices to new historic peaks both in the spot and futures markets. While the OPEC basket prices rose from USD p.b in 2003 to USD p.b. in 2004, Brent and WTI prices surged from USD p.b. and USD p.b. in 2003 to USD p.b. and USD p.b in 2004, respectively. The prices of omani crude rose by 23.6 percent from USD p.b. in 2003 to USD p.b. in The sharp rise in oil prices has contributed to the weakening of the global economic expansion in consumption; the impact on the terms of trade; and the flexibility with which the economies adapt to shocks. Crude oil Production: The policy pursued by the Government towards oil production is two-fold; namely, optimization of the ratio of low-cost oil production to total oil production and the maintenance of a sustainable level of production over the medium and long-terms. Keeping these broader objectives in view, Petroleum Development Oman Co. (PDO), together with other oil producing companies (i.e., Occidental Oman, Daleel Petroleum, Novus Oman and Petrogas) produced some million barrels of oil and condensates during 2004 as compared to 299 million barrels in 2003, registering a decrease of 4.5 percent. Average production per day thus decreased from around 820 thousand b/d in 2003 to thousand b/d in 2004 (Table 3.1). Out of a total number of 124 oil producing fields during 2004, 107 belonged to PDO, constituting 86.3% of the total. With a view to reversing the decline in oil production, PDO has planned for major new investments in the coming few recent months, and could also exert inflationary Omani Crude Oil Prices and Production pressures through the second round effects. For small open economies, weak global demand and higher global prices resulting from high oil prices could also be a matter of concern. Production Prices From a regional prospective, the impact of higher oil prices varies significantly, depending on - among other things - the energy intensity of production and Production Price Central Bank of Oman Annual Report

3 Chapter Three years. Despite the fall in oil production, benefiting from the high oil prices, value added in the petroleum sector at current prices increased remarkably by 17.4 per cent to reach RO million in 2004 from RO million in As a result, the share of the petroleum sector in GDP increased to 42.3 per cent in 2004 from 41.2 per cent in Reserves Because of continued efforts to discover new oil fields Oman's proven oil and condensate reserves stood at billion barrels in 2004 representing an increase of 8.5 million barrels over It is worthmentioning that during 2004, the partners in PDO, Shell, Total and Partex as well as the Government of Oman which holds 60% of PDO's capital, agreed for another 40 years extension of their contract. As a result of the agreement, it is expected that liquids reserves in the PDO block would be around 4.7 billion barrels of oil and condensate, over the extended contract term. New Projects Reflecting the policy of encouraging international oil companies to invest in the oil industry in the Sultanate of Oman, the Ministry of Oil & Gas signed two new agreements in 2003 with international oil companies, namely Incana of Canada and Spectrum of U.K. These production sharing agreements cover exploration and development activities in specified areas. Moreover, PDO carried out various projects during 2004 aimed at both developing existing oil fields and discovering new ones within the country's overall strategy of enhancing reserves and raising production levels when required. Oman Oil Company also implemented various new advanced oil recovery Year Production % Change Exports % Change Source: Ministry of Petroleum and Gas and Ministry of National Economy projects, including Mukhaizna field project which aims at extracting heavy crude from the field using thermal recovery technology, and Harawell field project which started producing crude oil in early 2003 by using miscible gas injection technology. Sohar Refinery in Sohar and Oman Indian Fertilizer in the Wilayat of Sur are the other major upcoming oil-gas based projects. Petroleum Development Oman (PDO) has given the final approval for the company's first full-scale enhanced oil recovery (EOR) project at the Zalzala field - the $600mn Harweel Phase 2A/B project - in the south of the country. The project builds on Harweel Phase 1 which brought four oilfields in the cluster on-stream in 2004 beginning with Zalzala and is now producing at 15,000 b/d. The other fields to be developed in Phase 2A/B include Sakhiya and Dafaq, Others 15% Japan 22% Thailand 19% Table 3.1 Oil Production & Exports (Million Barrels) Direction of Oil Exports 2004 Taiwan 2% China 27% Korea, South 15% 34 Central Bank of Oman Annual Report 2004

4 Oil and Gas although they will be developed using conventional recovery for now. Exports Total crude oil exports reached million barrels in 2004 as compared to million barrels in The share of oil & gas exports in total exports of Omani origin also decreased moderately from 92.7 percent in 2003 to 90.8 percent in 2004, while the share in total exports (including re-exports) increased form 79.8 percent to 81.3 percent in 2004 due to a 10.4 percent decrease in re-exports during China occupied the first place as the main importer of Omani crude oil, as its share in Oman's total exports of crude oil increased from 27.7 percent in 2003 to 40.3 percent in Japan retreated to the fourth place, with 15.5 percent share in The share of Thailand, which ranked 2nd, decreased form 18.6 percent in 2003 to 16.4 percent in South Korea was in the third place with a share of 15.9 percent. Taiwan, Malaysia, the USA, Singapore, Newzealand and others also imported oil from Oman during 2004 (Table 3.2). Oil Revenues The Government's net oil revenues increased during 2004 by 15.5 percent to reach RO million from RO million in However, the share of net oil revenues stood lower at 66.2 percent of total revenues in 2004 as against 70.1 percent in the previous year. Refinery Oil refining in the Sultanate of Oman started, for the first time, in November 1982 with the capacity of b/d which increased to 80,000 b/d thereafter. The Oil Refinery output that had reached 31 million barrels in 2003 fell to 28.9 million barrels in However, the main reason for the drop in the output of the refinery in 2004 was for undertaking a "turnaround" in the refinery plant for planned maintenance of the machinery in the month of December At present, the Refinery produces five types of products viz LPG butane, Jet Fuel, Gas oil and two grades of gasoline, plus residual. The details of inputs and outputs of the refined products are shown in Table 3.4. In 2003, work started on Sohar Refinery Company, which is 100 percent Government-owned. The output capacity of the said refinery is 116,400 barrels of oil per day. It is expected to start operations in Natural Gas Natural gas is another source of energy in the Sultanate of Oman. Therefore, the Government's plans aim at conserving this natural wealth and rationalizing its usage. As a result of the exploration programmes, the Sultanate's proven natural gas reserves (associated and non-associated) increased by 0.53 Trillion cubic feet to reach trillion cubic feet in The increase was due to newly drilled wells as well as better exploitation of the existing ones. In 2003 some billion c.f. of natural gas was produced (265.5 billion c.f. associated and billion c.f. non-associated). This increased to billion cubic feet (287.7 billion c.f. associated and billion c.f. non-associated) in However, the number of producing non-associated gas fields during 2004 was 5, out of which 4 fields belonged to PDO and one to Novus Company. At present, gas is largely utilized for reinjecting it into the oil reservoirs to maintain pressure and sustain oil production. It is also used as fuel to generate power in desalination plants, cement factories and other Central Bank of Oman Annual Report

5 Chapter Three Table 3.2 Direction of Oil Exports (In Million Barrels) Country of Destination Japan China Korea, South Philippines Taiwan Thailand Malaysia USA Singapore Others Total Source: Ministry of Oil & Gas and Ministry of National Economy industrial projects such as textiles, aluminium and batteries. Over time, increasing part of the gas will be used up in gas-based projects such as fertilizer, cement and petrochemicals. New Gas projects During 2003, "Oman Gas Company" implemented several gas projects among which was Al Mahdha-Al Ain pipe line (45 kilometers) to provide UAE with Omani gas, also a 676 kilometers gas pipeline from Table 3.3 Oman s Oil Prices (US $/B) January February March April May June July August September October November December Average Jan-Dec Source: Ministry of Oil & Gas and Ministry of National Economy Sehroll to Salalah was built during the year. The total capacity of the pipeline is about 5 million cubic meters per day. It will provide the required energy to the Raysut Industrial Zone and Raysut Cement factory. The third gas pipeline which was inaugurated during the year was from Fahud to Sohar. The work on the project started in 2000 and operations started in January Apart from these projects, Oman Gas Company executed several projects during 2003, such as a central control project, intelligent scrapers, optical fibre glass cables from Fahud to Sehrol and Oil Production & Exports (In Million Barrels) Production Exports pressure reduction station in Sohar. However, in 2004, work continued to implement previously planned projects. LNG Exports During 2004, LNG exports amounted to 6.9 million tons as compared to 6.7 million tons in LNG was exported to Korea, USA, Japan, Spain, France and Belgium. 216 metric tons of by-product NGL 36 Central Bank of Oman Annual Report 2004

6 Oil and Gas Table 3.4 Oman Refinery Company - Crude Oil Input and Output by Type of Product (In Thousand Barrels) Input/Output * Input Condensate Crude Oil Output Gasoline Regular Super DP Kerosene Gasoil Butane Long Residue(Bunker) Change in intermediate products Fuel and Uses of ORC Source: Oman Refinery Company and Ministry of National Economy was also exported to UAE and India in Mining and Quarrying : Mining and Quarrying sector has played an important role in Oman's economy since ancient times. To enhance its role, the Government has embarked on an intense programme of geological research and exploration in order to develop the country's mineral resources. These minerals include Copper, Chromite, Nickel, Iron, Gold and Silver. In addition, Oman possesses deposits of many non-metallic minerals, e.g. large quantities of Gypsum and limestone, which are being exploited for the production of cement. High quality marble is also quarried and sold both in the domestic and international markets. With regard to exploration, a project comprising detailed Geological Mapping and Ground Geophysics (IP & TM surveys) to identify potential areas of mineral presence including one conducted with the assistance of Japan International Cooperation Agency (JICA), is * Provisional in progress. Work so far carried out has resulted in the discovery of new potential area for the copper and gold deposits. An Airborne geophysical survey for Haushi, Huqf, Izki and Masirah Island was completed few years back. Based on the evaluation of the results of the survey, potential areas have been delineated to carryout detailed surveys and the Diamond Core Drilling. The Sultanate's Gold production stood at 5680 ounces in Oman's production of Silver stood at 1479 ounces in This was extracted from Yankul and Sohar mines. The entire gold and silver production was exported to the UK. The Sultanate's production of Chromite went up considerably from 18,000 metric tons in 1997 to 30,000 metric tons in 1998; 26,009 metric tons in 1999; 15,000 metric tons in 2000; 30,150 metric tons in 2001, 27.4 thousand metric tons in 2002 and 11 thousand metric tons in 2003, then it Central Bank of Oman Annual Report

7 Chapter Three jumped to around 24 thousand metric tons in The production of Chromite is fully exported. The main importers are Japan, the U.K., Germany and some other EU countries. Oman's Iron ore production from the Sharqia region (Ibra) stood at around 186 thousand metric tons in 2004; where 18 percent of this amount was exported, whereas 82 percent was consumed locally. It is worth mentioning that one of the most important targets of the mining and quarrying sector, under the vision of the Omani economy (Oman 2020), is to achieve an annual 3.3 percent rate of growth in value added in this sector during the Sixth Five Year Plan ( ) and to raise the share of the sector in GDP by 0.3 percent annually with the rate of Omanisation enhanced by 10 percent annually. 38 Central Bank of Oman Annual Report 2004