Solar enhanced oil recovery

Transcription

1 Solar enhanced oil recovery An in-country value assessment for Oman January 2014

2 In September 2013, GlassPoint Solar Inc. (GlassPoint) commissioned Ernst & Young LLP (EY) to conduct an economic impact assessment of the roll-out of solar thermal enhanced oil recovery technology in Oman over the next decade (years ). This report presents the results of our analysis based on publicly available statistics and information on the Omani and other neighboring Persian Gulf economies as well as project information from GlassPoint. The economic impacts presented in this report are in current prices, in USD millions. For any information on the content of this report, please contact: Mark Gregory Chief Economist, EY David Omom Manager, EY Pierre-Alexandre Greil Executive, EY

3 Contents Section Page Executive summary 1 1. Enhanced oil recovery in Oman 7 Omani oil and gas sector 8 Enhanced Oil Recovery 11 Solar EOR and CSP technologies Contribution to the Omani economy 23 Methodology 24 Commercial deployment of solar EOR 25 Direct economic contribution 26 Indirect economic impact of solar EOR 27 Induced effects 27 Use of natural gas savings 28 Summary of economic impact 28 Effectiveness of solar thermal for EOR vs. power generation in saving natural gas 32 Skill development and innovation Security of energy supply, EOR potential and environmental impacts 34 EOR in the Middle East and technology export potential 35 Environmental benefits of solar EOR for Oman 37 Security of supply benefits of solar EOR for Oman 37 Glossary 38 Appendices 39 Appendix A Methodology 40 Appendix B Sources 46 Appendix C Time-independent assumptions 47 Appendix D Time-dependent assumptions 48 Appendix E Industry nomenclature 49 Solar enhanced oil recovery An in-country value assessment for Oman 4

4 5 Solar enhanced oil recovery An in-country value assessment for Oman

5 Executive summary Solar enhanced oil recovery An in-country value assessment for Oman 1

6 Executive summary In 2012 the Sultanate of Oman (Oman) produced 920,000 barrels per day (bbl/d) of crude oil, ranking 21st in global oil production by country 1. It also produced 2.8 billion cubic feet (bcf) of natural gas, making it the 5th largest gas producer in the Middle East and the 26th largest in the world 2. Over the last ten years, due to the maturity of its oil fields, Oman s domestic crude oil production has increasingly relied on enhanced oil recovery (EOR) technologies. Several techniques have been deployed, although thermal EOR, the focus of this report, dominates. The main thermal EOR technique entails burning natural gas to produce steam, which is injected into the reservoir to heat heavy oil and reduce its viscosity. The process increases both the rate of production and the amount of oil that can ultimately be recovered. The oil and gas sector in Oman is investing significantly in EOR. Petroleum Development Oman (PDO), which commissioned its first EOR project in 2004, announced in 2012 that EOR would grow from 3% of current oil production to 25% of total liquids production by Solar EOR is likely to play an important role in the mix of EOR technologies. Instead of burning natural gas to produce steam, solar EOR involves the use of concentrating solar power (CSP) technology to produce steam. Mirrors are used to reflect and concentrate sunlight onto receivers that collect solar energy and then convert it to heat. The heat is then used to produce steam from water. Solar EOR can generate the same quality and temperature of steam as natural gas 3. Therefore, the use of solar EOR could reduce demand for natural gas required for EOR, which can be re-directed to other economic activities such as power generation, water desalination and as feedstock and energy for industrial processes Oman Country Analysis, US Energy Information Administration, accessed 30 October BP Statistical Review of World Energy 2013, content/dam/bp/pdf/statistical-review/statistical_review_of_world_ energy_2013.pdf, accessed 30 October Sunil Kokal and Abdulaziz Al-Kaabi, Enhanced oil recovery: challenges and opportunities, EXPEC Advanced Research Centre, Saudi Aramco, docs/docs/publications/2010yearbook/p64-69_kokal- Al_Kaabi.pdf, accessed 30 October Ibid. 2 Solar enhanced oil recovery An in-country value assessment for Oman

7 Executive summary Deploying solar EOR could provide a hedge that reduces the volatility of field operating costs as the cost of steam generated using solar energy is independent of the cost and availability of natural gas. Moreover, it also secures the long-term cost of steam once the system is installed since solar steam generators can produce at low operations cost 5. Solar EOR infrastructure can also be installed in oilfields with limited availability of natural gas, thereby providing a way to create and inject steam for EOR with no capital investment in gas infrastructure and allowing the development of many of Oman s stranded assets. Moreover, owing to minimal operating expenses, use of solar EOR could enable producers to steam wells for a longer period of time compared to using gasfired steam, thereby increasing the proved reserves of a reservoir. PDO began investigating solar steam generation in 2005 because of a recognition that EOR s strategic importance to Oman was going to create a long-term gas supply conflict. In 2009, the company initiated a tender process. This resulted in an award to GlassPoint Solar in August 2011 for the construction of a 7MWth pilot project in the Amal West field in Southern Oman. The pilot has delivered its targets so far and large-scale deployment is contemplated. Oman currently uses 22% of its natural gas resources for EOR 6. The continuous increase in domestic demand for natural gas makes the deployment of solar EOR technology an attractive economic proposition for the Sultanate of Oman. We have assessed the uptake of solar EOR under three alternative scenarios for , analyzing the direct and indirect impact on jobs and economic value added. These scenarios assume that by 2020, approximately 35% of the total oil production in Oman, or 370,000 bbl/d will result from the deployment of thermal EOR technologies. This is in line with EOR production estimates from PDO, Occidental Petroleum Corporation (Oxy) and other industry stakeholders. We have also assumed that solar EOR accounts for varying proportions of this growth in thermal EOR production. The Steady growth scenario assumes solar EOR accounts for only 22% of the total thermal EOR by the end of the deployment period. The Leadership scenario assumes solar EOR accounts for half of total thermal EOR. In this scenario we assume that the Sultanate of Oman accelerates the deployment of solar EOR and targets industry leadership with potential export opportunities to other Gulf Cooperation Council (GCC) countries. The Full-scale deployment scenario assumes deployment that stretches the solar EOR technology to its technical limit, i.e., 80% of all thermal EOR coming from solar by the end of the deployment period. All three scenarios would lead to significant deployment of solar EOR in Oman. The installation of the solar EOR systems will have a direct effect on economic activity and job creation in the Omani manufacturing and services sectors. The amount of natural gas displaced due to the substitution by solar EOR technology could be re-injected into the economy. This can be done either by enabling alternative industrial projects or feeding other thermal EOR projects, thereby enabling the extraction of more oil. Alternatively, it could simply improve Oman s balance of payments and enhance the Sultanate s security of energy supply. 5 6 Stuart Heisler, Oil and Gas Production: Emergence of Solar Enhanced Oil Recovery, Oilandgasiq.com, accessed 30 October Idris Kathiwalla, Omani Oil and Gas Sector Note, Oman Arab Bank, Investment Management Group, April 2013, com/reports/omani Oil Sector Note.pdf, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 3

8 Executive summary Table 1 below summarizes the contribution this solar EOR project could make to the Omani economy over the period under the Leadership deployment scenario. Table 1: of solar EOR possible future contribution to the Omani economy 7,8 Source: EY analysis Leadership scenario, portion of EOR steam from solar: 50% USD, Contribution to the Omani economy* present value Direct 3.28b Indirect 2.83b Induced 1.41b Total contribution (GVA) 7.52b Natural gas savings Displaced natural gas 331,796 (MMBTU per day at end of period) Cumulative savings on thermal EOR c.722 m costs over deployment period (USD m) Employment Omani nationals 41,574 Total jobs created 7 196,012 Capital expenditure per job c.42,000 (discounted USD) 8 Note: *Gross value added (GVA), i.e., sum of value of all domestic economic outputs minus intermediate consumption. Excluding potential direct and indirect contribution linked to the alternative use of displaced natural gas for industrial projects. Induced impact related to job creation through industrial projects enabled by gas savings is included, however, assuming 100% of gas savings are used to enable industrial projects. The roll-out of solar EOR technology under the Leadership scenario would be beneficial to the Omani economy in the following aspects: It could lead to the creation of up to 196,000 jobs, including c.41,600 jobs for Omani nationals 9 over the next decade and add up to USD 7.52 billion to Omani GDP 10 over the same period: It could also induce significant natural gas savings, of approximately 331,796 MMBTU per day at the end of the deployment phase. Depending on the way they are channelled, these savings could either lead to: Creation of c. 30,000 jobs and an additional contribution to GDP by enabling a diversified portfolio of industrial projects: Up to USD 11 billion of additional oil revenue through more EOR output. Up to USD 722 million of additional gas exports/reduced net gas imports for the country over the next decade. 7 8 Maximum number of direct, indirect or induced manufacturing jobs created assuming that 100% gas savings are used to enable new industrial projects (including non-omani) and excluding construction of industrial facilities enabled by gas savings. Direct investment in solar EOR roll-out (direct nominal output discounted at 8.2% annually) divided by total job creation. 9 Assuming 100% of natural gas savings accrued below are channelled into the wider economy and excluding jobs related to the construction of the industrial facilities enabled by gas savings. 10 Excluding potential contribution made by industrial projects enabled by gas savings. 4 Solar enhanced oil recovery An in-country value assessment for Oman

9 Executive summary Table 2: Summary of the economic impact of various deployment scenarios 11 Source: EY analysis Steady Leadership Full-scale Solar fraction of EOR steam 22% 50% 80% Gas savings (MMBTU/day at scale) 146, , ,048 Output (USD millions) 9 Direct 3,872 8,246 13,170 Indirect 3,208 6,832 10,911 Induced 2,634 5,753 9,178 Total output 9,714 20,831 33,259 GVA (USD millions) 9 Direct 1,539 3,277 5,234 Indirect 1,329 2,831 4,521 Induced 660 1,409 2,253 Total GVA 3,528 7,517 12,008 Job creation directly enabled by solar EOR roll-out 10 Total, among which 58, , ,277 Construction-related jobs 20,976 59,746 90,483 Job creation enabled by gas savings 8 Total, among which 10,173 30,165 51,611 Direct industrial jobs 5,948 17,637 30,176 Indirect and induced jobs 4,225 12,528 21,435 Total job creation 68, , ,888 Total Omani jobs 14,560 41,574 63, Direct, indirect and induced. Solar enhanced oil recovery An in-country value assessment for Oman 5

10 Executive summary An alternative use of CSP technology is for power generation. Other countries such as the United Arab Emirates (UAE) have taken this path with the development of the first phase of the Shams power station, a 100MW parabolic trough CSP plant. Saudi Arabia is also targeting a capacity of 25GW of CSP by By comparing gas savings per dollar of capital expenditure from the use of solar energy in power generation and EOR relative to natural gas-fired alternatives, we find that investing in solar EOR saves up to six times as much gas per unit of capital expenditure as saved by a CSP plant. There are other benefits that the deployment of solar EOR would provide to Oman. It would carry significant Omani content, which will serve as a platform for the development of skills and innovation in the Sultanate. A large sustained deployment will expose local engineers to solar technology and its supply chain, enabling them to bridge skills from the existing oil and gas base in Oman and to widen their expertise to skills applicable across a variety of sectors. Experience in solar technology would also transfer to other uses, e.g., power generation, desalination and process steam, creating a technologically cross-skilled local workforce. Deployment of solar technology also provides scope for global leadership and innovation in this field through industry-university partnerships and through funding of research into different areas such as subsurface effects and behaviour of solar power-generated steam at rock model, lab and simulator levels; and understanding of the local environmental conditions and solar energy; as well as primary research on materials, durability of equipment and construction methods. Technical and commercial leadership in solar EOR could also allow Oman to tap regional and global export opportunities likely to open up in the next decade. Although the volume of EOR production in the Gulf Cooperation Council (GCC) countries outside of Oman is currently minuscule, EOR potential is estimated at 475 billion barrels of oil 13. A significant proportion of this opportunity will be thermal EOR, for which solar EOR is likely to compete. The most likely immediate market for solar EOR is Kuwait, with a full-field steam injection project led by Chevron that is under development at the Wafra field in the Partitioned Neutral Zone (PNZ). The first phase of steam injection is expected to begin in 2017 and to produce up to 80,000 bbl/d with subsequent phases boosting production to more than 500,000 bbl/d. The expected thermal EOR production in this project alone is almost comparable to Oman s current EOR production and may provide an immediate export opportunity. Substitution of natural gas by solar EOR will contribute to reduction in emissions of CO2 and other polluting agents. Considering the volume of natural gas saved and the average emissions from burning natural gas, we estimate emission abatement of 8.1 million tons of CO2 on an annual basis in the leadership deployment scenario when the systems are fully deployed. In addition, the technology currently deployed in the pilot project by GlassPoint and PDO does not have the environmental costs normally associated with large CSP systems such as consumption of large quantities of water. Moreover, the ecological and visual impacts due to large land footprint typically caused by CSP is also limited due to the relative compactness of the technology (three times less acreage compared to standard parabolic systems) but also because it is installed in oil fields rather than pristine acreages. At a macro level, solar EOR will improve both shortterm and long-term energy security for Oman. It will reduce long-term risk of scarcity of gas, if deployed in sufficient volumes and with reasonable lead times. It will also limit the reliance on pipelines and Liquefied Natural Gas (LNG) cargoes which are subject to sudden short-term changes in availability and costs. Given Oman s growing dependence on natural gas and its USD 60 billion LNG deal with Iran for the next 25 years, both its long-term and short-term security of energy supply require consideration. Use of solar EOR carries obvious advantages in terms of security of energy supply for Oman as it limits exposure to imports and frees up natural gas for other uses in Oman s industrial sectors, thereby reducing the risk inherent in reliance on Iran for significant natural gas imports. 12 KA-CARE, Saudi Arabia s Renewable Energy Strategy and Solar Energy Deployment. 13 Manaar Consulting: EOR and IOR in the Middle East, Manaar%20EOR%20Abu%20Dhabi%20March% pdf, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman

11 1Enhanced oil recovery in Oman This section provides an overview of the Omani oil and gas sector; a description of the enhanced oil recovery (EOR) process and a description of the solar enhanced oil recovery (solar EOR) process and key technologies. Solar enhanced oil recovery An in-country value assessment for Oman 7

12 1 Enhanced oil recovery in Oman Omani oil and gas sector Omani crude oil production Production of oil and gas in the Sultanate of Oman began in 1967 and the country today remains an important hydrocarbon supplier. In 2012, Oman produced 920,000 barrels per day (bbl/d) of crude oil, ranking 21st in global oil production by country 14. Oman s average oil production peaked in 2000 at 970,000 bbl/d, but dropped to 710,000 bbl/d in 2007 because of declining production at the country s fields. Since then, the decline has been successfully reversed and oil production has increased on an annual basis over the last five years as shown in Figure 1 below 15. Figure 1: Total oil supply, consumption and net exports in Oman, Source: US Energy Information Administration Oil supply/consumption in thousand barrels/day 1, Total petroleum consumption (thousand barrels per day) Net exports 2012 The increase in oil production is due to the use of EOR techniques as well as additional gains as a result of recent field discoveries. According to Oman s Ministry of Oil and Gas, the Sultanate aimed to produce an average of 940,000 bbl/d of crude oil in 2013, and to maintain production at that level for the next five years 16. A significant proportion of total oil production in Oman (84% in 2012) is exported to Asian markets. China is the single largest importer of Oman s oil output, accounting for 50% of all Omani oil exports, followed by Japan (14%) and Taiwan (12%) respectively. Omani natural gas production In 2012, Oman produced 2.8 billion cubic feet/day (bcf/d) of natural gas, equivalent to 0.9% of global production, making it the 5th largest gas producer in the Middle East and the 26th largest in the world 17. Oman uses a significant portion of its natural gas production in EOR. In 2012, the Sultanate used up to 22% of its dry gas production for this purpose 18. Oman s natural gas sector has grown in importance over the last decade, driven by the country s inauguration of three Liquefied Natural Gas (LNG) trains at two production facilities in 2000 and Prior to 2000, Oman produced relatively small quantities of natural gas, averaging just 154 bcf/year between 1990 and With the continuing rise of its natural gas demand (an increase of 168% between 2002 and 2011), Oman plans to end all of its LNG exports and divert natural gas supply to domestic consumption by Oman has historically exported rather than imported oil and gas. However, since 2008, the imports of dry natural gas have risen sharply, and in 2011 stood at nearly 70 bcf per annum. Given Oman s increasing dependence on imported natural gas, the use of alternative EOR technologies could potentially save a large amount of gas, allowing it to be used in more valuable applications. 14 Oman Country Analysis, US Energy Information Administration, accessed 30 October Ibid. 16 Ibid. 17 BP Statistical Review of World Energy 2013, statistical_review_of_world_energy_2013.pdf, accessed 30 October Idris Kathiwalla, Omani Oil and Gas Sector Note, Oman Arab Bank, Investment Management Group, April 2013, com/reports/omani%20oil%20sector%20note.pdf, accessed 30 October Ibid. 8 Solar enhanced oil recovery An in-country value assessment for Oman

13 1 Enhanced oil recovery in Oman Figure 2 below provides an overview of the natural gas market in Oman. Figure 2: Total natural gas supply and consumption in Oman, Source: US Energy Information Administration Gas supply/consumption in bcf Vented and Flared Natural Gas Reinjected Natural Gas Domestic consumption 2010 Exports Imports Table 3 below provides an overview of the oil and gas sector in Oman, highlighting the Sultanate s significant reserves. Table 3: Key statistics of the Omani oil and gas sector Source: US Energy Information Administration Fuel Crude oil (million barrels) Natural gas (billion cubic feet) Key statistics Proved reserves, ,500 Total oil supply, Total petroleum consumption, Reserves-to-production ratio 16 to 17 years 2011 Proved reserves, ,000 Dry natural gas production, Dry natural gas consumption, Reserves-to-production ratio 32 years Overview of the supply chain and key market participants Oil and gas production is dominated by Petroleum Development Oman (PDO) which produces more than 80% of the Sultanate s oil and most of its natural gas. PDO is owned by the Sultanate of Oman (60%), Royal Dutch Shell (34%), Total (4%) and Partex (2%) 20. PDO explores for oil and develops fields into productive assets by drilling wells and constructing and operating various hydrocarbon treatment and transport facilities. Occidental Petroleum Corporation (Oxy), which has been operating in Oman for over thirty years, is another key player. It runs the Mukhaizna field in south-central Oman and the Safa and Wadi Latham fields and Block 62 in northern Oman 21. At Mukhaizna, Oxy has implemented an aggressive drilling and development program, including a major pattern steam flood project for conventional EOR. In 2012, the Mukhaizna oilfield produced about 120,000 bbl/d of oil, which was over 15 times higher than the rate of production in September 2005, when Oxy took over operation of the field. PDO is also responsible for finding, developing and operating natural-gas fields and their associated production systems on behalf of the Government of Oman. The gas is delivered to the Government Gas System (GGS), which supplies fuel for most of Oman s power stations and some of its industries, and to the Oman Liquefied Natural Gas (OLNG) plant at Qalhat, near Sur. As part of its gas production, PDO also supplies some 50,000 bbl/d of condensate (liquid hydrocarbons that condense out of natural gas) and about 200 tons per day of liquefied petroleum gas, chiefly used for cooking 22. Oman is connected to the rest of the Gulf Cooperation Council (GCC) countries by the Dolphin pipeline, which runs from Qatar to Oman via the United Arab Emirates. Oman exported gas to the UAE on a three year contract which ended in August Since then, it has imported 200 mcf/d of North Field natural gas from Qatar, via Abu Dhabi s Dolphin Energy for use primarily as a feedstock at Occidental s enhanced oil recovery project in the Mukhaizna field Background, Petroleum Development Oman, accessed 30 October Background, Occidental Oman, OilAndGas/MiddleEastRegion/Pages/oman.aspx, accessed 30 October Background, Shell Development Oman, aboutshell/who-we-are/shell-sdo.html, accessed 30 October Justin Dargin, The Dolphin Project: The Development of a Gulf Gas Initiative, Oxford Institute for Energy Studies, 1 January Solar enhanced oil recovery An in-country value assessment for Oman 9

14 1 Enhanced oil recovery in Oman Oman has three liquefaction trains owned by Oman LNG and Qalhat LNG with a nameplate capacity of 10.3 million tonnes per year. However, exports have been running low in recent years averaging million tonnes a year, down from a peak of 9.1 million tonnes in Oman LNG has experienced a more pronounced decline, with exports dropping from 6.6 million tonnes per year in 2006 to 5.4 million tonnes per year in In September 2013, the two companies merged to create Oman LNG LLC 25. In 2012, Oman exported a total of 131 LNG cargoes, as well as 45 cargoes of Natural Gas Liquids (NGL s), nearly all of which went to Japan and South Korea 26. Figure 3 below shows the key players in the Omani oil and gas sector. Figure 3: Overview of the oil and gas sector in Oman Source: Ministry of Oil and Gas, Oman Oilfield services Exploration Production OIL Exploration: 12 companies,18 blocks, Production: 8 companies, 11 blocks Petroleum Development Oman, Occidental Oman, Daleel Petroleum, Petrogas E&P, DNO Oman, CC Energy Development, Circle Oil, Odin Energy, Petrotel Oman, BP Exploration (Epsilon), Masirah Oil, Allied Petroleum Exploration, OOCEP, Petrotel Oman, Forinter Resources Oman, MOL Oman Transportation LNG/oil shipment Oman LNG LLC operates 3 liquefaction trains (2 own trains) Qalhat LNG SAOC owns 1 train operated by Oman LNG at Qalhat near Sur Refining Distribution End-uses 70% OIL Oman Refineries and Petrochemical Company (ORPIC) Marketing and distribution Shell Oman Marketing Company SAOG 24 Idris Kathiwalla, Omani Oil and Gas Sector Note, Oman Arab Bank, Investment Management Group, April 2013, Reports/Omani%20Oil%20Sector%20Note.pdf, accessed 30 October Sultanate s LNG Industry Enters New Era As Oman, Qalhat LNG Become One, Oman LNG LLC, accessed 30 October Oman Country Analysis, US Energy Information Administration, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman

15 1 Enhanced oil recovery in Oman The Ministry of Oil and Gas (MOG) is responsible for the development and implementation of plans and policies to optimize the exploitation of oil and gas resources. Its key tasks include developing legislation, laws and regulations governing the sector, and conducting the survey of resources and marketing production on behalf of the Sultanate. It also supervises Government s interests in companies operating in the sector and oversees all the oil and gas exploration and production (E&P) activities in the concession areas. The MOG has established Petroleum Agreements with companies whose terms and conditions it oversees 27. Natural gas import/consumption outlook The decline in LNG exports is partly due to the shortage of gas as well as a significant increase in domestic consumption. Oman s natural gas consumption rose rapidly over the past decade, seeing a 135% increase between 1999 and Moreover, the composition of the end-use of gas has also changed dramatically. In 2005 more than 40% of the total production was exported in form of LNG cargoes, an additional 20% used in power generation and desalination plants and major industries and a further 16% used for oil production 29. By 2011, LNG exports accounted for 24% of consumption, with industry, power generation and oil production accounting for 34%, 20% and 22% of production respectively 30. The increase in overall gas demand as well as a rebalancing towards domestic industry and power generation is expected to continue, and a shortfall in feedstock is already hampering Oman s economic development, especially its industrial policy. Over the last four years, petrochemicals projects valued up to USD 3.49 billion have been cancelled or forestalled due to lack of guaranteed gas feedstock 31. In addition there are at least 28 projects that have applied for gas allocations totalling 134 million cubic feet/day (mcf/d) which are yet to be granted 32. This continuous increase in domestic demand for natural gas makes a planned roll-out of a solar EOR technology in Oman an attractive economic proposition. Despite all these constraints, a significant gas exploration programme is currently underway. As of September 2012, an estimated USD 1.8 billion worth of major gas- related project work was under execution. Much of this work was related to offsetting production declines in existing fields, although there are a handful of new developments taking place as well. The most significant project is expected to be the Khazzan tight gas field, where tcf of gas reserves are in place in reservoirs located 4 km below ground. This project is expected to cost approximately USD 15 billion over 10 years and is being developed by BP. The final investment decision will depend on the outcome of ongoing negotiations between BP and the Government of Oman. Enhanced oil recovery Identifying new oil resources to meet the forecast increase in long-term global oil demand 33 remains both a priority and a challenge. Given the scarcity of new oil sources, one approach is to maximize the extraction of oil from existing, maturing oilfields, particularly as mature oil fields account for an increasingly large proportion of the global oil supply. EOR in general terms refers to technologies and strategies that oil producers use to maximize the amount of oil recovered from existing reservoirs. 27 Ali Abdullah Al-Riyami, Oman s Oil and gas industry, Ministry of Oil & Gas, Oman, s1-4_ali-presentation-4.pdf, accessed 30 October Oman Country Analysis, US Energy Information Administration, accessed 30 October Economist Intelligence Unit, Oman: LNG companies merge, October , oman-lng-companies-merge/ , accessed 30 October Idris Kathiwalla, Omani Oil and Gas Sector Note, Oman Arab Bank, Investment Management Group, April 2013, com/reports/omani%20oil%20sector%20note.pdf, accessed 30 October Patrick Osgood, Oman s great gas conundrum, Arabian Oil & Gas, Nov 15, 2011, omans-great-gas-conundrum/#.une1v6kbovg, accessed 30 October Kevin Baxter, Gas shortage stalls diversification in Oman, MEED Issue No , July 2010, article, accessed 30 October OPEC World Oil Outlook, 2012, static_files_project/media/downloads/publications/woo2012.pdf, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 11

16 1 Enhanced oil recovery in Oman The various EOR techniques There are various techniques used to cause oil to flow into wells, from where it can be pumped to the surface. These techniques can be described in form of stages of oil development and are presented in Figure 5 below. Figure 5: Technologies for improved/enhanced oil recovery Source: Enhanced Oil Recovery: Challenges & Opportunities, Saudi Aramco Type of recovery Methods of recovery Oil recovery Crude oil is forced out by pressure generated from gas present in the oil - uses: Primary oil recovery Natural flow Artificial lift ~Less than 30% Secondary oil recovery Reservoir is subjected to water flooding or gas injection to maintain a pressure that continues to move oil to the surface uses: Water flooding Pressure maintenance 30 50% Introduces fluids/gases that reduce viscosity and improve flow - uses: Improved oil recovery Tertiary oil recovery Thermal steam, hot water, combustion Gas injection CO2, Hydrocarbon, Nitrogen/Flue Chemical Alkali, Surfactant, Polymer Other Microbial, Acoustic, Electromagnetic >50% and up to 80%+ Enhanced oil recovery Tertiary oil recovery is what is generally referred to as EOR, and refers to the introduction of fluids that reduce viscosity and improve oil flow. These fluids could consist of gases that are miscible with oil (typically carbon dioxide), steam, air or oxygen, polymer solutions, gels, surfactant-polymer formulations, alkaline-surfactantpolymer formulations, or microorganism formulations. The choice of which fluid or technology is suitable for application in a given oilfield depends on the reservoir depth, the properties of oil contained therein, and the economics of the oilfield. Thus as shown in Figure 6, steam injection to thin oil or polymers to thicken water and improve the sweep of oil recovery are better suited for highly viscous oilfields found in the Middle East. Conversely, carbon dioxide and other gases which become miscible with oil and reduce the residual oil saturation in the reservoir are better suited for lighter oilfields with increasing depth, and therefore pressure and temperature. 12 Solar enhanced oil recovery An in-country value assessment for Oman

17 1 Enhanced oil recovery in Oman Figure 6: Choice of EOR technology based on reservoir depth and oil viscosity Source: EY, Enhanced oil recovery (EOR) methods in Russia: time is of the essence 34 Reservoir depth (ft) 1 0 2,000 4,000 6,000 8,000 10,000 12,000 Oil viscosity (centipoise, cp) ,000 10, ,000 Steam injection Gas injection Polymer injection Surfactant injection Carbon and CO2 injection Nitrogen injection The majority of global EOR production is based on thermal methods, predominately the injection of high pressure steam into a reservoir to lower the viscosity of oil (then the oil) and thus ease the flow of oil through to the reservoir. EOR techniques are actively used in Oman, the USA, Venezuela, Indonesia, Canada and China. In the USA, thermal EOR accounts for over 40% of EOR production 35. Figure 7 provides a high-level illustration of how thermal EOR works. Figure 7: Mechanics of thermal EOR Source: EY Gas steam generator Production well Injection well Steam and condensed water Oil Hot water Oil bank 34 EY, Enhanced oil recovery (EOR) methods in Russia: time is of the essence, December 2013, vwluassets/ey_-_enhanced_oil_recovery_(eor)_methods_in_ Russia:_time_is_of_the_essence/$FILE/EY-Enhanced-Oil-Recovery. pdf, accessed December 2013, citing, Enhanced Oil Recovery (EOR) Report, Royal Dutch Shell. 35 US Office of Fossil Energy, Enhanced Oil Recovery, gov/fe/science-innovation/oil-gas/enhanced-oil-recovery, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 13

18 1 Enhanced oil recovery in Oman The role of EOR in global oil supply has remained constant over the last two decades, but this is expected to change as oil wells mature. Total world production of oil using EOR has remained relatively unchanged during this period at around 3 million bbl/d or around 3.5% of daily production of oil 36. However as shown in the figure below from the experiences of Chevron, the successful application of EOR technologies can make a significant difference in revitalizing the output of mature oilfields. EOR was instrumental in production of heavy oil at Kern River hitting a milestone of 2 billion barrels of oil produced as shown in Figure 8 below. In 2011, the global market for all EOR technologies was worth USD billion 37, more than doubling from a market total of USD billion in EOR in Oman Oman has been a leading user of EOR techniques, due to its declining existing oil resources. As a result of these techniques, oil production from EOR now accounts for an estimated 210,000 bbl/d or 23% of production in Table 4 provides a summary of key EOR projects in Oman. Figure 8: Impact of thermal EOR on oilfield production Source: California State Department of Conservation, Division of Oil, Gas and Geothermal Resources, Chevron 50 Annual production (Mb/a) Primary Steamflood 36 Sunil Kokal and Abdulaziz Al-Kaabi, Enhanced oil recovery: challenges and opportunities, EXPEC Advanced Research Centre, Saudi Aramco, Kokal and Al-Kaabi, 2010, Kokal-Al_Kaabi.pdf, accessed 30 October SBI Energy, Enhanced Oil Recovery Market Valued at $ Billion; Gas/CO2 Leads Growth, Jul 10, 2012, sbireports.com/about/release.asp?id=2876, accessed 30 October EY estimates from PDO, Occidental reports and EIA. 14 Solar enhanced oil recovery An in-country value assessment for Oman

19 1 Enhanced oil recovery in Oman Table 4: EOR projects in Oman, by oilfield Source: EIA, PDO, OOCEP Oilfield EOR technology Key details Mukhaizna oilfield Thermal EOR (steam flooding) Qarn Alam Thermal EOR (steam injection) Harweel Marmul Amal West/East Karim cluster Rima cluster Miscible gas injection Polymer injection Thermal EOR (steam injection including solar EOR) Thermal EOR (steam injection) Thermal EOR (steam injection) Operated by Occidental, this is the largest EOR project in the region. EOR commenced in 2005 and by the end of 2011, Mukhaizna was producing around 120,000 bbl/d. Further development of the field is designed to increase production to a plateau rate of c.150,000 bbl/d 39. This project was commissioned by PDO in 2011 as the first full field steam injection EOR project based on a novel EOR technique called thermally assisted gas oil gravity drainage (TAGOGD), which involves the use of steam to drain oil to lower producer wells. This project is expected to boost recovery rates from 3 5% under cold production to c.20 35% with steam TAGOGD. PDO expects the project to increase production by 40,000 bbl/d by This is PDO s first full-scale EOR project, whose first phase completed in Harweel is a carbonate cluster of 8 fields and 11 reservoirs located in southern Oman. In this project miscible gas injection technique was selected to increase the recovery factor from 10% to 50%. Re-injecting produced sour gas is expected to increase oil production by 40,000 bbl/d. PDO estimates a capacity of 100,000 bbl/d for this project within the next five years, up from the current 44,000 bbl/d 41. Marmul is a heavy-oil sandstone reservoir located in southern Oman 42. Polymer injection was chosen for this field to increase the viscosity of the driving fluid. Oil recovery is expected to be boosted to 20%, resulting in an extension of the production plateau by 20 years. Commercial-scale polymer flooding was initiated in early 2010 adding c. 8,000 bbl/d of EOR production. Marmul is expected to yield an additional 10,000 bbl/d. PDO is also investing to increase production at both the Amal East and Amal West fields to increase threefold from its current level of 20,000 bbl/d. In December 2012, GlassPoint completed the construction of a 7MWth pilot solar EOR project in the Amal West field in Southern Oman 43. Cluster of 18 small oil fields in the Nimr-Karim area of south Oman all flowing to the Nimr production facility, operated by MedcoEnergi (Indonesia). Currently produces 18,000 bbl/d. PDO is aiming to boost production to c.35,000 bbl/d in the short-term. PDO expects growth of up to 70,000 80,000 bbl/d from five clusters, such as the Rima Cluster, due to various efficiency gains and EOR applications Oman Country Analysis, US Energy Information Administration, accessed 30 October Manaar Consulting: EOR and IOR in the Middle East, EOR%20Abu%20Dhabi%20March% pdf, accessed 30 October Ibid. 42 Shell Global Solutions International BV, Enhanced Oil Recovery, eor/eor-brochure-2012.pdf accessed 30 October Ayesha Daya, Oman Awards Contract for Mideast s First Solar Oil-Recovery Site, Bloomberg, 3August, 2011, news/ /oman-awards-contract-for-mideast-s-first-solar-oil-recovery-site.html, accessed 30 October Oman Country Analysis, US Energy Information Administration, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 15

20 1 Enhanced oil recovery in Oman Figure 9 highlights our estimates of current EOR production in Oman, as well as our estimates of future production based on publicly announced projects and investment plans. Figure 9: Estimated EOR production in Oman Source: EY estimates from US Energy Information Administration, PDO, Occidental Crude oil production bbl/d 1,200,000 1,000, , , , , Primary supply EOR supply Crude oil production Our analysis suggests that 23% of Omani oil production in 2012 was supplied by EOR, although this volume is dominated by production at Oxy s Mukhaizna field. EOR production as a percentage of the total portfolio of projects is still relatively low. In 2011, EOR and sour oil projects accounted for 11% of Oman s crude oil project portfolio, with primary and secondary recovery projects accounting for 48% and 41% respectively 45. The proportion of EOR and sour oil projects is expected to increase to 18% by 2021, while primary recovery wells decline to 36% and secondary recovery wells increase only slightly to 42%. PDO announced in April 2013 that the proportion of EOR in its portfolio would grow from 3% of its total current production to 25% of all liquids production by The increase in thermal EOR means that solar EOR is likely to play a role in the mix of technologies advanced 46 and suggests considerable potential for the use of solar EOR in Oman over the next decade. PDO has also announced plans to drill over 100 wells over the next five years at an estimated cost of USD 800 million. By 2022, it plans to commission sixteen megaprojects with a combined value of more than USD 11 billion, producing a target of more than 1 billion bbl of oil. Key projects include three EOR projects at Rabab Harweel, Yibal Khuff/Sudair and Budour, expected to add c. 200,000 b/d of capacity, offsetting natural declines in existing fields. Each of the projects is expected to cost well over USD 1 billion and to be implemented over the next 8 10 years. Solar EOR and CSP technologies In conventional steam injection thermal EOR, steam is produced by burning natural gas. In solar EOR, concentrating solar power (CSP) technology replaces natural gas in the production of steam. Mirrors are used to reflect and concentrate sunlight onto receivers that collect solar energy and then convert it to heat, which is then used to produce steam from water. Advantages of solar EOR CSP technologies can generate the same quality and temperature of steam as natural gas. As a result, it has the potential to reduce the amount of natural gas used in thermal EOR, releasing gas for other uses such as power generation, water desalination and industrial development 47. Although production and injection from CSP can be variable relative to the constant production from conventional methods, this has no negative impact on oil production levels 48. Thus it is technically a comparable substitute for natural gas. Taking into account total cost of ownership of the system, including capital and operating expenditure over the project s life, the cost of CSP for EOR can be competitive with using natural gas 49 for EOR. Moreover, by reducing fuel costs, solar steam removes the largest and most variable part of thermal EOR production costs (the cost of natural gas). This reduces the cost volatility of field operating costs as the cost of steam generated via solar energy is independent of natural gas. 45 Sour gas and EOR project portfolios are provided in aggregate and not independently to allow for an estimation specific to thermal EOR. 46 Muscat Daily, EOR to account for 22% of oil output by 2020, says PDO, 03 June 2013, Business/EOR-to-account-for-22-of-oil-output-by-2020-says-PDO- 2b48, accessed 30 October Ibid. 48 Van Heel, A.P.G., et al. The Impact of Daily and Seasonal Cycles in Solar-Generated Steam on Oil Recovery. SPE (Apr. 2010): OnePetro, 22 May GlassPoint Solar Inc. 16 Solar enhanced oil recovery An in-country value assessment for Oman

21 1 Enhanced oil recovery in Oman CSP infrastructure can also be installed in oilfields with limited availability of natural gas, thus providing a way to create and inject steam for EOR with no capital investment in gas infrastructure which would add considerable cost to a thermal EOR project. Once commissioned, solar steam generators can produce at predictable and low operations cost for as long as thirty years providing certainty on the cost of steam. In addition, because solar EOR has minimal operating expenses, developers could benefit from steaming wells for a longer period of time than if gasfired steam was used. Experiences in solar EOR In 1983, Atlantic Richfield Company (ARCO) s renewables arm, ARCO Solar, constructed a solar steam generation pilot using central tower technology in Taft, California. The system generated 1MW of thermal energy during peak operating conditions. Though technically feasible, the system was not cost-effective and was not replicated. The ARCO pilot was the first time solar steam was applied to facilitate heavy oil recovery 50. As of 2013, there are three operational solar EOR projects, with several more planned. Table 5 highlights these installations, two of which were built by GlassPoint. Table 5: Summary of solar EOR projects Source: GlassPoint, BrightSource Project Kern County 21Z Coalinga Amal West Technology provider GlassPoint BrightSource GlassPoint Location McKittrick oil field, McKittrick, California, USA Coalinga oil field in Fresno County, California, USA Amal West oil field, Southern Oman Commissioning date February 2011 October 2011 February 2013 Peak capacity 300kW 29MW 7MW CSP technology Enclosed trough Solar tower Enclosed trough Key project details First commercial solar EOR project. System spans c. 1 acre and produces c.1mmbtu/hr of solar heat. First project to use GlassPoint s Enclosed Trough technology in an oil field. Project spans 100 acres and consists of 3,822 mirror systems, or heliostats, each with two 10-foot (3-meter) by 7-foot mirrors mounted on a 6-foot steel pole focusing light on a 327-foot solar. Middle East s first solar EOR project. Produces a daily average of 50 tons of steam feeding directly into existing thermal EOR operations. Outside Oman, other oil companies in the Middle East are exploring solar EOR. Chevron Corp. for instance is considering using solar EOR to produce steam to pump heavy crude from the Wafra field in the PNZ, straddling Saudi Arabia and Kuwait. 50 Stuart Heisler, Oil and Gas Production: Emergence of Solar Enhanced Oil Recovery, Oilandgasiq.com, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 17

22 1 Enhanced oil recovery in Oman Concentrating solar power (CSP) technologies CSP is a type of solar thermal technology that uses mirrors to concentrate the sun s rays to heat water and generate steam. The steam is directly fed to the oil well or used in driving a turbine to generate power in the same way as conventional power plants. Solar thermal Converts light to heat Photovoltaic Converts light to electricity Solar thermal CSP vs. solar PV The two main technologies for harnessing solar energy are solar photovoltaic (PV) and solar thermal. Solar PV converts solar energy directly into electricity using a PV cell made of a semiconductor (or thin film) material. In contrast, solar thermal delivers thermal energy which can then be converted into electricity. CSP, a type of solar thermal technology, uses mirrors to concentrate the sun s rays to heat water and generate steam. The steam can be used to drive a steam turbine to generate power in the same way as conventional power plants. Alternatively, the steam from CSP can be used in process heat applications such as thermal EOR, water desalination, cooling, or industrial processes. Solar PV is the more widely deployed technology. As of February 2013, cumulative installed capacity of solar PV stood at 100 GW up from only 1.5 GW in CSP on the other hand is a re-emerging technology. Up to 350 MW of capacity was installed in California in the 1980s as part of the Solar Energy Generating Systems (SEGS) project, which consists of nine solar power plants located at three separate sites throughout the Mojave Desert. In the 2000s, CSP re-emerged, and at the end of 2012, 2.8GW of capacity was installed. Solar PV installations are predominantly micro-generation installations on rooftops, although a sizeable volume of grid-connected capacity has been installed in recent years. Until 2006, the largest PV plant was the Carrisa Plain plant at 5.6MW. Desert Sunlight Solar Farm, a 550MW project being built by First Solar, which is expected to commission in 2015 is a new generation of large scale solar PV plants under construction. CSP on the other hand are primarily designed for commercial power generation. The largest CSP project at present is the 392MW Ivanpah Solar Electric Generating System currently being developed in California s Mojave Desert by BrightSource, Bechtel and NRG. Sources: IEA, Solar (PV and CSP), solarpvandcsp/; James Montgomery, 100 GW of Solar PV Now Installed in the World Today, RenewableEnergyWorld.com, 12 February 2013; Desert Sunlight Solar Farm, firstsolar.com/projects/desert-sunlight-solar-farm 18 Solar enhanced oil recovery An in-country value assessment for Oman

23 1 Enhanced oil recovery in Oman CSP is commercially proven in power generation with an installed capacity of 2.8 GW at the end of There are four main variants of CSP technologies, three of which to date are being adapted to produce steam for solar EOR. These are: Solar tower Linear Fresnel Stirling dish Parabolic trough These are described briefly below. Solar tower technology In the solar tower design, an array of flat, movable mirrors (heliostats) follow the movement of the sun throughout the day. Solar energy is reflected from the mirrors onto a solar receiver at the top of a tower. The receiver is used to directly or indirectly heat a boiler filled with water. The main developers of this technology include BrightSource, Abengoa Solar, esolar, SolarReserve and Torresol. Linear Fresnel collector technology Linear Fresnel collectors are similar to parabolic trough collectors, but use a series of long flat, or slightly curved, mirrors placed at different angles to concentrate the sunlight on either side of a fixed receiver (located several metres above the primary mirror field). Each line of mirrors is equipped with a single-axis tracking system and is optimized individually to ensure that sunlight is always concentrated on the fixed receiver. The receiver consists of a long, selectively-coated absorber tube. Major technology developers include Areva and Novatec. Stirling dish technology Stirling dish system consists of a parabolic dish shaped concentrator (like a satellite dish) that reflects direct solar irradiation onto a receiver at the focal point of the dish. The receiver may be a Stirling engine (dish/ engine systems) or a micro-turbine. Stirling dish systems require the sun to be tracked in two axes, but the high energy concentration onto a single point can yield very high temperatures. As a result, they are capable of very high efficiencies (up to 30%). Typical sizes range from 5 to 50kW which make them modular and highly scalable from cumulative several MW to hundreds of MWs depending on need. Unlike other CSP technologies, they use mechanical energy rather, than producing steam to produce electricity and are therefore unable to serve the thermal EOR application. Stirling dish systems are also yet to be deployed at any scale. Parabolic trough collector technology Parabolic trough collectors (PTC) consist of solar collectors (mirrors), heat receivers and support structures. The parabolic-shaped mirrors are constructed by forming a sheet of reflective material into a parabolic shape that concentrates incoming sunlight onto a central receiver tube at the focal line of the collector. The main technology developers include Flagsol, Solar Millennium, Abengoa Solar and Aries Solar to name a few. 51 Schlumberger Energy Institute, Concentrating Solar Power, June 2013, Files/SBC%20Energy%20Institute/SBC%20Energy%20Institute_ Solar_Factbook_Jun% ashx, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 19

24 1 Enhanced oil recovery in Oman Comparison of solar thermal technologies Figure 10: Images of different CSP technologies Solar tower Stirling dish Linear fresnel Parabolic trough The four technologies described above are in various stages of technical and commercial applications. In general, the parabolic trough plant is the most widely deployed variant of CSP for power generation. It is a relatively commercially-proven technology and carries less technology risk than other CSP variants. However compared to other non-solar steam or power generation technologies it is less mature and provides significant scope for future cost reductions and performance improvements. Enclosed trough technology for solar EOR GlassPoint deploys an advanced parabolic trough technology, called the enclosed trough. The enclosed trough was designed from the ground-up for the oil and gas industry, rather than power generation. In this solar field design, mirrors, aiming system and other delicate components are protected inside a glasshouse structure. The glasshouse protects the system from the humidity, sand and dust common in oilfield locations, which can degrade the system and reduce efficiency. This is a key advantage in the Gulf region where soiling rates are often 30 times higher and average wind speeds three times greater than in California and other locations where CSP is typically installed. The parabolic mirrors are made of ultra-light weight material and are suspended from the glasshouse structure. The mirrors automatically track the sun throughout the day and concentrate sunlight on a stationary boiler tube containing water. The heat from the sun boils the water to produce high-pressure steam for EOR. 20 Solar enhanced oil recovery An in-country value assessment for Oman

25 1 Enhanced oil recovery in Oman Cost considerations for solar EOR vs. solar electricity The enclosed trough was designed to reduce the cost of steam for EOR by 50% compared to older exposed CSP designs. The key cost advantages include: Low-Cost materials: The aerodynamic glasshouse significantly reduces the amount of steel and concrete required to reinforce the solar collectors from harsh desert winds. It also enables the use of low-cost, lightweight mirrors and aiming systems. The complete GlassPoint solar field, including the glasshouse enclosure, weighs less than 20% the weight of exposed parabolic trough systems. Automated washing: Oilfields are prone to high humidity and dust, requiring frequent cleaning to maintain optical efficiency. The enclosed trough is equipped with a robotic cleaning system that automatically washes the roof of the glasshouse each night. More than 90% of the water is recaptured and reused. The washing unit minimizes manual labour and water use, which is scarce and expensive in desert environments. Operating temperatures: CSP technologies designed for electricity generation operate at much higher temperatures than required for solar EOR. High temperature steam offers efficiency gains in electricity generation, but is much more costly to produce. The enclosed trough produces lower temperature steam within the desired range for thermal EOR. Oilfield standards: Oilfield standards and practices are different from those in other industrial applications. The enclosed trough is the only CSP solution designed to accept the same feed water quality as typical oilfield steam generators. This eliminates the need for expensive desalination, water treatment and heat exchangers. In addition, the enclosed trough uses the same oilfield-proven pumps, boiler tubes and automated control systems. Source: GlassPoint Figure 11: Enclosed trough design Source: GlassPoint Solar enhanced oil recovery An in-country value assessment for Oman 21

26 1 Enhanced oil recovery in Oman Table 6: Comparison of solar CSP technologies Source: International Renewable Energy Agency (IRENA), Renewable Energy Technologies: Cost Analysis Series Parabolic trough Solar tower Linear Fresnel Enclosed trough Dish-Stirling Maturity of technology Technology development risk Operating temperature (oc) Receiver/absorber Working fluid Washing solution Land use (tons of steam per day per hectare) Maximum operating wind speed Commercially proven Pilot commercial projects Pilot projects Pilot commercial projects Demonstration Low Medium Medium Low Medium Up to 550 Up to 565 Up to 550 Up to 350 Up to 750 Absorber attached to collector, moves with collector, complex design Heat transfer oil or molten salt Manual trucks and hand washing External surface or cavity, receiver fixed Treated water, direct steam generation or molten Manual and semi-automated trucks Fixed absorber, secondary reflector Treated water, direct steam generation Manual and prototype cleaning robots Fixed receiver tube Minimally treated water, direct steam generation Automatic proven cleaning robots with water recycling n/a Low Low Medium High Low Absorber attached to collector, moves with collector n/a Manual, hand-washing In the next section, we quantify some of the economic benefits of solar EOR, including the savings from using less natural gas. 22 Solar enhanced oil recovery An in-country value assessment for Oman

27 2Contribution to the Omani economy This section provides our analysis of the domestic economic impact of solar EOR for the Sultanate over the period Solar enhanced oil recovery An in-country value assessment for Oman 23

28 2 Contribution to the Omani economy Methodology The full benefits that solar EOR deployment will generate for the Omani economy can be estimated by calculating the Direct, Indirect and Induced effects, as defined below: The Direct effect of solar EOR providers activities, i.e., their contribution to the Omani Gross Domestic Product (Gross Value Added or GVA ) and the jobs it creates. The Indirect effect on GVA and employment arising from solar EOR providers demand for goods and services along its supply chain in Oman. Indirect employment impact arising from industrial jobs created as part of projects using diverted gas saved through solar EOR substitution is presented separately. The Induced effect arising from solar EOR provider and their suppliers employees in Oman spending a share of their income on the consumption of goods and services in the wider Omani economy. Effects are also induced from the private consumption generated by employees hired as part of the industrial projects that would be enabled by the gas savings generated by solar EOR substitution. These effects are assessed for the period based on the following deployment scenarios developed with GlassPoint for the solar EOR technology, listed in Table 7 below. Table 7: Deployment scenarios Source: GlassPoint, EY Tons of steam per day Full-scale - 1,360 4,420 21,420 38,420 72, , , , ,060 Leadership - 1,360 4,420 10,370 17,850 40,154 62,458 84, , ,370 Steady - 1,360 4,420 10,370 17,850 25,670 33,490 41,310 49,130 56,950 These effects are measured using the Input/Output (I/O) model, also known as the Leontief model, a quantitative economic technique commonly used to measure the interdependencies between the various industrial branches of a national economy. In order to calculate relevant industry multipliers, this model requires a comprehensive system of national accounts (SNA) in the format of detailed Input/Output tables. As these are not available in Oman, we assumed that the structure and interdependencies in the Omani economy were broadly in line with those of another GCC country, Kuwait, therefore used the 2010 Kuwaiti Input/Output tables as a proxy to calculate relevant Omani multipliers. This approach is in line with various academic attempts made in the recent past to devize an Omani I/O table using the Kuwaiti I/O as a proxy These attempts include the Global Trade Analysis Project (GTAP) by Purdue University, who produced a 31-sector I/O table for Oman in 2005 based on the available Kuwaiti I/O ratios. This work is not publicly available but a summary of their methodology can be found at: download/6071.pdf, accessed 10 October This methodology implies several adjustments to take into account specificities of the Omani economy. We have not pursued a similar approach as the time needed to adjust for all the specificities of the Omani economy, was not compatible with the timeframe for this project. Moreover, the added benefit is relatively minimal for the purposes of this study. Job multipliers are based on official Omani statistics with regard to employment and compensation, applied to the results derived from the Kuwaiti Input/Output tables. The employment impact is measured as per the maximum number of job years generated under each scenario over the deployment phase, on a cumulative basis over one single year of project-related activity. We assume that this amount of job years will be made permanent after the end of the deployment period, mainly through the development of appropriate regional and global export channels for the solar EOR technology conceived and manufactured in Oman. Relevant expenditure for the purpose of calculating output and GVA impacts is composed of capital expenditure related to the project as well as operating expenditure. Each capital or operating expenditure item is linked to an industrial sector as defined in the input/ output table. Other relevant assumptions are disclosed in Appendices A, C and D. 24 Solar enhanced oil recovery An in-country value assessment for Oman

29 2 Contribution to the Omani economy Commercial deployment of solar EOR Project specifications Acknowledging the growing importance of thermal EOR to Oman and the potential long-term gas supply issue it could generate, PDO began investigating solar-powered EOR in In 2009, the company initiated a tender process that resulted in a 2011 award to GlassPoint for a pilot project. In February 2013, GlassPoint and PDO successfully commissioned the first solar EOR project in the Middle East, a 7MWth pilot plant in Amal, Oman. Deployment scenarios The economic impact of the commercial roll-out of solar EOR is intrinsically dependent on the evolution of technology costs but also on the scale of this roll-out (installed operational generation capacity by the end of the period) and on the deployment profile, i.e., the variation in new capacity installed annually. We have assumed three possible 10-year deployment scenarios for solar EOR in Oman as shown in Table 8 below. The scenarios all assume that by 2023, approximately 370,000 bbl/d of oil production in Oman will result from the deployment of thermal EOR technologies. This is in line with EOR production estimates from PDO, Occidental and other industry stakeholders. We have also assumed that solar EOR accounts for varying proportions of this growth in thermal EOR production. The Steady growth scenario assumes a minimal amount of solar EOR installation. Under this scenario, solar EOR accounts for only 22% of all thermal EOR capacity by the end of the deployment period. Due to this relatively low deployment, its impact on the Omani economy, although visible, remains below its full potential. The Full-scale (deployment) scenario assumes deployment that stretches the solar EOR technology to its technical limit, i.e., 80% of all thermal EOR capacity coming from solar by the end of the deployment period. Under this scenario, the Sultanate has fully embraced a solar EOR revolution and its effects on the economy are transformational. For the purpose of simplicity, we will mainly be discussing the economic impact of the project assuming the Leadership scenario, which will be our Base case, with mentions to sensitivities related to the two other scenarios. Table 8: Deployment scenarios Source: GlassPoint data, EY analysis Scenario Steady Leadership Full-scale Assumptions 53,550 tonnes of steam produced per day GWth of installed capacity Total discounted 54 capex required: USD 6.2 billion 22% of Omani EOR is solargenerated in ,550 tonnes of steam produced per day GWth of installed capacity Total discounted capex 54 required: USD 8.6 billion 50% of Omani EOR is solargenerated in ,480 tonnes of steam produced per day GWth of installed capacity Total discounted capex required 54 : USD 13.8 billion 80% of Omani EOR is solargenerated in 2023 The Leadership scenario assumes a higher level of deployment of solar EOR. By 2023, it accounts for 50% of all thermal EOR capacity. In this scenario we assume that the Sultanate of Oman accelerates the deployment of solar EOR and targets industry leadership with potential export opportunities to other GCC countries and is therefore willing to invest at a higher level than in a steady deployment scenario. 53 Once project reaches required scale. 54 Nominal capex discounted annually at 8.2%. Solar enhanced oil recovery An in-country value assessment for Oman 25

30 2 Contribution to the Omani economy In the economic impact assessment, we do not make any assumptions on the likelihood of any of these scenarios in terms of either capital investment or technical requirements. However, based on current developments in the global solar CSP market and ambitious solar generation programmes announced by countries such as Saudi Arabia (41GWe, or roughly 120GWth in 2030) and Morocco (2GWe, or roughly 6GWth in 2020), we are comfortable that all three scenarios described below represent plausible development possibilities. Figure 12 below shows the expected path in terms of EOR market share for solar steam generation based on each of the three scenarios above. Figure 12: Fraction of solar EOR (as a % of total Omani EOR) from Source: EY analysis % % % % Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18 1-Jan-19 1-Jan-20 1-Jan-21 Full Leadership Steady 1-Jan-22 Direct economic contribution Capital expenditure assumptions The installation of a solar EOR system consists of various processes and equipment. These include site preparation and infrastructure, manufacture of the solar package, tank, and actual construction. We have made the following assumptions in relation to the breakdown of capital expenditure. 1-Jan-23 Table 9: Capex breakdown Source: EY, GlassPoint Capital item Industry code 55 % of Capex Solar package FMET 30.0% Greenhouse BMET 19.0% Piping and controls FMET 20.0% Construction CONS 13.0% Other OMAN 18.0% For the purpose of calculating the direct economic impact associated with the installation of the solar EOR generators, a standard industry code has been associated with each of the main capital expenditure items, which in turn determines which relevant industry multipliers derived from the country s System of National Accounts (SNA) will be used for the calculation of output, GVA and jobs created 55. The economic impact of this project also crucially depends on the proportion of its content that is made in Oman. In that regard, we have made the following assumptions based on the plans GlassPoint has for localization. Table 10: Proportion of Omani content 56 Source: EY, GlassPoint Capital item Omani content 57 Solar package 96.0% Greenhouse 96.0% Piping and controls 42.4% Construction 100.0% Other 72.7% Direct contribution The installation of the solar EOR systems will have a direct effect on economic activity and job creation in the Omani domestic manufacturing and services sectors. A significant portion of value added and manufacturing jobs created for the purpose of the solar EOR roll-out in Oman will extend over the roll-out period, as the technology would be exported to neighboring oilproducing countries facing similar challenges to Oman in terms of gas constraints and oilfield maturity. 55 Industry code used in the nomenclature in the standardised System of National Accounts. Cf. Appendix E 56 Cf. Appendix A for detailed methodology. 26 Solar enhanced oil recovery An in-country value assessment for Oman

31 2 Contribution to the Omani economy Assuming deployment takes place according to the Leadership scenario, where enough capacity to provide a daily average of 121,550 tonnes of steam is installed by the end of 2023; solar power could be originating up to 50% of current annual EOR oil output in Oman by 2024 and its deployment could directly support the creation of up to 21,700 manufacturing, operations and maintenance jobs for Omani nationals over the period between We can also expect that such a roll-out would create a direct contribution of USD 3.6 billion in Gross Value Added (GVA) to Omani GDP over the same decade. Table 11 below shows the sensitivity created by the various deployment scenarios on direct GVA and Omani employment. Table 11: Sensitivities on direct GVA and employment impact, based on deployment scenarios Source: GlassPoint data, EY analysis Steady Leadership Full-scale Direct GVA (USD m) 1,539 3,277 5,234 Total jobs, 39, , ,701 among which Jobs filled by Omani 8,182 23,336 35,289 nationals 57 Direct construction jobs 14,400 41,072 62,108 As the scale of solar capacity installment increases, it may be viable to consider fabrication and welding of structural steel used in the glasshouse trusses and the building and commissioning of a solar package factory for specialized processes for the Oman projects and for potential export to other GCC countries. We have assumed that given the large scale deployment across the three scenarios, that technology providers would build a local factory in all three cases. Indirect economic impact of solar EOR The main indirect impact of the project is linked to the solar EOR project s demand for goods and services along the supply chain, mainly as part of its capital expenditure and intermediate consumption. Similarly to the technology s direct effects, with Oman becoming a centre of excellence for solar EOR, a significant portion of the indirect value added and manufacturing jobs created by the solar EOR supply chain in Oman would extend over the roll-out period through exports. Based on the project s capital expenditure profile, solar EOR s overall indirect effect on the supply chain would amount to USD 2.83 billion in GVA and would create up to 7,071 manufacturing and services jobs for Omani nationals. Table 12 below shows the sensitivity created by the various deployment scenarios on indirect GVA and Omani employment. Table 12: Sensitivities on indirect GVA and employment impact, based on deployment scenarios Source: GlassPoint data, EY analysis Sensitivities Steady Leadership Full-scale Direct GVA (USD m) 1,329 2,831 4,521 Total jobs, 11,886 33,900 51,263 among which Jobs filled by Omani 2,479 7,071 10,693 nationals 58 Indirect jobs supported by construction activity 4,545 12,964 19,605 In Appendix A, we describe how we have calculated the indirect economic output and indirect jobs resulting from the deployment, as well as key assumptions used. In Appendix A, we describe how we have calculated the direct economic output and direct jobs resulting from the deployment of solar EOR, as well as key assumptions used. 57 Once project reaches appropriate scale. 58 Based on current ratio of Omani workers to total domestic employment, as published by the Omani National Centre for Statistics and Information (NCSI). Solar enhanced oil recovery An in-country value assessment for Oman 27

32 2 Contribution to the Omani economy Induced effects The roll-out of solar EOR technology will also have induced effects on the Omani economy via the private consumption of goods and services by employees of technology providers installing the solar EOR projects and their suppliers, which in turn would create additional jobs. These induced effects also include consumption by people employed in the industrial projects that are enabled by gas savings 59. With Oman developing a competitive advantage and subsequent export capacity on solar EOR, these induced effects (including job creation) would tend to remain after the end of the planned roll-out. Assuming the technology is rolled out on the basis of the Leadership scenario, the expected induced effect on GDP is USD 1.32 billion over the deployment phase, which in turn would lead to the creation of up to c.6,700 jobs that would be filled Omani nationals over a total of c.20,400. Table 13 below shows the sensitivity created by the various deployment scenarios on induced GVA and Omani employment. Table 13: Sensitivities on induced GVA and Omani job creation, based on deployment scenarios Source: GlassPoint data, EY analysis Sensitivities Steady Leadership Full-scale Induced GVA 609 1,322 2,108 (USD m) Total jobs 7,251 20,387 31,312 Jobs filled by Omani 2,371 6,663 10,111 nationals 57 Direct construction jobs 2,031 5,710 8, Allow this excess of available natural gas to be used on other thermal EOR projects in order to increase petroleum extraction and therefore increase exports and government revenue. 3. Improve natural gas net trade balance, all other things equal. The indirect impact of natural gas savings due to solar EOR roll-out has been modelled on the basis of percentages of natural gas savings allocated to each of these three purposes. Natural gas as a constraint in the Omani economy Oman s natural gas consumption rose rapidly over the past decade, seeing an annual increase of c.12% from 1999 to The trend is continuing, and a shortfall in feedstock for power generation is already hampering Oman s economic development, especially its industrial policy. Over the last four years, petrochemicals projects valued up to USD 3.49 billion have been cancelled or forestalled as a result of a lack of guaranteed gas feedstock 60. In addition there are at least 28 projects that have applied for gas allocations totalling 138,268 MMBTU per day that are yet to be granted 61. Investing in some of these projects would not only create employment in the Sultanate but also contribute to further diversify the Omani economy away from its current heavy petrochemical industry focus. A list of these projects has been established by the Omani Ministry of Commerce and Industry (MOCI) and we assume that gas savings induced by the roll-out of solar EOR would be redirected to these projects in priority. Use of natural gas savings In addition to the indirect effects on the supply chain of solar EOR component manufacturing, the introduction of solar EOR could have three additional indirect effects: 1. Release natural gas otherwise used for EOR into the wider economy, which would allow projects otherwise unfeasible due to lack of natural gas availability to be developed and trigger additional permanent job creation in the Sultanate. 59 Results presented in this section assume that 100% of gas savings are re-injected in the wider economy. 60 Patrick Osgood, Oman s great gas conundrum, Arabian Oil & Gas, Nov 15, 2011, omans-great-gas-conundrum/#.Une1v6KBoVg, accessed 30 October Kevin Baxter, Gas shortage stalls diversification in Oman, MEED Issue No , July 2010, article, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman

33 2 Contribution to the Omani economy Basic savings Solar EOR would progressively replace natural gas for the generation of the steam required for EOR. Under the Leadership scenario, by the end of 2023, the envisaged deployment of solar EOR would allow Oman to save 331,796 MMBTU of natural gas per day on an on-going basis. Table 14 below shows the sensitivity created by the various deployment scenarios on gas savings in Table 14: Sensitivities on cumulative gas savings, based on deployment scenarios Source: EY analysis Sensitivities Steady Leadership Full-scale Gas savings (MMBTU/day at end of deployment) 146, , ,048 These natural gas savings will have an indirect economic impact of their own, that will depend on how they are channelled into the wider economy, either enabling industrial projects, additional oil production or simply saved from a trade balance perspective. Effects on the wider economy The Omani Government is actively seeking to reduce its dependence on oil income through an accelerated/ intensive industrialization process in recent years. If we assume that 100% of the natural gas savings occurring due to substitution by solar EOR are allocated to the wider economy, this surplus would be redistributed in priority to industrial projects that are currently infeasible mainly due to the lack of access to gas resources with a focus on those with the lowest gas consumption-to-job ratio. Table 15: Projects likely to be enabled by the release of available natural gas Source: MOCI Name Gas required (MMBTU/ day) Total direct FTE Castings and rolling 204 1,200 Calcined Gypsum Steel bars MEG and PET 1, Sulphur Bentonite Highway guards 1, Merchant Bar 1, Porcelain tiles 1, Magnesium 8, Plaster board 1, Calcined lime 2, Calcined lime-2 3, Sugar Refinery 8, PTA/PET 11, MX/PIA 3, Integrated lime processing 1, PET (Expansion) 2, Salt Cluster 31, Cement 31, Steel castings and rolling 20, Total 133,461 5,155 We have identified the following projects as being particularly likely to be enabled by the roll-out of the solar EOR technology and the subsequent release of 331,796 MMBTU/day of available natural gas once full solar EOR deployment has been reached. These projects have been extracted from a list of projects that have applied for gas allocations and are yet to be granted due to lack of access to gas. Solar enhanced oil recovery An in-country value assessment for Oman 29

34 2 Contribution to the Omani economy The median project on this list requires 5,804 MMBTU of natural gas per annum per job created. For the purpose of this analysis, we have assumed firstly that the least energy-intensive projects per job created would be prioritized and secondly that once all the projects on the above list would have been enabled by gas savings, the remaining displaced gas would create additional jobs on the basis of the median project requirements. Figure 13: Cumulative direct job creation related to gas savings over the period Source: NCSI, GlassPoint (data), EY analysis 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18 Food, beverages and tobacco Other chemical products 1-Jan-19 1-Jan-20 1-Jan-21 1-Jan-22 1-Jan-23 Non-metallic products Basic metal products Based on employment statistics produced by the National Centre for Statistics and Information (NCSI), we can assume that 22.4% of manufacturing jobs created as a result of gas savings would go to Omani nationals. As a result, under the leadership deployment scenario, gas savings alone have the potential to directly create up to c.17,700 jobs over the period , c.4,000 of which would be filled by Omani citizens. Table 16 below shows the sensitivity created by the various deployment scenarios on job creation related to gas savings over the period. Table 16: Sensitivities on Omani job creation related to gas savings 62, based on deployment scenarios 63 Source: EY analysis Sensitivities Steady Leadership Full-scale Direct Omani jobs 1,334 3,957 6,770 created due to gas savings Other gas-related 4,614 13,680 23,406 direct manufacturing jobs filled by expatriates 62 Other indirect 4,225 12,528 21,435 and induced jobs Total permanent jobs created by gas savings 10,173 30,164 51,611 Industrial projects that would be enabled by this release of natural gas would also support their own set of jobs in the supply-chain and as well as induced employment through individual consumption. In the Leadership scenario, the total number of jobs that the released gas could directly or indirectly support or induce in Oman could amount to up to c. 30,000 full-time equivalents over the project s deployment period. Increased oil revenues Proved oil reserves in Oman currently stand at 5,500 million barrels. A large part of these reserves are currently not being exploited due to lack of natural gas availability to be used for EOR purposes. Solar EOR will release natural gas due to the substitution by solar powered methods. Under our Leadership scenario, assuming 100% of this released natural gas resource is channelled towards oil extraction 64, up to million extra barrels could be produced over the period Based on forecast Dubai crude oil prices by the US Energy Information Administration, this could generate a discounted USD 11 billion extra oil export revenue over the period 62 Direct, indirect and induced, excluding construction jobs related to the building of the relevant manufacturing facilities enabled by gas savings. 63 Assuming 22.4% of new industrial jobs related to gas savings are filled by Omani nationals (estimate in line with official Omani statistics from the NCSI). Rounded-up to the nearest hundred. 64 Rather than to the wider economy, the effects of which are explained in Page Solar enhanced oil recovery An in-country value assessment for Oman

35 2 Contribution to the Omani economy , 6b of which would go to the government s purse in the form of oil royalties and export taxes. Over the project s lifetime, this additional oil export revenue generated by solar EOR could amount to up to USD 38.9 billion. Table 17: Value of additional oil exports generated by gas savings Source: GlassPoint data, EY analysis Value of additional oil exports (Discounted USDm) Steady Leadership Full-scale ,992 11,003 18,464 Project lifetime 18,231 38,804 62,961 Natural gas trade balance Another alternative is that the release of natural gas goes towards an improvement of net natural-gas related trade balance, allowing for an increase in LNG net exports. Under the Leadership scenario, assuming 100% of these savings are not used for other economic purposes but simply deducted from the national energy bill 65, these would have a discounted net impact of USD million 66 on Oman s balance of payments over the next decade. If we also assume no efficiency loss on solar EOR generators and that a gas-powered thermal EOR capacity equivalent to the solar EOR rollout would have been installed in any case, the market value of these cumulative savings could amount to USD 8.2 billion over the project s lifetime. Table 18: Value of improved gas trade balance Source: GlassPoint data, EY analysis Value of improved gas trade balance (Discounted USDm) Steady Leadership Full-scale Cumulative value ,171 of annual savings, Cumulative value of saved gas over project lifetime 68 3,859 8,234 13,350 Summary of economic impact Table 19 below summarizes the main economic indicators related to the three project roll-out scenarios. The roll-out of solar EOR technology would be beneficial to the Omani economy in the following ways: Over the deployment period, the project could lead to the creation of up to c.196,000 domestic jobs 69 and add up to USD 7.5 billion to Omani GDP 70. As Oman will develop a competitive advantage and subsequent export capacity around solar EOR, a significant part of these effects would become permanent. In addition, the project could induce significant natural gas savings that, depending on the way they are channelled, could either lead to: Additional permanent job creation and GDP contribution by enabling a diversified portfolio of industrial projects. Up to USD 11 billion of additional oil revenue through more EOR output over the deployment period. Up to USD 722 million worth of additional gas exports/reduced net gas imports for the country as the technology is rolled-out over the next ten years. 65 That is none of these savings would be channelled to the wider economy of the oil & gas industry, but simply sold on the spot market/not be imported. 66 Assuming LNG prices as per Appendix C. 67 Market value of cumulative year-on-year gas savings, assuming that LNG prices are as per Appendix C, saved gas is not imported/ is exported on the spot market, thereby improving the country s natural gas trade balance. This implies that no additional gaspowered thermal EOR capacity is added over the period and no more savings are made after the end of deployment. 68 Cumulative value of gas savings with reference to EOR-related gas consumption in year 0 (pre-deployment) over the project s whole operational life (25 years per annual tranche of installed capacity). 69 Filled by Omanis or expatriates in Oman. Assuming 100% of natural gas savings evoked below are channelled into the wider economy (page 29). 70 Excluding potential contribution made by industrial projects enabled by gas savings. Solar enhanced oil recovery An in-country value assessment for Oman 31

36 2 Contribution to the Omani economy 71, 72, Table 19: Summary of the project s economic impact Source: EY analysis Solar fraction of EOR steam Gas savings (MMBTU/day at scale) Output (USD millions) 71 Steady Leadership Full-scale 22% 50% 80% 146, , ,048 Direct 3,872 8,246 13,170 Indirect 3,208 6,832 10,911 Induced 2,634 5,753 9,178 Total output 9,714 20,831 33,259 GVA (USD millions) 71 Direct 1,539 3,277 5,234 Indirect 1,329 2,831 4,521 Induced 660 1,409 2,253 Total GVA 3,528 7,517 12,008 Job creation directly enabled by solar EOR roll-out 72 Total, among which 58, , ,277 Construction-related jobs Job creation enabled by gas savings 72 20,976 59,746 90,483 Total, among which 10,173 30,165 51,611 Direct industrial jobs 5,948 17,637 30,176 Indirect and induced jobs 4,225 12,528 21,435 Total job creation 68, , ,888 Total Omani jobs 14,560 41,574 63,825 Effectiveness of solar thermal for EOR vs. power generation in saving natural gas On page 22 we compared and contrasted various CSP technologies. In this section, we look closer at alternative end-use applications for parabolic trough CSP, comparing GlassPoint s solar EOR application with the Shams solar power plant in the UAE 73. The first phase of the Shams power station, Shams 1, was commissioned in March Shams 1 is a 100MW plant and is the largest solar power electricity generator in the Middle East. It cost about USD 600 million to build. There are technical differences between the Shams and GlassPoint projects driven primarily by end-use application which affect the appropriateness of direct comparison of the cost per ton of steam generated. Estimating gas savings per unit of capital expenditure In light of the discussion above, we have assessed the gas savings from using solar in EOR relative to installing a gas-fired Once-through Steam Generator (OTSG). We have also assessed the gas savings from developing a solar CSP power plant relative to a Combined Cycle Gas Turbine (CCGT). A 100MW CSP power plant such as Shams producing an estimated 230GWh of electricity annually would cost USD 510 million. A hypothetical CCGT operating at a capacity factor of 87% and producing a similar amount of electricity (or fractional ownership of a CCGT) would cost USD 28 million 74. However, the CCGT would consume up to 1,340,000 MMBTU of gas compared to 540,000 MMBTU for the CSP power plant (assuming it has gas boosters). Thus for USD 490 million, the CSP power plant saves an additional 800,000 MMBTU a year of gas. On an annual basis this is equivalent to USD 20/MMBTU. 71 Direct, indirect and induced. 72 Assuming 100% of natural gas savings accured below are channelled into the wider economy and excluding jobs related to the construction of the industrial facilities enabled by gas savings. Job creation directly enabled by solar EOR roll-out excludes potential contribution made by industrial projects enabled by gas savings. Job creation enabled by gas savings is defined as direct, indirect and induced. 73 In CSP solar thermal power generation, solar energy is used to heat water until it turns into a saturated liquid. It is then compressed into steam, which is transferred to a turbine where the pressure of the steam is reduced by expansion over the turbine blades to generate electricity. The low pressure steam is condensed back to a liquid and the return water is mixed with new water (feedwater), and pumped back to the boiler. 74 Overnight cost of solar thermal at 5,096 per kw and 970 for a CCGT see latest EIA. Capacity factor of the CCGT is assumed to be 87% (EIA). 32 Solar enhanced oil recovery An in-country value assessment for Oman

37 2 Contribution to the Omani economy In contrast, a solar EOR steam generator producing 5,820,000 MMBTU of steam output per year would cost approximately USD 660 million without consuming any gas. An OTSG with a similar output of steam would cost USD 72 million and consume approximately 6,840,000 MMBTU of gas per year. Thus for USD 586 million, the solar EOR unit saves an additional 6,840,000 MMBTU of gas annually, which is equivalent to USD 3.40/MMBTU. When the two above scenarios are compared, investing in solar EOR saves up to six times as much gas per unit of capital expenditure compared to a CSP power plant, that is USD 3.4 per MMBTU as opposed to USD 20 per MMBTU of gas. Skill development and innovation The deployment of solar EOR provides an opportunity to develop skills of wider economic benefit to Oman. The scale of the project would expose local engineers to solar technology and its supply chain, enabling them to bridge skills from the existing oil and gas base in Oman and to widen their expertise to a potentially fast-growing strategic industry. Solar experience would also transfer to other uses for instance power generation, desalination and process steam, creating cross-technologically skilled local workforce. Examples of ways in which the fledgling solar EOR sector could contribute to the development of innovation and skills in Oman include: Establishing an industry-university partnership, e.g., with the Sultan Qaboos University and/or endowing a professorship industry-university partnerships are widely developed in the US and Europe. Such a partnership could fund research into areas such as subsurface effects and behavior of solar steam at rock model, lab and simulator level; understanding of local environmental conditions and solar energy and primary research in materials, durability, construction methods. Moreover, endowing a chair at the Sultan Qaboos University would provide a focal point for solar EOR related research and raise the visibility of solar EOR related research in Oman. Examples of successful programmes include current research programme on microbial EOR at the Sultan Qaboos University. Local researchers from the Department of Biology College of Science and the Petroleum and Chemical Engineering Department, College of Engineering received a USD1 m grant and have been leading an international research programme investigating the possibility of using Microbiological process to enhance oil recovery 75. Establishing and managing a corporate staff development program with PDO and other potential clients formal staff development programs would serve PDO s internal needs in thermal recovery field design, project study, facilities design and field operations. It would also bring best practices together with international thermal experts. Establishing and managing a corporate staff development programme to serve the solar EOR Oman supply chain. This would serve any factories opened in Oman and improve the quality of production establishment and project execution within Oman. Solar EOR provides an opportunity for industryleading innovation in Oman. Strategic efforts in that direction could transform Oman into a major renewable energy hub within the Gulf region and the solar EOR revolution if embraced could bring tangible benefits comparable if not superior to those of large-scale projects such as Masdar City in the UAE or the K.A.CARE procurement in Saudi Arabia. At a time when Oman s most prominent neighbors are investing significant amounts of capital in energy efficiency with a view to transition from the old commodity-based model into full-fledged knowledge economies, the solar EOR revolution provides an opportunity to shape Oman s future in a sustainable, yet distinctive way. 75 Microbial EOR Project, Sultan Qaboos University, edu.om/tabid/5835/language/en-us/default.aspx, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 33

38 3Security of energy supply, EOR potential and environmental impacts In this section we discuss: The potential EOR production in the region The potential for technology exports for Oman The environmental benefits of solar EOR The security of energy supply impacts of solar EOR on Oman 34 Solar enhanced oil recovery An in-country value assessment for Oman

39 3 Security of energy supply, EOR potential and environmental impacts EOR in the Middle East and technology export potential As fields mature in the region, countries have adopted different approaches to increasing production. Gas is primarily re-injected to produce more oil. As a result, most countries are now struggling to meet gas demand 76. In 2008, the UAE for instance consumed 653 bcf per annum for re-injection which is expected to rise to 1,590 bcf per annum in Qatar and Oman face similar challenges, though to a lesser extent. The volume of EOR production in the GCC outside of Oman is currently minuscule; however EOR potential is estimated at 475 billion barrels of oil 78, suggesting there is a large medium- to long-term market throughout the region. Table 20 below highlights current projects as well as those planned. In the Leadership scenario, Oman is likely to develop the supply chain, local capabilities, and expertise to export solar EOR technologies to the region and the world. Thermal EOR in Kuwait Kuwait is implementing EOR measures to boost stagnant production from its oilfields. Thermal EOR is currently centred on the Partitioned Neutral Zone (PNZ) area shared with Saudi Arabia. Oil and gas produced in this zone is shared equally. Onshore production in the PNZ centres on the Wafra oil field, which began producing oil in Wafra is the largest of the PNZ s onshore fields, with approximately 3.4 billion barrels of oil in proven and probable reserves. Onshore production in the PNZ has a capacity of 240,000 bbl/d but is in decline. A full-field steam injection project led by Chevron is under development to offset field declines and boost production. The first phase of steam injection is expected to begin in 2017 and to produce up to 80,000 bbl/d. Thermal EOR is expected to eventually boost production to more than 500,000 bbl/d, while the amount of recoverable oil is more estimated at 6 billion bbl. 76 Gas demand in the UAE for re-injection is expected to grow significantly from around 18 billion cubic meters (bcm) in 2008 to approximately 45 bcm by Raed Kombargi et al, Gas Shortage in the GCC, How to Bridge the Gap, Booz & Company Inc., 2010, accessed 30 October Ibid. 78 Manaar Consulting: EOR and IOR in the Middle East, Manaar%20EOR%20Abu%20Dhabi%20March% pdf, accessed 30 October Table 20: Current and planned EOR projects in the Middle East Source: Manaar Consulting, EOR and IOR in the Middle East Saudi Arabia Kuwait/ Saudi Arabia Kuwait United Arab Emirates Turkey Bahrain Iraq Iran Qatar Syria Egypt Current projects Ghawar CO2 EOR trial Wafra steam flood Masdar CO2 EOR project Bati Raman, CO2 EOR project Issaran field Future/potential projects Lower Fars steam flood Dubai CO2 EOR Abu Dhabi offshore chemical EOR Bahrain steam flood Najmah/Qaiyarah steam flood Iran CO2 EOR Kuh-e Mand steam flood Farsi Golshan steam flood Qatar CO2 EOR Suwaidiah steam flood Within Kuwait, the fields of al-ratqa, the southern extension of Iraq s Rumaila structure, and the Abdali field provide potential applications for thermal EOR. All three fields currently contribute 75,000 bbl/d of capacity, with ambitious target to increase supply by Key to increasing production is the development of the Lower Fars heavy crude oil reservoir at the al-ratqa field. This reservoir was until recently not seen as commercially viable due to depth and complexity. In 2010, the Kuwait Oil Company negotiated a joint development plan with ExxonMobil, Shell, and Total which was subsequently abandoned 80. KOC is currently planning to invest up to USD 7 billion in capital expenditure to develop the Lower Fars field. It is aiming at an initial increment of 60,000 bbl/d production in 2018 to be ramped up to 270,000 bbl/d by Lower Fars will be the first crude oil field development in Kuwait to use unconventional technique such as the cyclic steam stimulation (CSS). 79 Kuwait Country Analysis, US Energy Information Administration, accessed 30 October Oxford Business Review Digging deep: Exploring new ways to extract oil, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 35

40 3 Security of energy supply, EOR potential and environmental impacts Thermal EOR in Bahrain Oil and gas production in Bahrain is predominantly in the Bahrain Field previously perceived as nearing the end of its productive life. However, the National Oil and Gas Authority (NOGA) initiated an EOR project in 2009 handing responsibility for its redevelopment to Tatweer Petroleum. Tatweer is owned by nogaholding (the business and investment arm of NOGA), Occidental Petroleum Corporation and Mubadala Development Company. Tatweer is implementing various EOR techniques including waterflooding and steam injection. In 2011, the first steam injection pilot to extract heavy oil was implemented together with a waterflood pilot. The Bahrain field s production capacity is expected to more than triple in seven years time, reaching 100,000 bbl/d. Gas delivery capacity is also expected to increase to over 2 bcf/d, through installation of new facilities and new well completion techniques 81. Implications for solar EOR The potential for EOR in the Middle East is estimated at 475 billion barrels of oil 82, a significant proportion of which would be recovered via thermal techniques. This suggests there is a large market for solar EOR technology throughout the region. Assuming solar EOR captures even 1% of this volume, this would represent a larger market than the entire EOR production in Oman at present. Outside of GlassPoint s 7MW plant in Amal, Chevron Corp. is considering using solar EOR to produce steam to produce heavy crude from the Wafra field in the PNZ, straddling Saudi Arabia and Kuwait Environmental benefits of solar EOR for Oman Using natural gas to create the steam used in thermal EOR has adverse impacts on the environment. Burning natural gas increases carbon dioxide (CO2), nitrogen oxide (NOx) and sulphur dioxide (SO2) emissions into the atmosphere. Methane can also be emitted when natural gas is not burned completely. Using solar energy as a substitute for natural gas for thermal EOR can thus lead to a reduction in emissions of CO2, NOx and SO2. In Table 20 below, we provide quantitative estimates of the environmental benefits of using solar EOR technology in Oman taking into account the volume of natural gas saved under the three scenarios presented in the report as well as the average emissions from burning natural gas, and therefore the emissions abated. In our leadership deployment scenario, CO2 emissions are expected to decline by 8.1 million tons per annum when the systems are fully deployed. The process would also produce NOx and SO2 emissions. Table 20: Emissions abatement Source: Environmental Protection Agency, USA, GlassPoint Emissions Steady Leadership Full-scale CO2 (Million tons/year) Notes: We have used an estimated tons of carbon dioxide per ton of steam. This is based on data from GlassPoint s Amal pilot project. Despite the benefits of CSP technology highlighted above, solar powered technologies can also pose some challenges to the environment. Argonne National Laboratory (2013) suggests that CSP technologies using wet cooling systems can consume large quantities of water (although dry cooling systems use under a tenth of the amount of water used by wet cooling systems) 83. However, GlassPoint s technology does not use a cooling system, meaning their developments in Oman do not cause this adverse impact to the environment. 81 Corporate background, Tatweer Petroleum, tatweerpetroleum.com/en/oilfield/global/oil-field-title.html, accessed 30 October Manaar Consulting: EOR and IOR in the Middle East, Manaar%20EOR%20Abu%20Dhabi%20March% pdf, accessed 30 October Argonne National Laboratory, Solar Energy Planning for the Southwest, 2013, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman

41 3 Security of energy supply, EOR potential and environmental impacts Use of CSP technologies may also have potentially significant impacts on ecological, visual and cultural resources in the region of operation. For example, use of solar energy powered systems precludes use of land within the project footprint, whilst the removal of vegetation can also lead to damage to biological soil crusts. However, given the oil field desert locations where solar EOR would be installed in Oman, these impacts are likely to be minimal. Security of supply benefits of solar EOR for Oman The International Energy Agency (IEA) defines energy security for a country as being the uninterrupted availability of energy sources at affordable prices 84. This is particularly important in the Middle East given a number of ongoing conflicts and sanctions in parts of the region. Quantification of the benefits from a secure energy supply is difficult, but there are clear benefits to Oman from using solar energy for EOR rather than natural gas. There are two types of energy security: long-term and short-term. Long-term security of energy supply is mainly linked to timely investments to supply energy in line with economic developments and environmental needs. This relates to absolute scarcity potential exhaustion of resources such as oil and gas. By contrast, short-term security of energy supply focuses on the ability of the energy system to react promptly to sudden changes in the supply-demand balance. Reliance on imported natural gas creates significant short-term vulnerabilities. This relates to relative scarcity, measuring temporary absence of resources, such as those caused by missing supply capacity. A single measure of energy security requires consideration of both absolute and relative scarcity of energy supply. Given Oman s growing dependence on natural gas and its USD 60 billion LNG deal with Iran for the next 25 years, both its long-term and short-term security of energy supply require consideration 85. Oman imported nearly 200 billion cubic meters of gas between 2008 and 2011 due to increasing demand from its industrial and domestic sectors. These imports were mainly through the Dolphin pipeline from Qatar. The World Bank s Worldwide Governance Indicators (WGI) rank each country by political stability and an absence of violence/terrorism, reflecting perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism 86. Qatar was ranked 92 in 2012 (a higher ranking means greater stability), suggesting it is one of the most politically stable countries in the world. However, Oman s reliance on Iran following the aforementioned LNG deal will pose more significant challenges on this front, as Iran is ranked 10 in the WGI rankings, suggesting it is one of the most politically volatile countries in the world. Given the context above, use of solar EOR carries obvious advantages in terms of security of energy supply for Oman. Using solar power rather than natural gas for oil recovery can free up natural gas for other uses in Oman s industrial sectors, in turn reducing the risk inherent in reliance on Iran for significant natural gas imports. 84 International Energy Agency (IEA), Energy Security, iea.org/topics/energysecurity/, accessed 30 October Daniel Fineren, Oman signs MoU to import Iranian gas, Reuters, 27 Aug 2013, accessed 30 October World Bank s Worldwide Governance Indicators, 2013, info.worldbank.org/governance/wgi/index.aspx#home, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 37

42 Glossary bbl/d bbl BTU bcf cf CSP EOR E&P FTE GCC GDP GVA IEA I/O LNG mcf MMBTU MOCI MOG MOSES MPC NCSI OMR ORPIC PDO SBSSG SOM SNA TAGOGD Barrels per day Barrel British Thermal Unit Billion cubic feet Cubic feet Concentrated Solar Power Enhanced Oil Recovery Exploration and Production Full-time equivalent Gulf Cooperation Council Gross Domestic Product Gross Value Added International Energy Agency Input/Output Liquefied Natural Gas Million cubic feet Millions of British Thermal Units Ministry of Commerce and Industry (Oman) Ministry of Oil and Gas (Oman) Model of Short-Term Energy Security Marginal Propensity to Consume National Centre for Statistics and Information (Oman) Omani Rial Oman Oil Refineries and Petroleum Industries Company Petroleum Development Oman Standard Block Solar Steam Generator Shell Oman Marketing System of National Accounts Thermally Assisted Gas Oil Gravity Drainage 38 Solar enhanced oil recovery An in-country value assessment for Oman

43 Appendices Solar enhanced oil recovery An in-country value assessment for Oman 39