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 3 1. Enhanced oil recovery in Oman 9 Omani oil and gas sector 10 Enhanced oil recovery 13 Solar EOR and CSP technologies Contribution to the Omani economy 25 Methodology 26 Commercial deployment of solar EOR 27 Direct economic contribution 28 Indirect economic impact of solar EOR 29 Induced effects 30 Use of natural gas savings 30 Summary of economic impact 33 Effectiveness of solar thermal for EOR vs. power generation in saving natural gas 34 Skill development and innovation Security of energy supply, EOR potential and environmental impacts 36 EOR in the Middle East and technology export potential Glossary 40 Appendices 41 Appendix A Methodology 42 Appendix B Sources 48 Appendix C Time-independent assumptions 49 Appendix D Time-dependent assumptions 50 Appendix E Industry nomenclature 51 Solar enhanced oil recovery An in-country value assessment for Oman 1

4 2 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 3

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 10 years, due to the maturity of its 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. in EOR. Petroleum Development Oman (PDO), which 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. 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 redirected 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, 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. 4 Solar enhanced oil recovery An in-country value assessment for Oman

7 Executive summary Deploying solar EOR could provide a hedge that reduces 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. 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 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 gas- of a reservoir. PDO began investigating solar steam generation in importance to Oman was going to create a long-term tender process. This resulted in an award to GlassPoint Solar in August 2011 for the construction of a 7MWth 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. 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 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 5

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: 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 ca.722 m EOR costs over deployment period (USD millions) 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 rollout of solar EOR technology under the Leadership scenario would 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. 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 ca. 30,000 jobs and an additional contribution to GDP 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 rollout (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. 6 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% Total investment (USD billions) 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 rollout 10 Total, among which 58, , ,275 Direct 24,714 70, ,593 Indirect 7,341 20,936 31,658 Induced 5,220 14,677 22,541 Construction-related 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, , ,886 Total excluding construction jobs 47, , ,403 Total Omani jobs 14,560 41,574 63, Direct, indirect and induced. Solar enhanced oil recovery An in-country value assessment for Oman 7

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 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 saves up to six times as much gas per unit of capital expenditure as is saved by a CSP plant. 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 and through funding of research into different areas, such as subsurface effects and behavior of solar powergenerated 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 this opportunity will be thermal EOR, for which solar EOR is likely to compete. The most likely immediate steam injection project led by Chevron that is under 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 may provide an immediate export opportunity. Substitution of natural gas by solar EOR will contribute to the 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 the 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) and also because At a macro level, solar EOR will improve both shortterm and long-term energy security for Oman. It will reduce the long-term risk of scarcity of gas, if deployed natural gas (LNG) cargoes, which are subject to sudden short-term changes in availability and costs. its USD 60b 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 sectors, thereby reducing the risk inherent in reliance 12 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 process and a description of the solar enhanced oil recovery process and key technologies. Solar enhanced oil recovery An in-country value assessment for Oman 9

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 ,000 bbl/d, but dropped to 710,000 bbl/d in 2007 Since then, the decline has been successfully reversed and oil production has increased on an annual basis 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 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 16. (84% in 2012) is exported to Asian markets. China 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. production in EOR. In 2012, the Sultanate used up to 22% of its dry gas production for this purpose 18. three 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 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, 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. 10 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 Table 3 below provides an overview of the oil and 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 Proved reserves, ,000 Dry natural gas production, Dry natural gas consumption, Reserves-to-production ratio 32 years 2011 Overview of the supply chain and key market participants Oil and gas production is dominated by Petroleum Development Oman, which produces more than 80% of owned by the Sultanate of Oman (60%), Royal Dutch Shell (34%), Total (4%) and Partex (2%) 20. PDO explores drilling wells and constructing and operating various hydrocarbon treatment and transport facilities. Occidental Petroleum Corporation, which has been operating in Oman for over 30 years, is another key Block 62 in northern Oman 21. At Mukhaizna, Oxy has implemented an aggressive drilling and development produced about 120,000 bbl/d of oil, which was over 15 times higher than the rate of production in September production systems on behalf of the Government of Oman. The gas is delivered to the Government Gas power stations and some of its industries, and to the 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 for cooking 22. Oman is connected to the rest of the Gulf Cooperation Council countries by the Dolphin pipeline, which runs Oman exported gas to the UAE on a three-year contract that ended in August Since then, it has imported 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 11

14 1 Enhanced oil recovery in Oman 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, 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 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 Distribution End-uses 70% OIL 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 LNG Become One, Oman LNG LLC, accessed 30 October 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 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 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 the 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 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) that are yet to be granted 32. This continuous increase in domestic demand for natural gas makes a planned rollout of a solar EOR technology in Oman an attractive economic proposition. exploration programme is currently underway. As of September 2012, an estimated USD 1.8 billion execution. Much of this work was related to offsetting are a handful of new developments taking place as 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 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 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 & Gas, Oman, s1-4_ali-presentation-4.pdf, accessed 30 October Oman Country Analysis, US Energy Information Administration, 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 Nov 15, 2011, omans-great-gas-conundrum/#.une1v6kbovg, accessed 30 October Issue No , July 2010, article, accessed 30 October OPEC World Oil Outlook, 2012, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 13

16 1 Enhanced oil recovery in Oman The various EOR techniques These techniques can be described in the 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 are: Primary oil recovery Natural ow Arti cial lift ~Less than 30% Secondary oil recovery Reservoir is subjected to water ooding or gas injection to maintain a pressure that continues to move oil to the surface. Uses are: Water ooding Pressure maintenance 30 50% Introduces uids/gases that reduce viscosity and improve ow. Uses are: Improved oil recovery Tertiary oil recovery Thermal steam, hot water, combustion Gas injection CO2, hydrocarbon, nitrogen/ ue 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 consist of gases that are miscible with oil (typically carbon dioxide), steam, air or oxygen, polymer solutions, gels, surfactant-polymer formulations, alkaline-surfactant-polymer formulations, or microorganism formulations. depth, the properties of the oil contained therein, Figure 6, steam injection to thin oil or polymers to thicken water and improve the sweep of oil recovery the Middle East. Conversely, carbon dioxide and other gases that become miscible with oil and reduce the residual oil saturation in the reservoir are better suited pressure and temperature. 14 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 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 gov/fe/science-innovation/oil-gas/enhanced-oil-recovery, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 15

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. experiences of Chevron, the successful application instrumental in the 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 the declining of its 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. Source: California State Department of Conservation, Division of Oil, Gas and Geothermal Resources; Chevron 50 Annual production (Mb/a) Primary Steam ood 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, EY estimates from PDO, Occidental reports and EIA. 16 Solar enhanced oil recovery An in-country value assessment for Oman

19 1 Enhanced oil recovery in Oman Source: EIA, PDO, OOCEP EOR technology Key details Mukhaizna Thermal EOR (steam 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 about 120,000 bbl/d. to a plateau rate of c.150,000 bbl/d 39. 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% to 5% under cold production to ca.20 to 35% with steam TAGOGD. PDO expects the project to increase production by 40,000 bbl/d by Oman. In this project a 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. years, up from the current 44,000 bbl/d 41. Marmul is a heavy-oil sandstone reservoir located in southern Oman 42. extension of the production plateau by 20 years. Commercial-scale polymer 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 In December 2012, GlassPoint completed the construction of a 7MWth pilot 43. 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 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 October Solar enhanced oil recovery An in-country value assessment for Oman 17

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 EOR production as a percentage of the total portfolio of projects is still relatively low. In 2011, EOR and sour 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 and suggests considerable potential for the use of solar EOR in Oman over the next decade. 46 PDO has also announced plans to drill more than 100 of USD 800 million. By 2022, it plans to commission 16 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 bb/d of capacity, projects is expected to cost well over USD 1b 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 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, they have 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, that has no negative impact on oil production levels 48. Thus it is technically a comparable substitute for natural gas. Taking into account the total cost of ownership of the system, including capital and operating expenditure be competitive with that of natural gas for EOR. 49 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 of steam generated via solar energy is independent of natural gas. 45 Sour gas and EOR project portfolios are provided in aggregate and 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. 18 Solar enhanced oil recovery An in-country value assessment for Oman

21 1 Enhanced oil recovery in Oman 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 30 years, providing certainty on the cost of steam. In addition, because solar EOR has minimal steaming wells for a longer period of time than if gas- Experiences in solar EOR 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 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, California, USA County, California, USA 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 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. 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 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 19

22 1 Enhanced oil recovery in Oman Concentrating solar power (CSP) technologies CSP is a type of solar thermal technology that uses 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 material. In contrast, solar thermal delivers thermal energy which can then be converted into electricity. CSP, a type of solar thermal technology, uses mirrors 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 100GW up from only 1.5GW in CSP on the other hand is a re-emerging technology. Up to 350MW 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, is primarily designed for commercial power generation. The largest CSP project at present is the 392MW Ivanpah Solar Electric Generating System 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, 20 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 2.8GW 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 Solar tower technology mirrors (heliostats) follow the movement of the sun the mirrors onto a solar receiver at the top of a tower. The receiver is used to directly or indirectly heat 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 or slightly curved, mirrors placed at different angles to concentrate the sunlight on either side equipped with a single-axis tracking system and is optimized individually to ensure that sunlight is consists of a long, selectively-coated absorber tube. Major technology developers include Areva and Novatec. The Stirling dish technology Stirling dish system consists of a parabolic dish-shaped 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 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 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 21

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 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 for power generation. and other delicate components are protected inside a glasshouse structure. The glasshouse protects the system from the humidity, sand and dust common 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-lightweight 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. 22 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: to reinforce the solar collectors from harsh desert winds. It also enables the use of low-cost, lightweight mirrors and weight of exposed parabolic trough systems. Automated washing: 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 costly to produce. The enclosed trough produces lower temperature steam within the desired range for thermal EOR. eliminates the need for expensive desalination, water treatment and heat exchangers. In addition, the enclosed trough Source: GlassPoint Figure 11: Enclosed trough design Source: GlassPoint Solar enhanced oil recovery An in-country value assessment for Oman 23

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 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, Treated water, direct steam generation or molten Manual and semi-automated trucks Fixed absorber, secondary 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 natural gas. 24 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 25

28 2 Contribution to the Omani economy Methodology 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 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 providers 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, and 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 devise 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 Omani economy. We have not pursued a similar approach as the time not compatible with the timeframe for this project. Moreover, the 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 number 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 Output table. Other relevant assumptions are disclosed in Appendices A, C and D. 26 Solar enhanced oil recovery An in-country value assessment for Oman

29 2 Contribution to the Omani economy Commercial deployment of solar EOR 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 pilot plant in Amal, Oman. Deployment scenarios The economic impact of the commercial rollout of solar EOR is intrinsically dependent on the evolution of technology costs but also on the scale of the rollout (installed operational generation capacity by the end 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. 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 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. 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 of 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 Once project reaches required scale. 54 Nominal capex discounted annually at 8.2%. Solar enhanced oil recovery An in-country value assessment for Oman 27

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 programs 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 1-Jan-23 The installation of a solar EOR system consists of various processes and equipment. These include site preparation and infrastructure, manufacture of the solar package and tank, and actual construction. We have made the following assumptions in relation to the breakdown of capital expenditure. 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 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 GlassPoint plans 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. jobs created for the purpose of the solar EOR roll-out in Oman will extend over the rollout period, as the technology would be exported to neighboring oil- 55 Industry code used in the nomenclature in the standardised System of National Accounts. Cf. Appendix E 56 Cf. Appendix A for detailed methodology. 28 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, in which 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 rollout 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 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 along the supply chain, mainly as part of its capital expenditure and intermediate consumption. Similarly of the indirect value added and manufacturing jobs created by the solar EOR supply chain in Oman would extend over the rollout period through exports. 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 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 29

32 2 Contribution to the Omani economy Induced effects The rollout 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. As Oman develops 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 rollout. 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 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 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 being equal The indirect impact of natural gas savings due to solar EOR rollout 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 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 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 rollout 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 Nov 15, 2011, omans-great-gas-conundrum/#.Une1v6KBoVg, accessed 30 October 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 ongoing 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, which will depend on how they are channelled into the wider economy, either enabling industrial projects or additional oil production or simply saved from a trade balance perspective. Effects on the wider economy The Omani Government has been 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, , , 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 particularly likely to be enabled by the rollout 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 the previously mentioned list of projects that have applied for gas allocations but have yet to be granted due to lack of access to gas. Solar enhanced oil recovery An in-country value assessment for Oman 31

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 that the least energy-intensive projects per job created would be prioritized and secondly that once all the projects on the above list were 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 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 direct manufacturing expatriates 62 4,614 13,680 23,406 Other indirect and induced jobs Total permanent jobs created by gas savings 4,225 12,528 21,435 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, 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 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 solarpowered 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 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 , USD 6b of which would go to the 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 the net natural gasrelated 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, they would have a discounted net impact of USD million 66 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 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 of annual savings, ,171 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 rollout scenarios. 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 portion of these effects would become permanent. natural gas savings that, depending on the way they are channelled, could either lead to: Additional permanent job creation and 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 10 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/ 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 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 31). 70 Excluding potential contribution made by industrial projects enabled by gas savings. Solar enhanced oil recovery An in-country value assessment for Oman 33

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 Total investment (USD billions) Gas savings (MMBTU/day at scale) Output (USD millions) 71 Steady Leadership Full-scale 22% 50% 80% , , ,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 rollout 72 Total, among which 58, , ,275 Direct 24,714 70, ,593 Indirect 7,341 20,936 31,658 Induced 5,220 14,677 22,541 Construction-related 20,976 59,746 90,483 Job creation enabled by gas savings 72 Total, among which 10,173 30,165 51,611 Direct industrial jobs 5,948 17,637 30,176 Indirect and 4,225 12,528 21,435 induced jobs Total job creation 68, , ,886 Total excluding construction jobs 47, , ,403 Effectiveness of solar thermal for EOR vs. power generation in saving natural gas On page 24 we compared and contrasted various CSP technologies. In this section, we look more closely at alternative end-use applications for parabolic trough with the Shams solar power plant in the UAE 73. 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 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. Total Omani jobs 14,560 41,574 63, 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. 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 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). 34 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 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 a cross-technologically skilled local workforce. 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 and construction methods. Moreover, would provide a focal point for solar EOR-related research and raise the visibility of solar EOR-related research in Oman. Examples of successful programs include a current research program on microbial researchers from the Department of Biology College of Science and the Petroleum and Chemical Engineering Department, College of Engineering received a USD 1m 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 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 large-scale projects such as Masdar City in the UAE or the K.A.CARE procurement in Saudi Arabia. economies, the solar EOR revolution provides an yet distinctive way. 75 edu.om/tabid/5835/language/en-us/default.aspx, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 35

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 security of energy supply impacts of solar EOR on Oman 36 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 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 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 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 is currently centered 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 centers on the Wafra 3.4 billion barrels of oil in proven and probable reserves. Onshore production in the PNZ has a capacity injection project led by Chevron is under development 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 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 Masdar CO2 EOR project Bati Raman, CO2 EOR project Future/potential projects Dubai CO2 EOR Abu Dhabi offshore chemical EOR Iran CO2 EOR 2 EOR of capacity, with an ambitious target to increase supply by Key to increasing production is the development of the Lower Fars heavy crude 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 that was subsequently abandoned 80. KOC is currently planning to invest up to USD 7 billion in capital at an initial increment of 60,000 bbl/d production in 2018, to be ramped up to 270,000 bbl/d by Kuwait to use an unconventional technique such as the cyclic steam stimulation (CSS). 79 Kuwait Country Analysis, US Energy Information Administration, 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 37

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, 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 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. Corp. is considering using solar EOR to produce steam straddling Saudi Arabia and Kuwait 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 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 earlier, 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 less than a tenth of the amount of water used by wet cooling systems) 83 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, 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 resources in the region of operation. For example, use of solar energy-powered systems precludes use of land within the project footprint, while the removal of vegetation can also lead to damage to biological soil where solar EOR would be installed in Oman, these impacts are likely to be minimal. of solar EOR for Oman security for a country as being the uninterrupted availability of energy sources at affordable prices 84. This is particularly important in the Middle East 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. short-term vulnerabilities. This relates to relative scarcity, measuring the 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. 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 (WGI) rank each country by political stability and an of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism 86. greater stability), suggesting it is one of the most reliance on Iran following the aforementioned LNG deal is ranked 10 in the WGI rankings, suggesting it is one of the most politically volatile countries in the world. Given this 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 industrial sectors, in turn reducing the risk inherent 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, 86 info.worldbank.org/governance/wgi/index.aspx#home, accessed 30 October Solar enhanced oil recovery An in-country value assessment for Oman 39

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 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 Petroleum Development Oman Standard Block Solar Steam Generator Shell Oman Marketing System of National Accounts Thermally Assisted Gas Oil Gravity Drainage 40 Solar enhanced oil recovery An in-country value assessment for Oman

43 Appendices Solar enhanced oil recovery An in-country value assessment for Oman 41

44 A Appendix Methodology generate for the Omani economy can be estimated by calculating the direct, indirect and induced effects, a share of their income on the consumption of goods and services in the wider Omani economy. i.e., their contribution to the Omani Gross Domestic Product and the jobs it creates. demand for goods and services along their supply chain in Oman. Figure 14: Overview of our methodology for economic impact assessments Source: EY Inputs Allocation Multiplier calculations Outputs Economic activity Gross value added Contribution to GDP Direct Indirect multipliers Local purchases Demand Indirect GVA Indirect Imports Compensation of employees Consumption Induced multipliers Induced GVA Induced 42 Solar enhanced oil recovery An in-country value assessment for Oman

45 Appendix A Methodology These effects are assessed for the period based on the following deployment scenarios developed with GlassPoint for the solar EOR technology, listed in Table 21 below. Table 21: Deployment scenarios Source: GlassPoint Tons of steam per day ,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 Persian Gulf country, Kuwait, and 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 devise an Omani I/O table using the Kuwaiti I/O as a proxy 87. 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 number 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 Output table. Other relevant assumptions are disclosed in Appendices B and C. 87 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. This methodology implies several adjustments not pursued a similar approach as the time needed to adjust for all purpose of this study. Solar enhanced oil recovery An in-country value assessment for Oman 43

46 Appendix A Methodology Oil and gas exploration in Oman the Oman Basin, which spans most of the country. exclave on the Musandam Peninsula, all of which are production in the country occurred in Block 8 off the coast of the Musandam Peninsula 88. As of 2013, there were E&P activities occurring in 28 exploration blocks. Oman anticipated awarding two onshore exploration blocks in late 2013, and plans to put another seven blocks (four onshore and three offshore) to tender in the near future. Recent exploration developments likely to affect future oil in March 2013 that Block 53 could contain hundreds of millions of barrels of oil. 89 wells at an estimated cost of USD 800 million. By 2022, it plans to commission 16 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 expected to cost well over USD 1 billion and to be implemented over the next 8 10 years. Similar levels of investment are expected for natural gas. 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 although there are a handful of new developments tcf of gas reserves are in place in reservoirs located 4 km below ground. This project is expected to cost c. USD 15 billion over 10 years and is being depend on the outcome of ongoing negotiations between BP and the Government of Oman. 88 US Energy Information Administration, Oman Report October Ibid. 44 Solar enhanced oil recovery An in-country value assessment for Oman

47 Appendix A Methodology Table 22: New oil and gas projects in Oman Source: EIA Project Completion date* Project details Rabab Harweel Integrated Project Yibal Khuff/ Budour Musandam oil and gas plant Khazzan tight Development of oil and gas reserves and construction of an integrated oil and sour gas facility. Gas will be taken from the Rabab to maximize recovery. PDO aims to increase recovery rates at Yibal to 55% through via a gathering system to a new central processing facility. The gas is then exported into the northern gas network while the condensate/oil will be fed into the existing oil export pipeline running from Yibal. The project is expected to be tendered in carrying the oil and gas to a new production facility. Apart from PDO, other exploration and production activity from DNO of Norway, OOCEP and MOL, among others. Production capacity of 20,000 bbl/d of stabilized export crude oil, 45 mcf/d of gas and 80 t/d of LPG. Gas feedstock expected to come from Bukha and West Bukha oil (scalable to 240MW). Project is being developed by Oman Oil Company Exploration & Production (OOCEP). EPC contract worth USD 600 million was awarded to Hyundai Engineering in December OOCEP is also developing the Abu Butabul gas processing plant located in block 60, which will have a capacity of 90 mcf/d. The most ambitious tight gas project in Oman is planned for block 61, where c tcf of gas reserves are in place in reservoirs located 4km below ground. The project is expected to cost c. USD 15 billion over 10 years and is being developed by BP. Final investment decision depends on the outcome of the ongoing negotiations between BP and the Government of Oman. history and may encourage other unconventional gas developments, including Yibal sour gas and Khulud tight gas, both of which are under study by PDO. Khazzan is expected to increase gas production to 4.7 bcf/day in 2019 from the present 3,400 cf/day, offsetting declines in gas production from PDO. Solar enhanced oil recovery An in-country value assessment for Oman 45

48 Appendix A Methodology Review of system cost drivers that affect the cost assumptions used in this report, for completeness of the study. Direct normal irradiance Direct normal irradiance (DNI) is the amount of solar radiation from the direction of the sun. DNI is measured in kilowatt-hours per square meter per day (kwh/(m² day). CSP plants require abundant direct solar radiation in order to generate steam for solar EOR or for power generation, given that only strong direct sunlight can be concentrated to the temperatures required for electricity generation. This limits CSP to hot, dry regions. At present, CSP power plants require direct normal irradiance DNI levels of 2,000kWh/m 2 /year or more to be economical, although they can technically operate at lower levels of DNI. CSP plants in areas with high DNI will have a lower Levelized Cost of Energy (LCOE), all else being equal. Higher levels of DNI have a strong impact, although not one-to-one, on the LCOE. The amount of irradiance annually received by a surface can be maximized by keeping it normal to incoming radiation. Table 23: Global solar radiation data for different cities in Oman (kwh/m 2 /day). Source: Sujit Kumar Jha, Application of Solar Photovoltaic System in Oman Overview of Technology, Opportunities and Challenges, International Journal of Renewable Energy Research, Vol.3, No.2, 2013 City Average daily insolation Estimated annual insolation As Sib 5.6 2,044 Suwaiq ,039 Buraimi ,963 Sur ,653 Salalah ,211 Ibri 5.6 2,047 Muscat 5.6 2,042 Fahud ,077 Khasab ,222 Sohar ,981 Note: Annual estimate is calculated as the monthly average multiplied by calendar days Table 23 highlights the differences in DNI across selected cities in Oman. Estimated annual averages across selected cities range from 1,653 in Sur to 2,222 in Khasab at the very northern tip close to Iran and 2,211 in Salalah near Yemen. 46 Solar enhanced oil recovery An in-country value assessment for Oman

49 Appendix A Methodology Figure 15 below shows differences in costs due to varying levels of insolation. Assuming all else constant, the implied cost differentials are due to varying levels of irradiance. Figure 15: Levelized cost of energy of a CSP plant as a function of DNI Source: International Renewable Energy Agency (IRENA), Renewable Energy Technologies: Cost Analysis Series 110% 105% 100% Percentage compared to reference plant in Spain 95% 90% 85% 80% 75% 70% 65% 60% % % % Italy Greece Southern Turkey Spain Portugal UAE Tunisia Arizona, USA Oman Saudi (max) Arabia Nevada, USA Morocco Ausralia California, USA Algeria South Africa Chile % Compared to reference plant in Spain DNI in KWh/M We have not explicitly modelled the impact of solar insolation on the economics of the deployment scenarios presented in this report and have used average steam output data. However, as the differences in average irradiance show, the location of the plant and the amount of insolation received will have an impact on steam output. Solar enhanced oil recovery An in-country value assessment for Oman 47

50 B Appendix Sources UK Department of Energy and Climate Change (DECC) International Energy Agency, World Energy Outlook International Monetary Fund World Bank Ministry of Oil and Gas, Oman Ministry of Commerce and Industry, Oman National Centre for Statistics and Information (NCSI), Oman Central Statistical Bureau, Kuwait US Energy Information Administration US Bureau of Fossil Energy Oxford Economics Booz SBI Reports XE.com Global Trade Analysis Project (GTAP), Purdue University Enhanced Oil Recovery: Challenges and Opportunities, Saudi-Aramco, World Petroleum Council, Kokal and Al-Kaabi, 2010 IHS Global Insight Argonne National Laboratory 48 Solar enhanced oil recovery An in-country value assessment for Oman

51 C Appendix Time-independent assumptions Economy OMR/USD exchange rate % Annual Omani petroleum output 942,000 bbd ( ) Annual Omani EOR (2013) 68,000 bbd Petroleum price (USD/bbl, ) LNG price (USD/MMBTU, 2013) Estimated Omani marginal propensity to consume (MPC) 81.5% Technical conversion rates 0.85 (MMBTU/MMBTU) 2.18 (MMBTU/ton) MWh/ton of steam produced Steam mass conversion 6.58 (bbl/ton) conversion (cf/mmbtu) Steam required for EOR 4.50 (bbl/bbl) Tax Corporation tax rate 12.0 % Royalties oil & gas 55.0 % Social security contributions 9.5 % (employer) Social security contributions 6.5 % (employee) Income tax none VAT none Timing Nominal discount rate 8.2% Real discount rate 5.0% Construction period 12 months First unit construction 1 January 2014 start date Cutoff date for analysis 31 December 2023 Solar enhanced oil recovery An in-country value assessment for Oman 49

52 D Appendix Time-dependent assumptions Project s steam production (tons/day) Full deployment 1,360 4,420 21,420 38,420 72, , , , ,060 Leadership deployment 1,360 4,420 10,370 17,850 40,154 62,458 84, , ,370 Steady deployment 1,360 4,420 10,370 17,850 25,670 33,490 41,310 49,130 56,950 Hydrocarbon prices (USD) Gas (/ MMBTU) Oil (/bbl) Oil production ( 000 bbd/day) EOR ( 000 bbd/ day) Total ( 000 bbd/ day) Solar enhanced oil recovery An in-country value assessment for Oman

53 E Appendix Industry nomenclature Industry Agriculture and livestock Fishing Crude petroleum and natural gas Food, beverages and tobacco Textiles and wearing apparel Wood and wood products Paper products, printing and publishing Other chemical products Non-metallic products Basic metal products Fabricated metal products Other manufacturers Electricity and gas Water Construction Wholesale and retail trade Hotels and restaurants Transport and storage Communication Financial institutions Insurance Real estate Public administration Sanitary services Education services Medical and health services Recreational and cultural services Personal and household services Code AGRI FISH CPET FOOD TEXT WOOD PAPE PREF OCHE NMET BMET FMET OMAN ELEC WATE CONS TRAD HOSP TRAN COMM FINI INSU REST PUBL SANI EDUC MEDI RECR PERS Solar enhanced oil recovery An in-country value assessment for Oman 51

54 Notes Solar enhanced oil recovery An in-country value assessment for Oman

55

56 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG No. DW indd (UK) 01/14. Artwork by Creative Services Group Design. ED MMYY / ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com