Oman industry: Gas limits. Check it out:
(EIU Viewswire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
Growing demands on its limited natural gas reserves present a challenge for Oman. In the absence of new discoveries, the government may face some difficult decisions
When Omani officials are listing the countrys selling-points to entice investors, its long-standing political stability tends to come top of the list. Under the 35-year rule of Sultan Qaboos bin Said al-Said, Oman has managed to strike an impressive balance between economic development and social continuity. Now, however, the country is facing a major demographic challenge. Substantial numbers of the overwhelmingly young citizen population (55% of whom are under the age of 20) are shortly set to graduate from school or university and launch themselves into the labour market. If Oman is to retain its reputation for political and social tranquillity, they must be found jobs. Andin keeping with its fiscal caution and awareness of the transience of oil incomethe government wants those jobs to be in the private sector.
Jobs for the boys (and girls)
Omans oil reserves are respectable, rather than superabundant, and currently look set to run out in about two decades time. In keeping with all the best international advice, the Omani government is trying to make responsible use of the current economic boom fuelled by high oil prices to promote sustainable diversification in labour-intensive industries. At the same time, it is implementing a policy of Omanisation, imposing targets on businesses for the employment of Omani nationals. (The Omani population is larger and poorer than the citizenries of many other Gulf states, outnumbering expatriate workers by a proportion of around 3:1, with a GDP/head of US$16,000.) Less controversially, the government is also making sustained efforts to improve education and training.
Oman has high hopes for the future prospects and employment opportunities provided by its tourism industry. Currently, however, this sector constitutes only a small percentage of GDP. Moreover, the government perceives a need to proceed with caution, focusing on the more limited high-end market. Officials fondest hopes are therefore centred on the rapidly-growing set of gas-based industries centred around Sohar, on the northern Batinah coast. These new ventures, which include an aluminium smelter and various petrochemical plants, themselves provide some jobs. They also have a potentially much larger knock-on effect on employment, as labour-intensive small- and medium-sized enterprises (SMEs) are set up to provide them with inputs and process their products.
There is, however, a problem. Omans existing natural gas reserves are already overcommitted, and demand is rising. The government gas system, which supplies local residences and businesses as well as the gas-based industries, takes just under a quarter of total output. Oman also now has no less than three liquefied natural gas (LNG) trains. The latest, Qalhat LNG, was formally opened this March. The three trains now absorb almost half of total gas output. Moreover, the figures from Qalhat suggest that it is not yet functioning at full capacity, and its requirement is therefore likely to increase further in order to fulfil its various long-term sale and purchase agreements. Finally, Oman is trying to make the most of its oil reserves (which are not only limited, but also locked away in some very difficult fields), through the use of enhanced oil recovery (EOR) techniques. These and other oil-company operations often require the use of natural gasand most of the associated gas produced in Oman (over 20% of the total) is currently re-injected, flared, or used as fuel in the oil-fields. The oil companies, which previously treated the gas largely as a by-product, are now being asked by the government to account for it.
On the hunt
There is little scope to limit natural gas usage in any of these areas. The countrys best alternative would obviously be to avoid the problem entirely by finding more reserves. In this cause, the ministry of oil and gas has offered additional concessions across the country, with Block 60, including the Abu Butabul field, being awarded to BG Group of the UK in April. The winner of another concession, at Khazan, will be announced soon, with BG once again among the frontrunners. These are geologically complex fields, however, and further exploration will take time. So the government has a back-up plan: to become a gas importer. An agreement has already been signed to import gas from Qatar through the Dolphin pipeline from early 2008. There are also ongoing discussions of the possibility of importing gas from Iran. The quantity of Dolphin gas available is likely to be small, however, with the UAE (which now imports around 4% of Omans total natural gas production) taking most of it. In either case, Oman is likely to be paying a high market price for the commodity.
This raises questions about the economics of the entire enterprise. Gas-based industries have been enticed to Oman, in a competitive international market, by the promise of cheap energy. But Omanis may begin to question the concept of importing natural gas at a premium in order to sell it at a subsidised price. Will the cost really be outweighed by the hoped-for benefits in terms of economic diversification, employment and social stability?
SOURCE: Business Middle East
Copyright 2006 Economist Intelligence Unit
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