What is the situation for Oil Companies in Oman?

Solutions to Oil companies in Oman

Oman, the largest oil producer in the Middle East ranks among the top 25 oil producers in the world. Amidst falling oil prices and its bleak outlook, Oman Oil Company is one organisation that continues its growth through means of diversification, upgrading its infrastructure and taking on structural reforms. This motivation is driven from its commitment to stay competitive within the oil market whilst avoiding negative repercussions that may be detrimental in the long run.

Slump in Oil Prices, Soaring Budget Deficit

Oman has been hit hard by the slump in oil prices and have led to massive spending cuts in the country’s 2017 budget. This trend has made it increasingly difficult for the government to provide jobs for Omanis. Till date, more than 5,000 Omanis have lost their jobs in the oil and gas sector according to government figures and this has great potential impact in their economic growth in terms of employment rates, investor’s confidence and consumption rates.

With Oman’s crude oil price plunging to its lowest, rising oil supply from the United States (US) have continued to cast doubts on the ability of Organisation of Petroleum Exporting Countries (OPEC) to protect prices. Additionally, persistently lower hydrocarbon revenues suggests that the current development model based on a redistribution of oil wealth through government jobs and generous subsidies is no longer sustainable. The fall in oil prices have led to the soar in Oman’s budget deficit, reaching almost 18% of gross domestic product last year (Source: Gulf News).

Why this is happening?

The weakening of China’s demand for oil has been one of the main reasons in the fall of oil prices. China’s implied oil demand growth eased to 2.5 per cent in 2016, down from 3.1 per cent in 2015 and 3.8 per cent in 2014 (MENAFN). This was led by a sharp drop in diesel consumption and the ease of gasoline usage from a double-digit growth. This slowing occurred as the economy expanded by only 6.7 % in 2016, the slowest pace in 26 years. Oman's oil exports to China has now declined by 30% in Jan 2017, as the Sultanate reduced its oil output from Jan to comply with a deal between OPEC and non-OPEC producers (MENAFN).

Ultimately, Oman is cutting crude oil exports to Asia by 15% to meet its own local demand along with OPEC production cuts and decline in OECD Oil inventories.

As Oman continues to wrestle with a yawning budget deficit in the first months of 2017, they have expressed its willingness to prop itself up through various projects which we can keep a look out for in the coming years.

Measures taken: Oil and Gas projects

1. Oman Oil Company $7bn refinery complex

Oman Oil Company and Kuwait Petroleum International signed an agreement earlier this year to build a refinery worth approximately $7 billion in the sultanate's southern port town of Duqm. With a capacity of 230,000 barrels per day, this 50-50 joint venture will be completed by 2019. Both partners will provide up to 35% of the investment capital, while the rest will be raised from local and international banks. Chief Executive Office of Kuwait Petroleum, Bakheet Al-Rashidi said that the project serves his company’s strategy of diversifying its revenues with 79% from oil. While the Gulf states have been hit hard by a cash crunch due to a sharp drop in oil prices since June 2014, this project serves as an essential catalyst for the development of different industrial sectors, as well as contribute to the country’s economic and social development. The storage terminal, opening in 2018, will be one of the world’s largest crude oil storage facilities.

2. Structural reforms

As Oman struggles to keep its production efficient and sustainable, the challenge therefore, is to develop a new model of economic growth that is both resilient and inclusive. Oman aims to capitalise on its strategic location on the Arabian Peninsula by expanding its refining and storage sectors. A major bunkering and storage terminal near Sohar is scheduled to be completed in 2017, and the facility’s location outside the Strait of Hormuz could make it an attractive option for international crude oil shippers.

Till date, Oman does not have any international oil pipelines, although there have been plans to expand the country’s domestic pipeline infrastructure. These plans include the Muscat Sohar Pipeline Project (MSPP), scheduled to be completed in 2017, which is a 174-mile refined product pipeline that will connect the Mina al-Fahal and Sohar refineries whilst reducing tanker traffic between the two coastal facilities. The project’s later phases include plans to construct new storage facilities with the goal of enabling Oman to hold up to 30 days of oil reserves (Source: Hellenic Shipping News).

3. Renewable Energy solutions

An increase of renewable-energy products could be made in the UAE as companies are looking to establish assembly plants in the country. Dubai is establishing a Green Free Zone where developers and investors can converge and drive the development of solar technology, energy efficiency services and smart buildings equipment to evaluate its feasibility. Abu Dhabi start-up, P7 Global, is also hoping to deliver renewable energy solutions, including solar-powered water-purification systems in remote areas. It has partnered with NordOest, a Norwegian consultancy focused on bringing cleantech Nordic companies to the UAE and wider GCC. Riding on the trend, Saudi Arabia has ambitious renewable energy targets under its National Renewable Energy Programme, the official plan for installing 9.5 gigawatts of renewable energy by 2030 with the interim target of 3.45GW by 2020.

Ultimately, with more projects initiated by the day, there is hope that the oil and gas industry will survive this downturn. Such positivity however can only be sustained if Oman continues to be determined in materialising their plans and goals to reap the rewards in the long run.

What’s Next

With the diversification that Oman is undertaking, the talent needed to execute upcoming projects will also be on the rise. Candidates who were previously within the oil and gas industry have skill sets which may be transferrable for Oman’s other projects – refinery complex and structural reforms. And with the dynamics of these new projects, there may even be a potential for a talent pipeline where there may be an increase of demand for individuals with particular skill sets within the industry. If you would like to find out more about these opportunities, or if you would like advice on sourcing for the best available talent in the market, please contact Mohammed Jalal Careem at [email protected] who will be able to let you in on more information. You may also follow us on our LinkedIn page for more industry related insights.