Tuesday, April 1, 2008

Its now official - Oman importing gas from Qatar

It was finally announced yesterday by HE Dr Mohammed Bin Hamad Al Rumhy, Minister for Oil and Gas, that Oman would start gas imports from the Dolphin project in June, at a rate of 200 million standard cubic feet a day (around 5.6 million m3 per day). Tribune interview
The minister told Oman Tribune on the sidelines of a PDO function on Sunday that gas supplies to the Sultanate from Qatar under the Dolphin project could begin as early as May or June.

Gas through the pipeline will flow at the rate of 200 million standard cubic feet a day.

“We are working on a compressor station in Al Buraimi and as soon as that is finished, gas will flow and we hope it will be around May-June,” he said.

I tipped you off to this in February BTW Muscat Confidential archive.

Oman produces around 60 million m3 per day from its own fields, so this represents about 9% of gas supply volumes. Now, why is Oman importing gas from Qatar?
France's Total and Occidental Petroleum of the United States each hold a 24.5 percent stake in Dolphin, with the remaining 51 percent held by the Abu Dhabi-owned Mubadala Development Co.
(see the full article in the brilliant bastion of incisive journalism that is The Times of Oman Dolphin Gas article

So, as promised, the reason for the import of gas into a country that seemed to have lots of its own.

The key piece of info is to be found in the ownership of the Dophin project, which is now importing into the UAE around 3.5 billion cubic feet (99 million cubic metres) of gas per day from its concessions in the giant Qatar gas field. A couple of years ago, the Oman Government transferred the operations for developing the giant Mukhasina oil field away from Petroleum Development Oman to Occidental and Mubadala. The oil field is apparently a very heavy oil, and getting the most out of it means injecting steam to heat the oil. Now to generate that steam, you need to burn gas. Lots of gas. This is reason why the MOG awarded the field to Oxy – not because PDO couldn't do the job, but because Oxy promised that in return for getting the oil field they would provide the gas from their Dolphin project. I still haven't been able to find out the effective price Oman is paying for that imported gas.

As Oman is already facing more gas demand in future than they have in current reserves, this was a deal that Oman could not resist. It also helped justify the sale of gas to the Sohar and Salalah industries at give away prices (equivalent to just $5 per barrel oil price), which is why its attractive to refine Aluminum in Oman even though Oman doesn’t have any domestic bauxite aluminum ore).

The deal worked well in other ways. The cost of building the pipeline between UAE and Oman was effectively paid by supplying UAE with gas from Oman for a couple of years (around 125 million ft3/d) to help start-up the UAE gas-fired power stations before the Dolphin gas would arrive. Oman knew that the pipe flow could then be reversed later to enable Oman to import gas from Qatar indirectly.

My sources tell me the Occidental Mukhasina project is not exactly going to plan though. They are behind schedule, not producing as much oil as they promised, costs are rising, and even worse, around 27 of their new wells were totally damaged by injecting so much steam that they exceeded the maximum design temperature of the steel parts inside the wells, which then collapsed. My sources said this was done on the instructions of Oxy senior management in an attempt to try and meet their production targets, even though their engineers warned them of the risk.

So, thats the deal. Oman effectively gave a piece of the Mukhaisna oil field to Occidental and the Abu Ghabi Government, in order to have spare gas to sell at a huge discount to the Gas based industries. It would be interesting for the Majlis Al Shura committee to investigate the economics of all this, tying together the gas impriots, the Mukhasina deal, and the gas contracts to Sohar.

I'm sure its a great deal for Oman (for why else would it be done?), but it would sure be nice for the Government to be able to demonstrate that to an independent committee of the peoples representatives, wouldn't it?


  1. Though sometimes "T'7oorha" -Ask someone for the meaning-, but thanks for this article. I don't know if people of this country should be really worried to this extent, or it's all a piece of some shitty concpiracy theory paranoia. Heck with it, something must be going wrong out of all this saga, and don't know when we will get the hell out of all this intrigue back-door and stupid way of planning those hefty projects

  2. Read a rounded commentary at Middle East Economic Digest, article dated 14th March 2008, Oman faces up to depleting reserves

  3. Anon,
    I guess as long as Omani's remain untaxed, this is still considered the Government's business. Its clear that developing the Gas-based industries is part of a wider strategy to diversify the economy and provide further employment opportunities, especially away from Muscat (hence Sohar and Salalah).

    Sue, thanks for the tip - do you have the link?

  4. Correlation between two phenomena isn't sufficient to establish a causal relationship between them. There's no denying the inter-linkages between in-country gas demand/supply, downstream Sohar-based JV of Oman Oil, the disembowelment of Block 6 (PDO concession area) since 2005, and Dolphin. But the analysis presented in the article is too high-school project in its depth of investigation and doesn't reflect the realities and drivers accurately.

    Dolphin. You may have "tipped" your blog readers back in Feb 2008, but you've uncovered nothing secret. Oman has signed up for importing Qatari gas via Dolphin before Oxy acquired Enron's share of that project. Public news and common knowledge to anyone tracking this sector over the last decade.

    Turning to the following equation:
    Dolphin gas + Mubadala + Oxy = PDO - Mukhaizna
    Incorrect. Something like 90% of Dolphin gas has already been allocated to ADWEA, Dubal and DEWA (or some permutation thereof). And they can't seem to get enough of it. Mubadala and Oxy probably gave unbinding words about trying to get more into Oman (assuming Qatar lifts the moratorium on upstream gas developments). But my guess is they were "nice to hear" and no more. Mukhaizna has a lot more to do with Shell dragging it's really cold feet on this project, as well as a host of other SNAFUs related to PDO and LNG. By that stage they'd managed to irate every single layer of decision making in the Omani government, including the big boss himself. Result: From 2005 Oman ceased to be perceived as "Shell territory" by the industry and the grass was green again. We now have Oxy, BP and to a lesser extent BG in positions that only 10 years back seemed impossible given Shell's (ex)stronghold.

    An irate Omani
    (when it comes to Shell, really who isn't?)

  5. the earlier irate should have read "irk" (verb!)

  6. Search for "Oman faces up to depleting reserves" on Google. You may, or may not, be able to get free access. And Oman has been involved with Dolphin for years. I believe one or two of the top investors are Omani.

  7. Sue, Thanks. My previous Google attempt didn't catch it.Great article. I'll post it.

    Anon. Thanks for coming by and the interesting comments. Firstly, remember its just a blog. If I had time to turn it into an indepth investigative jounalism site I wouldn't have time to work or play. I think some of what you say is correct, (the 'cold feet' was def a part of it, but there are other reasons for that) but some isn't. For part one, see next post. BTW, If you can give more details on "a host of other SNAFUs related to PDO and LNG" that would be great.


If you wish to post anonymously, please pick a nickname by selecting the Name/URL option, or at least sign off your comment with one! I will delete comments I find objectionable or needlessly inflammatory. Sorry for the word verification.... OMG the spam has gotten BAD these past 12 months... trying to avoid making one log in...