From Oman to the world: Hydrocarbons form the vast majority of the sultanate’s exports

Exports of crude oil and natural gas continue to play a central role in the sultanate’s economy. Oil exports grew in 2012 and 2013, boosting national revenues at an important time, with the country pulling out of an economic slowdown and preparing a wide-ranging infrastructure investment programme.

Oman is the largest oil and gas producer in the Middle East that is not a member of the Organisation of the Petroleum Exporting Countries (OPEC), and is one of the top 20 in the world that is outside the organisation. The sultanate’s non-membership status means that it is not required to follow OPEC’s quotas, and can therefore increase output and exports as much as it would like, limited only by its own production capacity.

Export Destinations

In October 2013, Oman exported 81% of its crude oil output, with the remaining 19% going to the Oman Oil Refineries and Petroleum Industries Company for refining, according to the Ministry of Oil and Gas (MOG).

Oman’s oil mostly goes to Asia, which accounted for 95% of exports in 2012, and particularly China – accounting for around 50%.

In the first 10 months of 2013, Oman exported 251.7m barrels of oil, up from 229.5m in the same period of 2012, according to the National Centre of Statistics and Information (NCSI). The sultanate’s biggest export destination by far remained China, importing 146.2m barrels, up 26.4% on the first 10 months of 2013. It was followed by Japan (24.7m barrels, down 24.9%), Taiwan (24.4m barrels, down 11.2%), Thailand (14m barrels, down 13.2%), Singapore (13.5m barrels, down 15.2%), India (12.1 barrels, up 218.8%) and South Korea (4.7m barrels, down 52.6%). While exports to several major recipients fell, those to “others” rose 55.8% to 12.1m barrels, indicating greater geographical diversification of Oman’s export markets.

For 2013, the MOG expects exports to average 764,500 barrels per day (bpd). As in previous years, China will lead the way, with a forecast 382,800 bpd, followed by Japan (104,400 bpd), Taiwan (91,300 bpd), Singapore (54,400 bpd), Thailand (51,900 bpd), South Korea (29,800 bpd), New Zealand (16,400 bpd), India (14,200 bpd) and the US (5500 bpd). Exports to other markets are expected to average 13,800 bpd.

Export Revenues

In 2012, the sultanate’s oil and gas exports generated revenues of OR13.97bn ($36.18bn), 69.7% of total merchandise export earnings of OR20.05bn ($51.93bn).

Crude oil is still by some way the largest contributor to overall export earnings, generating OR11.8bn ($30.56bn), followed by liquefied natural gas (LNG), with OR1.62bn ($4.2bn). Exports of refined petroleum products are proportionately smaller, though still significant, earning OR577.1m ($1.49bn) in 2012.

In the first half of 2013, the last period for which results were available, Oman earned OR7.3bn ($18.91bn) from oil and gas exports, up 5.5% from OR6.92bn ($17.92bn) in the same period of 2013, according to the NCSI. The sector accounted for 65.5% of total merchandise exports, with the declining proportion a sign both of somewhat lower oil prices and Oman’s ongoing economic diversification.

Crude oil exports rose 7.1% to OR6.32bn ($16.37bn) from OR5.91bn ($15.31bn) in the first half of 2013, while LNG export revenues grew 11.3% to OR845.4m ($2.19bn) from OR759.2m ($1.97bn). Revenues from refined oil products fell by nearly half, 48.4%, in the first half of 2013, to OR132.3m ($342.66m) from OR256.6m ($664.59m) a year previously.

Pricing

Oman’s export earnings – and indeed the economy as a whole – are for obvious reasons very sensitive to changes in the global oil price. The average price the sultanate obtained for its crude exports in the first 10 months of 2013 fell 3.7% on the same period of 2012, from $109.54 to $105.51, according to the NCSI.

The MOG’s snapshot of oil prices in October 2013 gives a good indication of the factors that affect the international market, and therefore Oman’s earnings. The month was characterised by volatility, with the week-end price of a barrel of Brent varying between $107 and $112. Dynamics driving market sentiment included the dispute over the US’ debt ceiling, which caused a shutdown of a range of government institutions in the US and concerns about demand in the country, the world’s largest consumer of crude oil. The move towards the resolution of the deadlock, however, saw prices rise again, only to be followed by another softening as it emerged that the American Petroleum Institute had increased its estimate of the US’s crude reserves, partly due to the economic cooling caused by the shutdown. Forecasts of higher production from non-OPEC members also put downward pressure on prices. Then, in the last few days of the month, additional political unrest in Libya, a major oil exporter (and OPEC member) caused prices to rise again.

Future Prices

Overall, global Brent crude spot prices slid in the last few months of 2013, from a monthly average of $112 per barrel in September to $108 in November, and were forecast to fall to $104 for 2014, according to the US Energy Information Administration (EIA). The EIA, an agency of the US Federal Statistical System, expects the Brent spot price to average $104 in 2014, though it noted in its short-term energy outlook in November 2013 that “the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels.”

Prices are expected to decline slightly due to a number of factors, most importantly increasing output from non-OPEC members (including Oman but more significantly the US). In 2013, non-OPEC supply grew at its fastest rate for several years, outstripping global demand growth for only the second year since 2002, according to a December 2013 report by analysts at UK bank Barclays. The report forecast that this trend would continue in 2014, with non-OPEC members producing an excess of 500,000 bpd on average. However, supply remains constrained in Libya and Nigeria, both of which suffer occasional unrest in oil-producing areas, while Iraq’s output remains at risk and sanctions on Iran keep a lid on its ability to export globally.

In October 2013, OPEC’s secretary-general, Abdalla El Badri, told the international press that he was confident about the outlook for 2014, despite supply outages in Libya, and that demand for OPEC-produced oil would decline slightly. Over the longer term, Barclays expects prices to come under greater downward pressure, should stability return to troubled parts of the Middle East and Africa and sanctions on Iran be eased – uncertain prospects, but becoming more likely.

LNG

While oil exports have been a mainstay of Oman’s economy for several decades, LNG is a comparatively new contributor. However, 14 years after these exports began, LNG remains an important product, earning around $4bn a year. Despite the potential, LNG export growth is likely to remain relatively constrained in the near future due to rapidly growing domestic demand. Over the medium term, however, new sources of gas such as BP’s potentially huge Block 61 project and another tight gas field owned by Petroleum Development Oman, as well as moves to trim local consumption, could maintain or boost LNG’s export potential.