A host of logistics projects set to boost Oman's international standing in the energy sector

The uncertainties surrounding global oil production and price have done little to suppress interest in liquid bulk storage and hydrocarbons logistics projects in Oman. Across the sultanate hundreds of kilometres of pipeline are being laid, and new facilities for gas and oil storage and export are coming on-stream. At the same time, low oil prices have strained state finances and made it harder to fund large infrastructure projects. As a result, state-owned oil and gas companies driving developments in hydrocarbons logistics are increasingly turning to international finance markets. Oman’s liquid bulk storage facilities are modest by regional standards, but hundreds of millions of dollars are being injected into new bunkering infrastructure and pipelines, which will extend connectivity between the sultanate’s burgeoning logistics hubs and inland regions.

Oil Storage

In support of the objective of establishing a strategic oil reserve in the country, Oman plans to build a 200m-barrel crude oil storage terminal at Ras Markaz near Duqm. Royal Decree 5/2016, promulgated in January 2016, formally placed Ras Markaz Crude Oil Park within the remit of the Special Economic Zone Authority at Duqm (SEZAD), an industrial centre under development 70 km north of the terminal. The terminal is being built by Oman Tank Terminal Company (OTTCO), a subsidiary of the state-owned Oman Oil Company (OOC), which was established to execute the landmark venture. A contract for initial construction work is expected to be floated in 2017.

The aim is for Ras Markaz to become one of the largest oil storage hubs in the world, providing capacity of between 6m and 10m barrels at the end of phase one in 2019, with an option to expand in the future to 200m barrels depending on demand. This capacity is primarily earmarked for the storage of crude shipped in by sea. Total spending in phase one will be $300m-400m. OTTCO will also invest in offshore facilities to handle Suezmax and Panamax carriers, as well as very large crude carriers, according to the company’s chairman, Hilal bin Ali Al Kharusi. Speaking to Duqm Economist, a quarterly magazine of the SEZAD, Al Kharusi said that when complete, the Duqm refinery will receive its feedstock via a pipeline that connects with Ras Markaz Crude Oil Park. OTTCO was also studying a possible pipeline link between Ras Markaz and Saih Nihada in central Oman, where it will tie-in with the Main Oil Line carrying Oman Export Blend crude to the country’s export terminal at Mina Al Fahal.

Musandam

In May 2016 OOC Exploration and Production (OOCEP), a subsidiary of OOC, completed loading the first shipment of 300,000 barrels from Musandam Terminal for Crude Oil Export that was fully processed at Musandam Gas Plant (MGP). The operation was a major achievement for OOCEP and Oman, inaugurating the second Omani crude export terminal after Mina Al Fahal on the international oil trade routes. Developments at Musandam advance the sultanate’s plans for competing effectively in international markets, and position MGP as a major contributor to the refining and exporting of crude oil and gas in Oman.

Muscat-Sohar Pipeline

In 2015 ORPIC Logistics, a joint venture between Spain’s CLH Group and state-owned Oman Oil Refineries and Petroleum Industries Company (ORPIC), began construction on the $320m Muscat-Sohar Product Pipeline and a new storage facility in Al Jifnain. The 290-km pipeline is aimed at supporting an Omani integrated refining and petrochemicals business by optimising transport and distribution costs for oil products. The pipeline network is split into three sections: 45 km between ORPIC’s Mina Al Fahal refinery in Muscat and a new intermediate distribution and storage terminal in Al Jifnain; 25 km between Al Jifnain Terminal and the new storage depot being built at Muscat International Airport; and 220 km between the Sohar refinery and Al Jifnain Terminal.

In a recent interview with the Times of Oman, Andres Suarez, general manager of ORPIC Logistics, a joint venture between CLH of Spain and ORPIC, said total capital expenditure for the project was estimated at $100m for Al Jifnain Terminal and $220m for the pipelines and associated investment in both Sohar and Mina Al Fahal refineries. The entire pipeline network, as well as Al Jifnain Terminal, is expected to be fully operational by mid-2017. Once complete, the pipeline is expected to deliver more than 50% of Oman’s fuel via Al Jifnain while cutting fuel tanker traffic in the capital region by 70%, thereby reducing costs associated with the transport of oil products between the Sohar and Mina Al Fahal refineries by up to $20m per year, according to Suarez.

Iran Connection

In August 2016 Oman’s minister of oil, Mohammed bin Hamad Al Rumhy, announced that Oman and Iran were at an advanced stage of designing a long-discussed subsea gas pipeline that would connect Iran’s 1201.4trn cu feet of proven reserves to Omani consumers and liquefied natural gas (LNG) plants. The announcement was met with cautious optimism. Oman has signed multiple preliminary gas agreements with Iran dating back to 2005, but the two have never managed to finalise terms. However, the countries renewed efforts to implement the project following the preliminary removal of international sanctions on Tehran in January 2016. In April 2016 the Iranian Offshore Engineering and Construction Company announced a planned route for the pipeline terminating at Oman’s Qalhat LNG Terminal near Sur.

Four months later Oman and Iran announced a new deal that avoided crossing any third country’s borders. Under the terms of a contract signed between Tehran and Muscat in 2013, Iran will export 28m cu metres of gas daily through an undersea pipeline for 25 years. Almost one-third of this gas is planned to be used in liquefaction at Qalhat and exported to global markets, with the rest to be consumed domestically.

If the project moves forward, construction of the pipeline across the Gulf will help to realise Iran’s ambition of being a major LNG exporter. The implications for Oman are equally significant for both LNG exports. “Iran seeks alternative ways of exporting its gas, and Oman stands to benefit from increased domestic supplies and additional capacity for exports,” Talal Hamid Al Awfi, CEO of Oman Trading International, told OBG.

The cost of laying the pipeline is estimated at $1.5bn and will be financed on a 50:50 basis by both nations. Oman has already reportedly begun talking to Japanese, South Korean and Chinese parties to raise finance. Though Al Rumhy and the managing director of the state-owned National Iranian Gas Export Company have predicted that the pipeline could be commissioned within two years following feasibility studies, both have conceded that the current market price may delay the project. Oman nevertheless expects to invite firms to bid for the engineering, procurement and construction portion of the project in 2017, according to Al Rumhy. Such strategic investments in Omani hydrocarbons logistics are poised to position the sultanate as a world-leading hydrocarbons storage and export hub.