According to OGJ, Oman’s proven natural gas reserves stood at 30 trillion cubic feet (Tcf) as of January 2007. Expanding natural gas production has become a chief focus of Oman’s strategy to diversify its economy away from the oil sector. Rising natural gas production over the last several years has resulted in the expansion of natural gas-based industries, such as petrochemicals, power generation, and the use of natural gas as a feedstock for enhanced oil recovery projects. However, despite the recent rise in production, additional natural gas reserves have not been located as quickly as the government had hoped. Some industry sources have speculated that, given the country’s long-term liquefied natural gas (LNG) export obligations, natural gas supplies may be overcommitted in Oman.

Natural gas production in Oman stood at 607 billion cubic feet (Bcf) in 2004, up more than three-fold since 1999. Oman consumed 239 Bcf of natural gas in 2004, with LNG exports of 324 Bcf. Nearly two-thirds of Oman’s LNG exports went to South Korea, while the remainder went to Japan, Taiwan, Spain, France, and the United States. Oman also pipes some natural gas exports to the United Arab Emirates (UAE), although it has plans to import natural gas in the future.

State-owned companies dominate Oman’s natural gas sector. However, the government has increasingly enlisted foreign companies in new exploration and production projects, especially in the more geologically complex natural gas reservoirs, where BG and BP were recently awarded Production Sharing Contracts (PSCs). PDO remains the leading player in the upstream natural gas sector, while other foreign companies such as Indago Petroleum, Occidental Petroleum, and Thailand’s PTTEP also have a share of the upstream market.

The Oman Oil Company (OOC) directs state investment in downstream projects through such subsidiaries as the Oman Gas Company (OGC), which operates the country’s natural gas transmission and distribution lines. LNG activities are primarily carried out by the Oman Liquefied Natural Gas Company (OLNGC), a consortium led by the central government (51 percent equity), Shell (30 percent), and several other foreign companies. OLNGC owns two of Oman’s LNG production trains and has a 40 percent stake in the third LNG facility.

Natural gas production has risen significantly since 1999, although increases in production have tapered off during the last two years. The Omani government has intensified its efforts to locate additional natural gas supplies to help meet rising domestic natural gas requirements as well as the country’s LNG export commitments.

In February 2007, PTTEP started commercial production at the Shams field in Block 44 at an initial rate of 50 million cubic feet per day (MMcf/d). The company hopes to increase production at the site in the future if additional reserves are located. PDO is currently working on several exploration and production (E&P) projects, and hopes to increase natural gas production significantly over the next decade. PDO is currently building a new natural gas processing plant to pump supplies from its Kauther field project. The processing station will have the capacity to produce 700 MMcf/d, although the Kauther field will most likely produce at a rate between 500 – 550 MMcf/d, according to company estimates. The Kauther project will significantly enhance Oman’s natural gas production capacity, with much of the supplies feeding enhanced oil recovery projects.

Whether or not Oman is able to significantly increase natural gas production in the future hinges on the successful development of “tight” natural gas reservoirs, which are geologically complex structures considered much more difficult to access than conventional natural gas reserves. The Khazzan/Makarem tight natural gas fields were originally discovered in 1993, but have remained undeveloped. In January 2007, BP signed a Production Sharing Contract (PSC) for Khazzan/Makarem, and will carry out appraisal work over the next three years to judge the fields’ potential. BP representatives have stated that the two fields could potentially yield between 20 and 30 Tcf. Another tight natural gas project with large potential is the Abu Butabul field, for which BG signed a PSC in 2006. BG says that the field holds probable natural gas reserves of 5 - 8 Tcf, although advanced seismic and drilling tests are not expected to be completed until mid-2007. These projects have the potential to significantly expand natural gas resources in Oman, although each field poses technical challenges and may prove costly to develop.

Oman’s domestic natural gas pipeline system is controlled by the Oman Gas Company, although OGC has contracted the management of the network to a consortium of private companies. Oman’s natural gas network spans about 1,100 miles, bringing supplies from production centers to the country’s LNG terminals, power plants, and other domestic end users.

Oman is part of the Dolphin Project, which aims to connect the natural gas networks of Qatar, the United Arab Emirates (UAE), and Oman. The Dolphin Project will eventually send supplies from natural gas-rich Qatar to the UAE and Oman, which facing rising domestic natural gas demand. While Oman will import natural gas from the Dolphin Project in the future, it currently exports about 175 MMcf/d of piped natural gas to the UAE via two pipelines. However, one line, which sends about 135 MMcf/d to a power plant in the UAE, will be reversed starting in 2008 when Qatari natural gas through the Dolphin line is available. Oman has contracted to buy 200 MMcf/d of natural gas from Qatar beginning in 2008, most of which will be used as feedstock at Occidental’s enhanced oil recovery project at the Mukhaizna field (see the Qatar and UAE Country Analysis Briefs for more information).

Oman has also discussed the possibility of importing natural gas from Iran, although there are currently no firm plans to build such a pipeline (see the Iran Country Analysis Brief for more information).

During 2005, Oman exported 6.9 million metric tons (MMt, or about 336 Bcf) of LNG. Of this total, 4.3 MMt (209 Bcf) went to South Korea, 1.2 MMt (58 Bcf) to Spain, 1.1 MMt (54 Bcf) to Japan, and small amounts of LNG went to France, India, Taiwan, and the United States. Oman has three LNG production trains with total annual liquefaction capacity of about 10 MMt (485 Bcf). OLNGC operates two production trains with a combined capacity of 6.6 MMt (322 Bcf). The newest LNG plant was built by Qalhat LNG, a consortium that includes the Omani government (52 percent), OLNGC (40 percent), and Spain’s Union Fenosa Gas (8 percent). The Qalhat LNG unit started commercial operations in early 2006 and has a capacity of 3.3 MMt (161 Bcf). Industry sources report that upwards of 30 percent of Oman’s liquefaction capacity currently sits idle, as the country has been reluctant to sign additional LNG supply deals in light of increasing domestic natural gas requirements.