Oman eyes Chinese market for its growing natural gas supply

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In a context of growing international gas supply and expected demand moderation in the developed markets of US and Europe, Oman is hoping its strategic partnership with China will provide it with a ready market for its growing supply. In May 2018 Xi Jinping, the president of China, and Sultan Qaboos bin Said Al Said formalised the Sino-Oman strategic partnership aimed at elevating ties between the two countries. This was followed in November 2019 with an official visit to Oman by Wang Yang, chairman of the Chinese People’s Political Consultative Conference, where the countries signed another agreement to fortify their rising bilateral cooperation.

Building Alliances

Thanks to its strategic location outside the Strait of Hormuz, the sultanate has positioned itself as a key trade link within China’s Belt and Road Initiative. China’s belief in the long-term importance of Oman’s geographic location has been underlined by its sizeable investment in the $10.7bn, 2000-sq-km China-Oman Industrial Park in the Duqm Special Economic Zone. The largest element of the $3.2bn first phase, scheduled for completion in 2020, is a $2.3bn methanol and methanol-to-olefin plant with a capacity of 10m tonnes. Ali Shah, CEO of Chinese firm Oman Wanfang, the project’s key investor, told local media in January 2019 that the company had been engaging investors in China and that he expected Chinese investment in Duqm to continue to grow. In Oman’s upstream exploration and production segment, China has already invested in Block 5 via Daleel Petroleum, a 50:50 joint venture between Omani operator Petrogas and the China National Petroleum Corporation.

Export Destination

Liquefied natural gas (LNG) has become China’s fastest-growing fuel source. The country accounted for more than 40bn cu metres of international demand in 2018, according to the “Shell LNG Outlook 2018” report. This is due in part to China’s goal of diversifying away from coal and improving urban air quality. In 2018 Chinese imports of LNG grew by 40% to 16m tonnes, and this is expected to continue to increase at a compound annual growth rate of 4% up to 2035. Demand for gas was also driven by increased industrial and commercial uses, which grew by 44% and 38%, respectively, in 2018. More than half of gas demand growth was met by LNG.

Oman is also hoping to play a part in servicing China’s rising demand for polyolefins such as polyethylene and polypropylene, with the Oman Oil Refineries and Petroleum Industries Company – one of nine companies under the OQ – establishing an office in China in 2018 to market products from the Liwa Plastics Industries Complex at Sohar. China accounted for 4.5m tonnes of the world’s 7.2m tonnes of polyolefin consumption growth in 2018.

Competition

Omani products will not be without competition, however. The US and China are among the countries investing most heavily in natural gas and petrochemicals. In June 2019 a report by the Oman Society for Petroleum Services (OPAL) identified more than 50 major plastics and petrochemicals projects due to come on-stream in China and the US before 2024. OPAL also estimates that China will overtake the US as the global leader in installed refining capacity by that time.

China continues to be the number-one export destination for Oman’s oil, accounting for 240m barrels, or 83% of petroleum and condensates exports, in 2018, up from 226m barrels and 77% of the total in 2017. Exports to China have remained relatively consistent in recent years, peaking at 251.5m barrels in 2016. Chinese interest in Omani supply has increased as part of the country’s efforts to diversify its source markets for hydrocarbons and mitigate its dependence on imports from member states of the Organisation of the Petroleum Exporting Countries (OPEC). The share of oil supplied to China from OPEC member states fell from 67% in 2012 to 56% in 2017.

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The Report: Oman 2020

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