Oman: Industry flowing downstream

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Stepping up efforts to capitalise on its hydrocarbons wealth, Oman is boosting its downstream industrial capacity by expanding the petrochemicals sector and providing the fuel stocks needed to power other industries. However, the success of this programme still pins much of the country’s economic growth on its oil and gas resources.

The petrochemicals industry is a sector Oman has identified as fitting in with its aims of broadening the base of the national economy while at the same time best utilising natural resources. Rather than exporting all of its hydrocarbons, Muscat has been developing the capacity to use raw materials to build value-added industries, both to reduce reliance on imports and to garner higher export revenues.

On October 1, the Oman Oil Company (OOC) announced it was in the initial stages of setting up a new petrochemicals facility at the industrial centre of Sohar on the Gulf of Oman. The plant, which is budgeted at $800m, will produce when fully operational 1m tonnes of terephthalic acid (PTA) – the main raw material used in the production of polyester fibre, resin and film – and polyethylene terephthalate (PET) – used in the manufacture of plastics.

According to Nasser Bin Khamis Al Jashmi, the undersecretary at the Ministry of Oil and Gas and chairman of the OOC, a project team has already been formed to oversee the development and a separate company will be set up to own and operate the plant.

The new facility will be a major addition to OOC’s already large downstream industrial portfolio, with the company either owning outright or having a stake in a number of other firms. These include Salalah Methanol and the Oman-India Fertiliser Company, along with a holding in the Oman Oil Refineries and Petroleum Industries Company, which operates the Sultanate’s two refineries, including the one at Sohar that will be providing the feedstock to the new PTA-PET facility.

To help provide feedstock for the increasing numbers of downstream industries, Muscat is expanding its refining and processing capacity. The government is in the closing stages of finalising a tender for a project to increase output at the Oman Oil Refineries and Petroleum Industries Company refinery at Sohar, a project that is expected to cost between $1.5bn and $1.8bn. When work is completed in the first half of 2016, the refinery should have an additional processing capacity of 60,000 barrels per day.

While Oman produces 100m cu metres of natural gas per day, rising demand means that it also imports a further 5m cu metres daily. As the state and private ventures move forward with establishing new downstream industries and expanding existing facilities, the requirement for energy and feedstock will also increase, pushing up Oman’s imports bill. Muscat has already renegotiated gas prices with some of its largest industrial operators, a move that reflects rising global rates and the lower pricing floors built in to contracts when some of these ventures were established.

The question over gas supplies and cost has already impacted the plan to increase production at the iron pelletising plant at Sohar, operated by Vale, a Brazilian mining company. While initial plans were for production to be boosted from its present level of 9m tonnes per annum (tpa) to 18m tpa, this now seems likely to be scaled back to 12m tpa, providing gas supplies can be assured by the government and international demand warrants the extra investment.

According to José Carlos Martins, the executive officer for ferrous minerals operations and marketing at Vale, “We are preparing to increase the capacity of this plant as soon as the market in the region grows,” he said. “We can easily raise capacity from 9m tpa to 12m tpa, which could be done in a very short period of time and with a marginal investment.”

Questions over gas supplies have not dampened investor enthusiasm for a second steel plant, with the Salalah Development Company of Oman, the UAE-based Al Suwaidi Group and Saudi Arabia-based Al Tuwairqi Group joining forces to form Dhofar Steel. According to a statement issued in early September, the partners will develop a $400m plant at Salalah that will produce 1m tonnes of steel annually.

Though the joint venture has yet to announce whether it has struck a deal with the Omani government for gas supplies, or where it will source its raw materials, the mill’s owners will be looking to cash in on the growing demand for steel throughout the Middle East for building and infrastructure projects.

As long as Oman can keep the gas flowing to provide both raw feedstock and energy to its heavy industries, either from its own wells or through imports, all indications are that the move to develop a broad industrial base should continue to gain momentum, adding value to already valuable resources.

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