30 May Interview with Salim Nasser Al Aufi, Minister of Energy and Minerals, Oman
How have Oman’s oil and gas operations supported the country’s high economic growth?
While the local oil and gas industry is not the sole contributor to our current economic growth, it has contributed significantly. We have benefitted from high oil prices while maximizing our production levels and minimizing possible shutdowns. It has been a lot of work, but we have a bit of a cushion to manage upsets in our systems as an OPEC+ member. Additionally, we raised our condensate production to record highs because it is outside the OPEC+ conformity requirements. Specifically, Block 10 has excellent condensate production, especially during its initial production period. We have also worked to reduce costs by challenging existing contracts and addressing areas of waste within our operations. We have maximized our gas exports wherever possible, despite resistance to diversions. Additionally, we have supported delivery of cargo into new markets, such as Europe. Our two key development projects this year have been the expansion of production at the Bisat field to record levels of more than 60,000 barrels of oil per day and the startup of production at Block 10 almost five to six months ahead of schedule.
How has the changing global energy situation impacted the country’s hydrocarbons trade deals?
Our oil exports are stable. We have term contracts renewed from year to year with slight increases or reductions in requirements depending on the market. Our oil and condensate production is stable, with hurdles not significant enough to contemplate a large revamp of our trade strategy. On the gas side, we recently signed long-term trade contracts beginning in 2025 or 2026, given that our existing contracts will soon expire. We aimed at contracts between five to 10 years considering where the market is today and current challenges to energy security around the world. There is a large appetite from European and Asian markets; each side is driving the other party to rapidlypush for more volumes. We are geographically situated in the middle with available resources. We have taken advantage of our strategic position and are pleased with the outcome. We have also renegotiated our contracts with some corrections to the shareholders’ agreements that were not stipulated in previous deals.
How successful has Oman’s In-Country Value initiative been in localizing the oil and gas industry?
The In-Country Value initiative was launched in 2012, but a focus on local business already existed. Other government entities have seen the initiative as a successful model to follow. While flaws exist in the program, it has significantly boosted local content and has given us insight into where money is going. Of course, the focus is not only on capital but on localizing services and creating industries and jobs for locals. In terms of financing, funding is never an issue in the oil and gas sector. It is supported by international players and does not need to rely on local sources. Local funding exists, and some regional banks support these operations. However, the level of investment required far exceeds local capabilities.
Our Omanization level for oil and gas operators is more than 90%, which is excellent. However, we are not doing as well on the construction side, where jobs tend to be project specific. The challenge here is that when the project is completed, the Omanis involved require new jobs. While efforts are being made, we need to be more careful. However, the services segment is a different story. There will always be companies picking up a service contract, which means sustained job opportunities for locals. On the other side, operators offer the same protections and have slightly deeper pockets to push Omanization. We try as much as possible to give local companies opportunities to support the oil and gas industry, whether it is the preparation of well locations or providing transport. Opportunities are given to the local industry on a very competitive basis, and we only allow internationals to compete for niche activities. The Omanization level among service providers and operators is also more than 90%, with some reaching levels of 94-95%. We are extremely proud of this, with levels this high only found in the public sector.
On the manufacturing side, we try to aggregate demand wherever possible. This demand is offered not as a guaranteed offtake or purchase but as a potential opportunity. If it can be set up locally, we will sell it locally by giving locals the advantage. While specific points are given if the product is locally sourced through our evaluation model, we still require local entities to compete on price with international companies. This model has helped grow numerous local sectors. For example, salt production — which is required for our drilling activities — is almost 100% local because the volume is substantial and it is easy to produce. Businesses in the private sector saw the opportunity, embarked on it and were able to compete.
What potential do further oil and exploration initiatives have in Oman?
We continuously execute exploration programs even though most of the country has seen seismic activities. Will we find another Fahud field or Marmul field discovery? It would be highly challenging but not impossible. In general, our fields are not the size of our neighbors. Repetition is required because technology has changed. Traditional seismic acquisitions need to be reevaluated. For example, we were drilling and producing around Block 10 for quite some time. It is not a new area. The Saih Rawl field is where our most significant gas production comes from.
Additionally, resources at Block 61 were discovered a long time ago by Petroleum Development Oman but technology at the time was not sufficient to commit to commercial production. With the level of technology available today, we could revive the discovery and bring it on line. Once production has begun, newer innovations could help optimize its operations. We have every kind of technology deployed, whether it is in the areas of primary, secondary or tertiary recovery. In tertiary recovery, we utilize miscible gasses and perform polymer and thermal enhanced oil recovery. We do not sleep on it; we are open to new technologies but try to be selective. There are many new ideas, and it is easy to be bombarded.
What main areas of opportunity exist for collaboration between US and Omani players?
There are two distinct areas of opportunity, the first being technology and the second being human capital. In terms of technology, we are pleased with the US’ Inflation Reduction Act, which will accelerate technological development. While some view this as pulling opportunities toward the US market, it will accelerate technological development that will benefit other markets, including ours. Some investors bidding for our blocks are American companies deploying the same knowhow, technology and can-do mentality knowing they do not have the same advantages given by the Inflation Reduction Act. In terms of human capital, we need to expedite the development of locals through mentorships, training programs, and on-the-job training. Large opportunities exist for US players to bringhands-on expertise to our local forces to build them up quickly with practical development rather than classroom development. So far, the doors for collaboration are open on both sides.
How feasible is Oman’s goal to have net-zero carbon emissions by 2050, and what efforts is the government making to make it possible?
From where we stand today, Oman can definitely reach net-zero emission levels by 2050. However, while it is not an impossible mission, it is not without challenges, including in some cases a lot of funding. The government began by understanding baselines and what sectors have the most carbon emissions. Around 95% of emissions come from the four following sectors: power, oil and gas, mobility and industry. The housing sector also contributes but to a lesser extent. Some sectors such as power are cross-sectorial contributors; sorting out emissions in this sector benefits all others. We have gas flaring in the oil and gas sector, which we are actively working on. We are targeting zero routine gas flaring by 2030. Other factors in the oil and gas industry include emissions from facilities, electricity generation and steam generation. While we have a good picture, we still have not 100% identified where emissions come from and potential solutions. In the mobility sector, we understand that contributions can be cut down from small and large vehicles through electrification or hydrogen usage. Marine and air transportation are also contributors, although to a slightly lesser degree. Industry emissions come from areas such as cement, steel, fertilizer and small enterprises.
We devised a strategy for each of these sectors and a lead public entity for each one. For example, The Ministry of Energy and Minerals leads the oil and gas and electricity segments. While we could potentially electrify the whole country using renewable energy, challenges still exist during the night and when the wind is not blowing. We need to address issues regarding energy storage and reliable power supply. We also need to have a difficult discussion and reevaluate whether some industries are the kind of sectors we need to keep around. If we do not have the raw materials and are not captive consumers, this needs to be addressed. Additionally, we still have a small percentage of forestation to offset emissions, but we want to achieve net-zero levels without resorting to this. We are also working on carbon capture technology for challenging industries. Direct air capture is a potential opportunity, and we are working with some industries in this direction.
What potential does Oman have to become a hub for renewables and hydrogen production?
We have identified substantial areas, particularly in southern Oman, where we have a unique advantage. These locations have both favorable wind rates and excellent solar radiation. In terms of real potential using today’s technology, we can produce around fourteen times what we currently generate through renewable energy. With the potential of using renewables to produce and export hydrogen and ammonia, Oman could play a significant role in the global energy transition. It is an area we are pursuing aggressively.
From March 2022 onwards, we began identifying primary concession areas for potential renewable energy generation, putting commercial structures in place, dividing areas into sizable blocks and inviting entities to begin competing for these concessions on a sequential basis. We began working on the infrastructure required to transport water to electrolysis facilities and hydrogen to ammonia facilities. We need to ensure that the grid connecting these facilities is in place so that we can support investors. Many urban planning works took place last year, which allowed us to proceed with putting our first two blocks on offer. We have begun discussing the commercialization of some projects with the goal to produce 1 million tons of green hydrogen and its derivatives by 2030. This target will likely be achieved, if not doubled. If we work on all the areas we identified, achieving our target of producing 8 million tons of hydrogen by 2050 will be an underestimation of our total potential.
What challenges need to be overcome on a global scale to achieve the ongoing energy transition?
We need to create a balance between the need to supply the energy market and the need to transition. There is a lot of talk about moving away from the use of hydrocarbons. Rather, we need to make the energy mix as clean as possible. Unfortunately, the world requires this type of energy, and we currently cannot feasibly supply the world with renewable energy and do away entirely with hydrocarbons. For example, airline and maritime industries are not ready. The challenge is whether we can proceed in the cleanest possible way, which involves phasing out scope one emissions, cutting down scope two emissions as much as possible and making scope three emissions as clean as possible. We must continue utilizing our existing energy resources while transitioning to newer, cleaner and much greener energy sources. We need to make energy affordable and accessible to everyone and make it as clean as possible using the technologies available today. It is in our best interest to work with global organizations. We only have one planet, and if there are challenges, they will be challenges for everyone.