The Middle East has met most of the world’s energy needs in recent decades, but Saudi Arabia, Qatar and the UAE tend to be seen as the regional heavyweights. However, just to the southeast of these three resource-rich countries lies Oman, a coastal paradise steeped in history. It is one of the more liberal economies in the Middle East, and its citizens enjoy a high standard of living. The government of Oman is eager to diversify its economy, partly by attracting tourists to its varied historic sites and beaches, and is looking to important domestic businesses to spur this diversification.
Oman is fast becoming a key regional player in the energy industry, thanks in part to the partly state-owned firm Oman LNG. With such notable global backers as Shell, Total, Korea LNG and Mitsubishi, the company is seen as a rising star in the region’s energy market. We spoke to CEO Harib Al Kitani about the country’s prospects, the changing energy landscape and the company’s recent integration with Qalhat LNG.
Oman LNG today
Year Oman LNG was established
Annual capacity of Oman LNG
The government’s shares in the company
How have the country’s economy and hydrocarbons sector developed since Oman LNG was established in 1994?
There’s a marked difference between the period prior to the Oman LNG project coming on stream in 2000 and the era following the project’s take off. When our wise and visionary leader, His Majesty Sultan Qaboos bin Said, issued the royal decree establishing the company in 1994, it was obvious that the country would no longer be concentrating its efforts on developing its oil resources alone, but would deliberately seek to harness its gas resources as well. Today, Oman is known not just as an oil producer but also a reliable supplier of liquefied natural gas to the world, contributing about three percent to meet global demand according to the International Gas Union.
I think it’s fair to say that the success of the Oman LNG project has remained an important justification for players in the country’s energy sector to explore for gas with vigour. Recently, there’s been a strong emphasis on In-Country Value that seeks to develop SMEs to provide services to the hydrocarbon sector. Oman LNG is part of that drive and this will build capacity, expertise and professionalism across the value chain, and retain capital within the country.
In terms of the economy, I believe the facts speak clearly: earnings from LNG exports contribute a critical nine percent to the sultanate’s GDP and rank second only to oil revenues. This has enabled the Government of Oman to pursue an ambitious diversification programme through support for many sectors of the economy, including tourism, agriculture and the development of infrastructure. Recent gas discoveries augur well for increased contribution to the national economy and, consequently, a brighter future for the country in general.
To what extent is the country’s economic growth tethered to energy exports?
Like most economies of the world blessed with natural resources, Oman has for a long time focused on developing its energy resources, with earnings from these resources making up a large part of the country’s revenue. But that focus is gradually shifting as the government continues to execute a far-reaching diversification programme. Tourism, for instance, has grown steadily over the years, with its contribution to the economy rising in a similar fashion.
Earnings from LNG exports contribute a critical nine percent to the sultanate’s GDP and rank second only to oil revenues
Frankly, it is not at all surprising when you consider the natural disposition of the Omani people to be friendly and welcoming: when you consider that Oman is largely a pristine location where you can see much of nature still in its untouched state, with a coastline of nearly 1,700km.
Other non-oil sectors are also projected to grow in the coming years and, with some of the earnings from the energy sector directed to diversification, including spreading infrastructure, a new economic landscape based on a broader set of commercial endeavours is certainly emerging. Also, considering the government is the main shareholder, with high stakes in the integrated company – it holds a 51 percent shareholding in Oman LNG and 46.8 percent in Qalhat LNG – it benefits from the expected higher revenues that a combined structure positions us to achieve in the long term.
How has the thriving hydrocarbons sector helped the successful diversification of Oman’s economy?
Oman’s export of liquefied natural gas (LNG) has often been described as the game-changer to the country’s economy, because earnings from the sale of LNG cargoes have provided elbow room for investment in other promising sectors, such as tourism. But beyond our direct contribution to government’s coffers, Oman LNG dedicates 1.5 percent of its net income after tax towards a number of carefully thought-through initiatives. These include promoting entrepreneurship, and partnering with the Ministry of Manpower to support training-for-employment in other sectors, which has provided long-term employment for more than 1,400 citizens.
In another specific example, one looks at the country’s shipping industry and the role LNG has played in its development. The first couple of ships acquired by Oman Shipping Company (OSC) were for transporting cargoes to buyers, but today OSC has grown from ferrying just LNG to other types of cargoes, thus expanding its revenue base. Let’s not discount how the reliable supply of LNG from Oman for the past 13 years has enhanced the country’s reputation as a thriving destination for business. This has certainly attracted investors, with the world looking at Oman as a good location to do profitable business.
How big a part does Oman LNG play in Oman’s hydrocarbons sector?
With the consummation of recent integration with our sister company, Qalhat LNG, in September, Oman LNG has become the only face of LNG supply from the sultanate to the world. As the country’s only exporter of liquefied natural gas, with a three-train plant operation and a 10.4 million tonnes per annum capacity, we play quite a significant role in the sector. Moreover, we are ready to take up more gas, should it become available. Oman LNG and Qalhat LNG’s contribution to the country’s revenue in 2012 was over $5bn. So while we already play a significant role, we believe we could still accomplish some more.
Tell us, if you would, about the company’s integration with Qalhat.
The integration of Oman LNG and Qalhat LNG is based on a number of obvious synergies between the two companies. After years of operating as individual entities and developing their respective niche markets, the government and other shareholders decided it would be wise to capitalise on these synergies, save costs in some respects, and offer a better and more efficient service to our customers.
Prior to the integration, both companies received feed gas from a single supplier (the government-owned Petroleum Development Oman), utilised vessels from OSC and made use of shared facilities at the plant in Qalhat, Sur. The integration brings together our strengths. It shows some clear thinking on the part of shareholders on how we can remain successful and has been well-received by investors, lenders, insurers, buyers and many of our other stakeholders because it positions Oman LNG to do more with its resources.
Furthermore, it eliminates the idea of competition between the Omani companies, and shores up our flexibility to service the market through long-term sales and purchase agreements, cargo diversions and swaps using the quantity of feed gas we receive and the number of vessels available.
Our primary concern isn’t so much to be a regional heavyweight but to ensure we delight our customers with the quality of our service and our ability to cater to their needs. The integration positions us to do this well. If this quality of service leads us to become a regional or global heavyweight, then of course, we welcome that opportunity. Besides these, the integration increases Omanisation within the country’s LNG industry because it enables more citizens to come into challenging positions that have arisen as part of the combined structure.
Already we have almost hit 90 percent in Omanisation of management positions, but in the not-too-far future we could be seeing much higher figures. This puts a critical industry squarely in the hands of the Omani people and furthers the actualisation of a national ambition.
How do you feel the integration of Oman LNG and Qalhat will transform regional and global markets?
By the simple fact that the integration positions Oman LNG to do more, it follows naturally that we will be able to supply LNG to the markets more efficiently and address demand more readily through swaps and diversions of cargoes, rather than just the traditional long-term sales and purchase contracts. As such, I wouldn’t be surprised if Oman becomes a choice supplier because of its flexibility in meeting new demand.
We are just now entering what many are describing as the Golden Age of Gas
The integration certainly brings clarity to the supply of LNG from the sultanate and dismisses any notion of competition between the two companies. So I believe it reflects the true image of the country as one unified front for business to the world. Considering the push for greater care in dealing with the environment and threats to food security posed by climate change, it’s really just a matter of time before we see a shift to wider uses for natural gas because it is less damaging to the environment than coal or oil.
I think that, in the future, the market will be better served by a healthy combination of long-term supply contracts and a producer’s flexibility in meeting short-term gaps in supply – which is what the integration really enables us to do.
How do Qalhat’s company values align with those of Oman LNG?
For both companies, delivering added value to customers was an important aim – and I should add this has distinguished us in the eyes of buyers of our cargoes. I speak from personal experience of having had the privilege of serving at both entities prior to the integration: I was at Oman LNG for 10 years and left as the company’s marketing manager to assume the position of chief executive officer at Qalhat LNG in 2005. At both organisations, there was a deliberate effort to cultivate value in everything we set out to accomplish.
I was appointed CEO of Oman LNG in August 2012 and, although there had been a number of remarkable changes over the seven years I was away at Qalhat LNG, there remained at the company’s core the desire to add value to the many services delivered to stakeholders. The same mindset was cultivated at Qalhat LNG, where we had a view of our stakeholders as being Partners In Excellence.
How do you see global demand for LNG changing in the coming decade?
I would be surprised if I saw a drop in global demand for LNG. In many parts of the world we are seeing rising demand for natural gas, even in places that lie outside the so-called traditional markets of Asia and Europe. In the Middle East, for instance, there’s demand for natural gas. Within countries in the Gulf Cooperation Council, countries such as Kuwait and the United Arab Emirates are looking to import natural gas. LNG is a cleaner energy form than traditional types of energy, such as oil and coal. We are just now entering what many are describing as the Golden Age of Gas.
With ever-growing concerns about the environment, health and food supply, among other considerations, our ecology will need more deliberate care in terms of what kinds of energy we use. At the moment, LNG presents a clear, viable option for managing these many concerns. Furthermore, this rising demand is being accompanied by a deliberate push to find and develop gas to supply the market: whether by having a conventional plant (as could be the case in places like Tanzania for example) or through floating technology (as may be the case in parts of North America, Brazil and Malaysia).
Does Oman LNG have any future plans for expansion?
At the moment, our focus is on making the best possible use of what is available to Oman LNG in terms of gas supply to meet demand in the market. We are not taking any options off the table and, as with most exploration activities, we cannot exactly predict what the on-going search for more gas in the country could yield.
This integration will definitely bring good opportunities to our company and Oman’s hydrocarbon industry generally as we seek new ways to deploy resources in a profitable fashion. So everything considered, I am optimistic about the future.