Natural gas to support Oman's industrialisation
September 4, 2017 | 4:56 PM
by Mubeen Khan
Mubeen Khan. - Supplied picture

Muscat: Oman is on the speedy path of economic diversification and the immense success of the Special Economic Zone of Duqm, as well as the Sohar and Salalah Free zones, in attracting Foreign Direct Investment (FDI) is remarkable.

I have a strong belief that the industrialisation of Oman is the best diversification strategy to make the Omani economy sustainable in the long run and to provide the Omani youth with future job opportunities. In addition to this, industrialisation would spur economic activities that can be taxed to generate sustainable government revenues as Oman has to ultimately move to a taxation-based economic system in the future.

Oman may need to learn from European, American and Asian experiences of diversification through industrialisation. Each one of them had identified and used their key strengths to industrialise their economies as a first step. When the west used technological innovations with Asian and African raw materials during the eighteenth to twentieth centuries to dominate the world economy, China with world’s largest population, changed its destiny in late in the twentieth century with the help of its human resources, coupled with the domestic use of its natural resources to become second largest economy of the world by the early twentieth century.

India’s strength was its 350 million people, who were mainly farmers, when it got independence in 1947. India successfully turned its human resources into a global workforce that currently brings home close to $70 billion in remittances every year. This amount is almost double the FDI coming into the country and effectively plugs into India’s trade deficit.

India later capitalised on the information technology revolution, helping its GDP soar from $640 billion in 2004 to $2.2 trillion by developing its services sector. India’s well-educated and skilled manpower has turned the country into the world’s back office with intellectual capital and become the hub of global innovations.

Oman’s strength

Oman’s key strengths that can industrialise Oman, among others, are the availability of natural gas; its relatively young population and world-class infrastructure.

OECD (Organisation for Economic Co-operation and Development) countries put together would have depleted their proven gas reserves in the next 15 years, whereas United States has only 14 years left to run out of its own gas supplies at the current production level.

Global gas consumption increased by 63 billion cubic meters (BCM) or 1.5 per cent in 2016, whereas global coal consumption fell by 53 million tonnes or 1.7 per cent.

China’s gas consumption suddenly increased by 35 per cent in 2016 as suffocating air pollution forced China to reduce coal burning in its factories. When the Chinese are shifting away from coal, there is not enough gas in China for this transition, which may slow down the Chinese industrial activities and Chinese companies may look out to set up their industrial base at a place where natural gas at competitive prices is available. This location must also be logistically convenient and closer to bring in the raw materials and ship the finished products out to the Chinese export market.

Energy intensive metal smelting plants, the world over, are running at half or less than half of the capacity, due to the unavailability of natural gas at economic prices. The landed cost of LNG, even after the recent price crash, is averaging $8 to $12 per mmbtu worldwide, which compared to gas prices in Oman is three to four times higher.

Oman is placed at a strategic location and is the best place to set up a production base for energy intensive industries, such as metal smelting and downstream metal industries and cement production, in addition to others.

Iran sits on world’s largest proven gas reserve of 1201 trillion cubic feet, which would enable Iran to supply natural gas for the next 165 years at the current production rate. This means that the proposed Iran-Oman gas pipeline will ensure a sustained supply of natural gas to Oman for at least 165 years. Qatar also has enough gas for the next 135 years and Qatar is already selling gas to Oman via the Dolphin pipeline. Therefore, Oman would always be awash with cheap natural gas in the foreseeable future.

Total available gas, either produced or imported in Oman in 2016, was 41 BCM, out of which 8 BCM was consumed by power and desalination plants, 9 BCM of gas was consumed by the oil fields, 23 BCM seems to have been exported by the LNG plants and 0.65 BCM was consumed by the industrial areas.

Oman’s Khazzan gas field will add 28.30 million cubic meters (MNCM) per day or a total of 10.33 BCM per year which will go up to 42.45 MNCM per day or 15.45 BCM per year subsequently.

The government may want to offer this newly available Omani natural gas supply as industrial fuel (not as feedstock) at subsidised rates to attract energy intensive industries to set up plants in Oman.

Oman also has the immediate and high potential of becoming a global cement production hub when all the raw materials for a cement plant i.e. high quality limestone, gypsum and cheap gas are available here. Oman is the best place to set up fully export-oriented cement plants, close to the cement starved African continent currently experiencing the highest ever rate of urbanisation in the world.

— Mubeen Khan is a Muscat-based chartered accountant and researcher, who regularly writes on the Oman economy.

Subscribe to our newsletter and be the first to know all the latest news