By Conrad Prabhu -
MUSCAT — The Ministry of Oil and Gas is in the process of implementing a new pricing scheme governing gas supplies to major industrial users in the Sultanate, in what is billed as a huge breakthrough for the government’s efforts to generate higher revenues from this vital resource.
According to a high-ranking official of the Ministry, a number of agreements are lined up for signature over the course of the next three months under which major users will commit to revised pricing terms for supplies of natural gas as feedstock and fuel. The new pricing system, he said, will help drive the government’s goal of developing Oman’s unconventional gas resources, as well as sustain gas supply to the industrial and power sector over the long-term.
“We have had to adjust the gas prices because the cost of producing gas in Oman has gone up, and to ensure the future supply of gas to all the major users we’ve had to increase the cost of feedstock to the major gas users,” Ali bin Thabit al Battashi, Adviser to the Minister for Strategic Planning and Investments, said in an exclusive interview to the Observer.
Importantly, the move will help offset the steep cost of harnessing the prodigious volumes of ‘tight gas’ in BP’s Khazzan-Makarem gas fields in Block 61, as well as ‘difficult gas’ reserves in Petroleum Development Oman’s (PDO) Block 6 concession.
“We are negotiating with BP for the Khazzan — Makarem gas field, which is a huge resource. In order to address the long term requirement for gas, we need to have this gas field in production quite soon. Signing revised agreements with major gas users gives us the ability to ensure we can proceed with BP on a fast-track basis,” the Adviser said.
“We are also in the middle of negotiations for the long-term with the private shareholders of PDO — Shell, Total and Partex. This is to ensure there is gas for future enhanced oil recovery (EOR) projects in PDO, which will benefit the nation enormously.”
Yesterday, the Ministry signed amendment agreements to Gas Sales Agreements with two major industrial users in the Sultanate, with further such pacts slated to be inked in the coming months.
These deals represent the crystallisation of nearly 14 months of intensive — and often tough — negotiations with the shareholders of the major users, almost all of which have since acceded in principle to the new pricing scheme, Al Battashi said.
“Let me assure you most of the major gas users are on board, with negotiations ongoing with one last user. By the end of September, I’m confident we will have all the major gas users — if not 90 per cent — on board. After all, this is a national issue. There is a realisation in the gas sector that gas prices of seven, eight, nine years ago are no longer valid.
The prices of raw materials have shot up since 2008; so has the price of feedstock and products such as urea and methanol. People see they should share their windfall profits in the country where are based, and I’m confident this will happen.”
The official underlined the importance of the new pricing system to Oman’s larger national interests. “We need the support of the major gas users to finalise the (amended) gas agreements as soon as possible. This will secure for them, as it will for Oman, the long-term supply of gas. It’s very important they are on board with us, just as we have signed today with (two major users). We want them to be a genuine part of the Omani family and to support the Ministry of Oil and Gas, because we all work together for this wonderful country under the wise leadership of His Majesty the Sultan. Oman, in a matter of 40 years, has moved from a medieval backwater into the 21st Century. This was uniquely achieved with limited oil and gas income. This country has moved with security, and long-term stability under the wise leadership of His Majesty the Sultan.”
Efforts to bring about a competitive and equitable system of pricing gas supplies were guided by a high-level team overseen by Dr Mohammed bin Hamad al Rumhy, Minister of Oil and Gas, ably supported by Darwish bin Ismaeel al Balushi, Minister Responsible for Financial Affairs, as well as other stakeholders, including the Ministry of Legal Affairs, and the Financial Affairs and Energy Resources Council. “We have been blessed because all the stakeholders have been fully supportive of all the strategies and plans of the Ministry of Oil and Gas,” he added.