Oman occupies a strategically vital position in the geography of the Middle East, possessing long coastlines along the Gulf of Oman and along the Arabian Sea, away from the extremely politically sensitive Strait of Hormuz.
These offer largely unfettered access to the markets of South Asia, West Asia, and Africa, as well as to those of its neighbours in the Middle East. A key project in Oman’s attempts to monetise this favourable geographical position is the Ras Markaz Oil Storage Park and the government announced last week that it is in the very final stages of the project, which will eventually be able to store more than 200 million barrels of crude oil in Ras Markaz for easy onwards transport to wherever in the world the sellers and buyers want.
Given this advantageous strategic position for such an asset, and the fact that it is also one part of Oman’s three-pronged strategy to create a world-class petrochemicals sector, China has been busy positioning itself to control the Ras Markaz site, with Oman a key cog in its multi-generational power-grab program, ‘One Belt, One Road’. According to comments last week from Salim Al Hashmi, general manager of the Ras Markaz project for its main developer, the Oman Tank Terminal Company, the Park will have an initial capacity of 25 million barrels as from the first quarter of 2022, before a rapid series of incremental rises in its storage capacity up to and over the 200 million barrels level.
The Oil Storage Park will receive its oil by sea through variously sized ships that will be able to pump oil to the facility through pipelines extending to 7 kilometres at sea and 3.5 kilometres on land. There are plans as well to link the facility to Oman’s oil fields, said the Oman Tank Terminal Company’s chief executive officer, Ard Van Hoof, last week. Oman currently exports its crude via the Mina Al Fahal terminal in the Persian Gulf, but having a second export facility at Ras Markaz will help the country deal with surplus production, he added.
This said, the prospects regarding Oman’s indigenous oil resources look bleak. Currently, the Sultanate has slightly less than five billion barrels of estimated proved oil reserves – barely ranking as the 22nd largest in the world. Although its government has spoken of increasing oil production to 1.1 million bpd after the end of the current OPEC+ deal, in the run-up to last 2020’s fourth quarter US$2 billion sovereign bond offering by Oman, the Sultanate clearly stated in its overall issue prospectus information that it is facing a long-term slowdown in oil production, with limited future growth in reserves. It is true that Oman did manage to sustain oil production of just over 1 million barrels per day (bpd) for two successive months last year (March and April), but after that the figure fell back to the usual circa-900,000 bpd level and then to markedly less than that, notably to around 720,000 bpd in December.
This lack of primary hydrocarbons resources makes it all the more imperative that the Ras Markaz Oil Storage Park comes on line as quickly as possible. This is because not only will the Raz Markaz storage site be a vital source of government revenue in the future, but also it is one of three key parts of the great economic hope of Oman – the multi-layered Duqm Refinery and Petrochemicals Project – with the other element being the 290 kilometre-long Muscat Sohar Product Pipeline (MSPP) for transporting refined products. The US$336 million pipeline was finally inaugurated in March 2018, and currently connects the refineries of Mina Al Fahal and Sohar to an intermediate distribution and storage facility at Al Jifnain. Split into three sections – 45 kilometres between the Mina Al Fahal and Al Jifnain Terminal, 220 kilometres between the Sohar and Al Jifnain Terminal, and 25 kilometres between the Al Jifnain Terminal and Muscat International Airport – the project is integral to the delivery of more than 70 per cent of Oman’s fuel via the state-of-the-art storage facility in Al Jifnain.
The final part of plan for the Ras Markaz Oil Storage Park is that it will also function as a storage facility for oil for the 230,000 bpd Duqm Refinery and Petrochemicals Project – a 50-50 joint venture owned by Oman’s OQ and Kuwait Petroleum International – which is connected to it with an 80 kilometre-long pipeline. Long in the planning and the subject of numerous setbacks along the way, the Duqm Refinery part of the overall Duqm Refinery and Petrochemicals Project is expected to start up in 2022. Once operational, it s scheduled to receive 65 per cent of its crude oil volumes from Kuwait, and the remaining 35 per cent from indigenous Omani sources.
Part of this overall push is bringing the US$6.7 billion Liwa Plastics Industries Complex project (LPIC) fully online. Located in Sohar as part of an integrated complex that houses the Sohar refinery, aromatics plant, polypropylene and steam cracker unit for the LPIC, the Complex is intended to be one of the most integrated refinery and petrochemical operations in the world, with the single plant expected to contribute two per cent to national GDP on its own. Once production begins in earnest, the plant is expected to produce 1.4 million tonnes of polymers – about 400 containers a day – with the critical end point of this strategy being to dramatically increase polyethylene and polypropylene exports into the Asian markets, in particular China. Industry estimates prior to the global outbreak of COVID-19 were for global demand for both polymers combined to increase by around five per cent per year to total at least 180 million metric tons by 2023, with the majority of this going to China.
It is not just this or China’s OBOR considerations that have been behind Beijing’s increasing efforts in recent years to lay the ground work to add Oman to its growing list of Middle Eastern assets that the U.S. is leaving behind in its increasingly isolationist foreign policy. Talks were recently resuscitated between Tehran and Muscat for Iran to use 25 per cent of Oman’s liquefied natural gas (LNG) production facilities as part of its plan to become an LNG superpower based off its massive South Pars non-associated gas field. 25% of Oman’s total 1.5 million tons per year LNG production capacity at the Qalhat plant.
This could be done as part of a broader plan to build a 192 kilometre section of 36-inch pipeline running along the bed of the Oman Sea at depths of up to 1,340 metres from Mobarak Mount in Iran’s southern Hormuzgan province to Sohar Port in Oman for gas exports. The Oman-based LNG supply would also act as a starting point for the game-changing Iran-Pakistan-China pipeline link in the OBOR land route. Another extremely beneficial synergy for the Iran-China axis of this direct route from Iran to Oman would be that it would coincide with the recent completion of Iran’s equally sanctions-busting Goreh-Jask pipeline that is set to eventually transport at least 1 million barrels per day of oil from its major oil fields via Goreh in the Shoaybiyeh-ye Gharbi Rural District of Khuzestan Province 1100 kilometres to the port of Jask in Hormozgan province on the Gulf of Oman.
Beijing has poured money into various strategic projects relating to the Duqm Refinery and Petrochemicals Project from the very start. Already accounting for around 90 per cent of Oman’s oil exports and the vast majority of its petchems exports, China leveraged this to sign a US$10 billion investment the Duqm oil refinery – just after the implementation of the nuclear deal with Iran at the beginning of 2016. This focuses initially on completing the Duqm refinery but the package also includes a product export terminal in Duqm Port and the Duqm Refinery-dedicated crude storage tanks of the Ras Markaz Oil Storage Park.
Chinese money is also being funnelled towards the construction and building out of an 11.72 square kilometre industrial park in Duqm in three areas – heavy industrial, light industrial, and mixed-use. According to the plans, all of which will be ready within the next 10 years, according to Beijing, in the light industrial zone there will be 12 projects, including the production of 1 gigawatt (GW) of solar power units, and of oil and gas tools, pipelines and drilling equipment. The mixed-use sector will focus on projects designed to improve the infrastructure for Omanis, including the construction of a US$100 million to build a hospital, and US$15 million towards a school. The heavy industry sector will also see 12 projects, dealing with the production of methanol and other chemicals.