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Oman's Changed Gas Fortunes Drive LNG Ambitions

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Oman finds itself in a good position as it seeks to renegotiate its existing long-term LNG supply contracts that expire between 2024 and 2026. High gas production and LNG export levels last year have been met with expected high LNG prices and strong demand, triggered largely by Russia’s war in Ukraine and subsequently by a projected rebound of the Chinese economy.

Less than a decade ago, Oman’s LNG future was clouded in uncertainty amid declining domestic natural gas output and rapidly rising demand. Today, the sultanate’s LNG prospects look as bright as ever — thanks to a remarkable reversal in the country’s gas fortunes in recent years.

New developments such as BP’s Khazzan and Ghazeer tight gas projects have boosted production by more than 1 billion cubic feet per day since coming on stream in 2017 and 2020 respectively. In 2022, Oman's gas output stood at 4.7 Bcf/d, compared with 3.2 Bcf/d a decade earlier, enabling the country to feed its domestic power and industrial sectors while also supporting its three liquefaction trains operated by Oman LNG at Qalhat in the country’s east. The plant’s nameplate capacity has been boosted by 1 million tons per year to around 11.4 million tons/yr via debottlenecking works.

Oman’s gas bonanza couldn’t have come at a better time for the sultanate. Data from commodity analytics firm Kpler show that Oman exported a record 11.6 million tons/yr of LNG in 2022, above nameplate capacity, up from 10.3 million tons/yr in 2021 and exceeding the previous high of 10.5 million tons/yr in 2019. Asian consumers almost exclusively imported the super-cooled fuel from Oman under long-term supply contracts in 2022, with about 5 million tons/yr purchased by South Korea, 2.75 million tons/yr by Japan followed by India and China at 950,000 tons/yr and 860,000 tons/yr respectively, according to Kpler. Importers of smaller volumes included Thailand, Taiwan, Kuwait and Spain.

Oman has three long-term supply contracts — with BP (1.13 million tons), Korea Gas (4.1 million tons), and Osaka Gas (660,000 tons) — expiring in 2024, according to the most recent annual report of the International Group of LNG Importers (GIIGNL). Another two contracts — with Japan's Itochu (700,000 tons) and Spain's Naturgy (1.65 million tons) — expire in 2025, followed by another contract with Osaka Gas for 800,000 tons coming to an end in 2026.

Deal Signing Spree

But in recent weeks, Oman LNG — in which Shell is the largest foreign shareholder at 30% — entered several five-to-10-year binding sheet agreements, a sign that tight energy markets have led to renewed appetite for longer-term gas supply deals.

Last week, Thailand’s PTT and TotalEnergies signed binding term-sheet agreements with Oman LNG for the supply of a combined total of 1.6 million tons/yr of LNG starting from 2025. The deals came on the back of another four supply deals signed since December, including with Shell, Japan’s Jera, Mitsui and Itochu. Those deals also start in 2025 and amount to a total supply of 3.15 million tons of LNG, with a duration of five to 10 years. In total, the recent deals lock in some 4.75 million tons/yr of exports of the supercooled fuel — more than half of the 9 million tons/yr from the existing six contracts that need replacing, according to GIIGNL.

The 10-year deal with Shell for 800,000 tons/yr is notable because it represents Oman LNG's first long-term offtake deal with the major and is expected to help maintain Oman's share of the global LNG market while also adding some destination and trading flexibility for a country that exported almost exclusively to Asia until last year.

Topics:
LNG Contracts, LNG Supply, Majors, Liquefaction, LNG Trade
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