Firm contracts signed this week by Oman LNG to supply liquefied natural gas (LNG) to three Japanese companies, represent a major boost for the majority Omani state-owned energy company’s ambition to operate beyond its current concession, which is due to expire in 2024.
Japanese trading conglomerates Mitsui & Co and Itochu Corp, along with power company JERA, signed long-term pacts for the supply of a total of 2.35 million tonnes per annum (mtpa) of LNG from the Sultanate of Oman.
Supply timeframes span 5 to 10 years starting from 2025, effectively keeping Oman LNG in operation well into the future – a development that necessitates an extension of the company’s current concession agreement with the Omani government. Inherent in that extension is a commitment by the government, represented by the Ministry of Energy and Minerals, to ensure continued supplies of natural gas as feedstock for the production of LNG.
According to market experts, this week’s supply agreements vindicate recent multi-million dollar investments by Oman LNG to prep itself for what it has dubbed a ‘Life Extension’ programme encompassing a portfolio of capacity restoration, debottlenecking and rejuvenation initiatives.
That programme began in 2017 with a ‘Capacity Restoration’ project that helped restore plant capacity to its nameplate 9.9 mtpa, while upgrading Oman LNG’s Qalhat complex to process the new volumes of gas flowing from BP-operated Block 61. Capacity restoration centred on the adoption of a ‘Lean Gas Package’ technology which enabled the processing of a blend of natural gas from Petroleum Development Oman (PDO) – hitherto the predominant supplier of feedstock for the LNG plant – and new supplies from Block 61.
By mid-2019, capacity at the Qalhat plant was officially restored at 10.4 mtpa – a significant milestone for the company. It translated into additional LNG cargoes for Oman LNG and a new record in LNG production for the first time in its history.
Next in its sights was the Debottlenecking exercise designed to test the limits at which LNG production can be ramped up safely and efficiently. Together with investments in efficient power capacity, replacing old gas-based turbines, plant capacity has since been boosted to a significant 11.6 mtpa. The overall programme has resulted in a ‘rejuvenated’ and ‘upgraded’ LNG plant that compares with more modern projects, and with an operational life of at least another 20 years through to 2045.
Also boding well for Oman LNG’s hopes to secure continued allocations of gas as feedstock is the nation’s current pivot to renewables for power generation. This drive will progressively reduce the power sector’s dependence on gas as a fuel resource. Together with decarbonisation commitments by energy producers, significant savings in gas consumption are anticipated that, in turn, will become available for possible diversion to Oman LNG. Furthermore, this trend is expected to burgen post-2030 as Oman accelerates its transition from hydrocarbons to a green-hydrogen based energy future, it is pointed out.
Importantly, this week’s supply agreements also represent a shot-in-the-arm for Oman LNG’s efforts to secure long-term offtakers for volumes that will become available in the Life Extension phase. They cover around 20 per cent of available capacity for the first 5 to 10 years of operations post 2025, opening up significant marketing opportunities amid a growing scramble by gas-dependent global economies to secure their energy needs in the wake of disruptions caused the Ukraine crisis.
While Itochu Corporation will continue to offtake LNG volumes from Oman, an existing 18-year contract covering the supply of 0.7 mtpa of LNG comes to an end in December 2024. Also due to expire at the end of December 2024 are 25-year contracts with Korea Gas Corporation for 4.1 mtpa and Osaka Gas of Japan (0.7 mtpa). An eight-year contract with BP Singapore for 1.1 mtpa of LNG comes to an end in December 2025.
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