Oman Sees BP Tight Gas Deal In Weeks

Oman hopes to reach agreement in the next few weeks on the price BP would get paid for gas produced from the key Khazzan tight gas project, its oil minister said on Sunday.

BP has long been haggling with Muscat over the price for any gas produced from the project, while Oman needs to maintain gas exports and meet rising demand at home.

“Both the government and BP have disagreements, including gas pricing, but I am confident that we will reach an agreement in the coming weeks for this project to go forward,” Mohammad bin Hamad al-Rumhy said.

Omani gas production has risen sharply over the last decade and the country remains a net gas exporter. But rampant domestic demand means it must tap more costly gas deposits if it is to maintain exports of liquefied natural gas (LNG) in coming years.

In a rare Middle Eastern move to slash fossil fuel subsidies and encourage investment, Oman plans to double gas prices for the industry from around $1.5 per million British thermal units (mmbtu) in 2012 to $3/mmbtu 2015.

According to industry estimates, total upstream costs for conventional gas production from reservoirs are around $3/mmbtu, but the cost of trickier projects like Khazzan, where gas is trapped between rocks deep underground, are likely to be higher.

BP has already spent hundreds of millions of dollars developing the tight gas deposits in Block 61 in northern Oman and says commercial development is possible at the right price.

Non-OPEC oil producer Oman’s proven gas reserves stood at 33.5 trillion cubic feet (tcf) at the end of 2011, according to the latest BP Statistical Review of World Energy.

Al-Ruhmy said on Sunday state-controlled Petroleum Development Oman (PDO) had found another 2.9 tcf of gas and 115 million barrels of gas condensate in the Mabrouk Deep field in exploratory drilling in 2012, Oman’s state news agency reported.

PDO controls most of Oman’s oil reserves and Royal Dutch Shell is the second-biggest shareholder.

Omani oil production has also been rising since 2007, thanks largely to enhanced oil recovery projects at existing fields, and is expected to hit 940,000 barrels per day (bpd) in 2013, up from an average 918,000 bpd in 2012, Al-Ruhmy said.