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Q&A: Oman Shell to balance upstream with renewables

  • : Crude oil, Hydrogen, Natural gas
  • 24/05/24

Shell has been in Oman for decades now and had a front row seat to its energy evolution from primarily an oil producing nation to now a very gas-rich and gas-leaning hydrocarbons producer. Argus spoke to Oman Shell's country chairman Walid Hadi about the company's energy strategy in the sultanate. Edited highlights follow:

How would you characterize Oman's energy sector today, and where do new energies fit into that?

Oman is one of the countries where there is quite a bit of overlap between how we see the energy transition and how the country sees it.

Oman is clear that hydrocarbons will continue to play a role in its energy system for a long period of time. But it is also looking to decrease the carbon intensity to the most extent which is viable. We need to work on creating new energy systems or new components of energy system like hydrogen and EV charging to facilitate that. It is what we would like to call a 'just transition' because you think about it from macroeconomic perspective of the country and its economic health.

Shell is involved across the energy spectrum in Oman – from upstream gas to alternative, clean energies. What is Shell's overall strategy for the country?

In Oman, our strategic foundation has three main pillars. The first is around oil and liquids and our ambition is to sustain oil and liquids production.

At the same time, we aim to significantly reduce carbon intensity from the oil production coming from PDO. The second strategic pillar is gas, and our ambition here is to grow the amount of gas we are producing in Oman and also to help Oman grow its LNG export capabilities.

The more committed we are in unlocking the gas reserves in the country, the more we can support Oman's growth, diversification, and the resilience of its economy through investments and LNG revenue. Gas also offers a very logical and nice link into blue and green hydrogen, whether in sequence or as a stepping stone to scale the hydrogen economy in the country.

The last strategic pillar is to establish low-carbon value chains, predominantly centered around hydrogen, more likely blue hydrogen in the short term and very likely material green in the long term, which is subject to regulations and markets developing.

How would you view Oman's potential to be a major exporter of green hydrogen?

When examining the foundational aspects of green hydrogen manufacturing, such as the quality of solar and wind resources and their onshore complementarity, Oman emerges as a highly competitive country in terms of its capabilities.

But where we are in technology and where we are in global markets and on policy frameworks — the demand centers for green hydrogen are maturing but not yet matured. I think there will be a period of discovery for green hydrogen globally, not just for Oman, in the way LNG started 20-30 years ago. When it does, Oman will be well-positioned to play global role in the global hydrogen economy.

But the question is, how much time it is going to take us and what kind of multi-collaboration needs to be in place to enable that? The realisation of this potential hinges on several factors: the policies of the Omani government, its bilateral ties with Japan, Korea, and the EU, and the technological advancements within the industry.

Shell has also been looking at developing CCUS opportunities in the country. How big a role can CCUS play in the region's energy transition?

CCUS is going to be an important tool in decarbonising the global energy system. We have several projects globally that we are pursuing for own scope 1, scope 2 emissions reductions, as well as to enable scope 3 emissions with the customers and partners

In Oman, we are pursuing a blue hydrogen project where CCUS is a clear component. This initiative serves as a demonstrative case, helping us gauge the country's potential for CCUS implementation. We are using that as a proof point to understand the potential for CCUS in the country.

At this stage, it's too early to gauge the scale of CCUS adoption in Oman or our specific role within it. However, we are among the pioneers in establishing the initial proof point through our Blue Hydrogen initiative.

You were able to kick off production in block 10 in just over a year after signing the agreement. How are things progressing there?

We have started producing at the plateau levels that we agreed with the government, which is just above 500mn ft³/d.

Block 10 gas is sold to the government, through the government-owned Integrated Gas Company (IGC), which so far has been the entity that purchases gas from various operators in Oman like us, Shell. IGC then allocates that gas on a certain policy and value criteria across different sectors.

We will require new gas if we are going to expand LNG in Oman. There is active gas exploration happening there in Block 10. We know there is more potential in the block. We still don't know at what scale it can be produce gas or the reservoir's characteristics. But blocks 10 and 11 are a combination of undiscovered and discovered resources.

We are aiming to significantly increase gas production through a substantial boost. However, the exact scale and timing of this expansion will only be discernible upon the conclusion of our two-year exploration campaign in the block. We expect to understand the full growth potential by around mid to late 2025.

Do you have any updates on block 11? Has exploration work there begun?

We did have a material gas discovery which is being appraised this year, but it is a bit too early to draw conclusions at this stage.

So, after the appraisal campaign is completed, we will be able to talk more confidently about the production potential. Exploration is a very uncertain business. You must go after a lot of things and only a few will end up working. We have a very aggressive exploration campaign at the moment. We also expect by the end of 2025, we would be in a much better position to determine the next wave of growth and where it is going to come from.

Shell is set to become the largest off taker from Oman LNG, how do you view the LNG markets this year and next?

As a company, we are convinced, that the demand for LNG will grow and it needs to grow if the world is going to achieve the energy transition

Gas must play a role, it has to play a bigger role globally over the time, mainly to replace coal in power generation and given its higher efficiency and lower carbon intensity fuel in the energy mix.

While Oman may not be the largest LNG exporter globally or hold the most significant gas reserves, it is a niche player in the gas sector with a sophisticated and high-quality gas infrastructure. Oman's resource base remains robust, driving ongoing exploration and investment efforts.

This growth trajectory includes catering to domestic needs and servicing industrial hubs like Duqm and Sohar, alongside allocating resources for export purpose. We have the ambition to grow gas for domestic purpose and for gas for eventual exports

Have you identified any international markets to export LNG?

We have been historically and predominantly focused on east and we continue to see east as core LNG market with focus on Japan, Korea, and China.

Europe has also emerged on the back of the Ukraine-Russia crisis as growing demand center for LNG. Over time we might focus on different markets to a certain extent. It will be driven on maximising value for the country.

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