THE construction of a 230,000 barrels per day (bpd) refinery in the city of Duqm, Oman, should help Muscat secure its position as a net products exporter. The establishment of a new downstream hub, combined with the construction of a new harbour in the same city, could help the country break into the liquids bulk market. Worries over ballooning costs, which are still in line with regional norms, are likely to be negated by the numerous advantages offered by this plan.

Mohammed Al Rumhy, the Omani Oil Minister, says that the Oman Oil Company (OOC) and Abu Dhabi’s International Petroleum Investment Company (Ipic) were preparing a study to determine the size of their proposed joint refining project in Duqm. He says the study should be ready soon.

This declaration suggests that the information provided by Ipic in an October 2011 bond prospectus – saying that the plant, to be located in Oman’s central port of Duqm, would have a 230,000 bpd capacity and would cost $6 billion to build – did not represent a final decision.

However, Rumhy confirms that his country will go ahead with this project, which has suffered numerous delays since its proposal in 2006 due to ballooning costs. The Duqm Special Economic Zone (SEZ) has already reserved land for the plant, which is now expected to be completed by end-2017.

Oman’s first refinery, the 106,000 bpd Muscat plant, was built by the Oman Oil Refineries and Petroleum Industries Company (Orpic) in 1982 in order to reduce dependence on refined product imports.

With an eye on the global oil products export market, in 2004, the country started building its second refinery, the 116,400 bpd Sohar facility. Completed in 2007, at the same time as a major expansion and upgrade of the Muscat refinery, Sohar gave Oman substantial export capacity. To maximise synergies, the two plants were linked by pipeline, creating an oil-processing hub that supplies all of Oman’s fuel, with the surplus exported.

With Oman’s crude production expected to peak at 929,000 bpd in 2014, this move into the downstream could allow the country to follow in the footsteps of Bahrain, which has built up a significant refining sector despite low domestic crude oil production.

The strategy will also allow Oman to maximise its revenues from the oil industry by keeping much of the value-added chain within the country. In line with a broader Middle Eastern trend, the expansion of refining capacity has enabled Oman to establish a petrochemicals industry in the city of Sohar.

However, due to booming domestic growth, the country is facing the prospect of becoming a net products importer by 2021. Worried by this possibility, Orpic is hoping to expand capacity at Sohar. An upgrade of the facility, which includes a new 71,500 bpd crude distillation unit (CDU), would raise capacity to approximately 187,000 bpd by 2015. Although the upgrades would significantly enhance Oman’s refining depth, improving product quality and boosting the volumes of high-end products such as gasoline and diesel, they will not stop the country from becoming a net importer by 2021.

The proposed 230,000 bpd Duqm refinery, which if completed would be the largest in the country, would secure Oman’s position as a net exporter. Furthermore, it will create a new petrochemicals hub in the central area of the country.

The facility is also part of a wider project to establish the city of Duqm as a new coastal hub. The Port of Duqm project, the centrepiece of the of the SEZ, is vying to become a new dry bulk hub; however, considering that the country already has a thriving dry bulk port in Sohar and another well-established container port in Salalah, the development of the country’s largest downstream complex in Duqm offers the opportunity to break into the liquids bulk market.

Taking into consideration the risk that Oman might become a net products importer, and taking into account the benefits that the Duqm project could offer the SEZ, we believe that Ipic and Orpic are likely to proceed with the project.

At an estimated price of $26,000/barrel – in line with regional norms – this could be a worthwhile investment.