Oman’s energy ministry plans a hydrogen future

Oman

H.E. Mohsin Al Hadhrami, undersecretary of Oman's Ministry of Energy and Minerals, talks to The Energy Year about the state of Oman’s oil and gas sector, how the ministry envisions the country’s transition to a green economy and how local companies can take advantage of the emerging diversified energy mix.

This interview is featured in The Energy Year Oman 2023

How would you sum up the current position of Oman’s oil and gas sector?
Oman’s average oil production consistently remained above 1 million bopd during the first 11 months of 2022, a 10% increase compared to the output recorded in the same period of 2021, when it was approximately 968,000 bopd. Our objective for 2023 is to maintain production, in line with the goals set by OPEC +.
The sultanate’s reservoirs continue to decline, but exploration is always surprising us with good results where technology plays a major part, like advances in seismic acquisition and processing, fracking techniques and what have you. In addition, in order for us to keep production levels up, we will need to attract investments in the sector, which is healthy, and part of our strategy is to open up new blocks.
For example, we are dedicating more attention to offshore opportunities. This area is still under development, but we are working on it and we see offshore exploration activities coming soon. Moreover, we launched a new onshore concession bid round this March for such a purpose.
We are optimistic about our oil and gas future, as we are receiving good feedback on our initiatives. International companies are showing rising interest in Oman, driven by our stable business environment and robust knowledge in the industry, and supported by more than 50 years of data acquisition and know-how development. Plus, our people are experienced, having worked with major E&P players such as PDO and Oxy for a long time.
In a nutshell, Oman presents a very positive landscape for oil and gas activities to grow, with local talent, stable regulations and a friendly business environment.

How important is the oil and gas sector for financing the greening of the country’s economy in line with Vision 2040?
Diversification is a process that entails multiple stages and needs preparation, requiring investments, a policy framework and capabilities in terms of talent and technologies. The oil and gas sector is our starting point for building a future based on a greener economy because it has been the main driver to create significant in-country value [ICV], boosting job opportunities and encouraging local businesses.
Alongside this global trend, we are in a transition phase, moving towards a different and wider type of energy spectrum, but we always keep in mind that the protection of our local communities is a priority and we need to carefully assess the impact that an evolving energy mix will have on them. There will be a time when renewables and hydrogen will play a bigger role in the mix, but their advancements will have to go hand in hand with local companies’ progress, while they will still coexist with hydrocarbons for a while.
Although it is difficult to set a precise date, we have identified the 2050 net-zero CO2 emissions target as a clear timeline for what we need to do. We are in the process of showing how our transition policies and regulations will pan out, preparing ourselves to communicate them clearly, once they are ready, to the right stakeholders.

How well positioned is Oman to become a hub for multiple energies?
We are blessed with natural resources when it comes to solar and wind. Oman has one of the highest solar energy densities in the world, with 320 sunny days on average each year and high-intensity sunlight that can peak at nearly 6,000 watts per hour per square metre.
Beyond solar, we are aiming to become a world hub for hydrogen, planning to produce 1 million tonnes per year by 2030. We can take advantage of the country’s strategic geographical location – at the crossroads between Asia and Africa, close to Europe and sitting in the middle of some of the major trade routes globally. Moreover, thanks to the experience gained from our oil and gas activities throughout the years, we already have a set of skills and infrastructures to match the needs of hydrogen developments, having invested in key assets such as ports, pipelines and downstream facilities.
The bulk of our strategy for the future is based on green hydrogen, which in our case will come mostly from solar and which – unlike the other categories of hydrogen – can be very straightforward in terms of how you produce, transport and sell it. The challenge arises when you include in the equation blue hydrogen, which is still produced from fossil fuels (natural gas), but as the greenhouse gases are captured and stored, this mitigates its environmental impacts. We are currently working on addressing this issue with a clear regulation to certify that it is a product with a particular CO2 impact.

What do you see as the key challenges in the development of alternative energy sources?
Developing a strategy around an emerging energy source like hydrogen and working to be positioned as a future leader in this field is challenging per se. You need to have the right technology and resources and enough incentives to generate the appetite to convince investors to put their money into Omani hydrogen. There are already other countries that are gearing up by allocating subsidies to hydrogen projects and creating incentives to make their product cheaper. Our ultimate goal is to make Oman more attractive than other markets.
Again, we need to be sure that it will create opportunities for our people and have a positive effect on our economy. Hence, we will need to build a supply chain around hydrogen, and that is another challenge because it is still a field under exploration.
In terms of ICV, for example, when in-country value was launched for oil and gas, it was going to be implemented in a very well-understood sector, with more than 40 years of experience, with people that were already familiar with the industry. Now, when we talk about hydrogen and renewables, although we are starting to walk the talk, there are questions about what exactly hydrogen is, what it would mean in terms of jobs creation, what the business opportunities related to it could be and how to capitalise on them.
In short, the nature of the challenge is not like 20 years ago when ICV was introduced. Now there is more unpredictability. Nonetheless, once the context is clearer, there will still be risks, but opportunities too, and those companies able to manage them both will succeed.

How should local companies take advantage of the diversified energy mix the country is aiming to showcase?
When a country starts presenting a diversified energy mix, introducing renewables, hydrogen and other sources, localisation of activities becomes more critical, opening more doors for local companies since there are more specific projects planned to land in some specific geographical areas. However, this does not give local players an automatic advantage because first they need to learn how to deal with a new market segment. How the government enables these companies to do that is part of what the next phase of the ICV programme should do.
The oil and gas sector provided us with good lessons about how to elevate local companies, with many of them running profitable businesses thanks to solid ICV. But now it is time to move to the next level and stimulate our players to be more competitive, which requires a reshaping of the ICV concept, implementing a different approach. Before, its core purpose was to create the conditions for a business to exist. Now we want to raise the bar and work to make them compete at a higher scale.
Our expectations, in line with what [ OQ drilling business] Abraj did by becoming publicly listed, see these companies that started as local entities turning first into regional and then into international players. In order to achieve this, a shift in mentality is needed and rather than the traditional approach of staying comfortably afloat, we want them to start thinking as big companies, making sure they have the right governance in place, a consistent flow of investments in R&D and a long-term perspective for their business. Thus, ICV has to start operating in this kind of space, pushing Omani SMEs not just to make money to survive, but to aim bigger. They should be looking at how to expand their portfolio, how to strategically merge with another company, how to close new partnership deals and how to diversify their scope of work.
We want them to be more ambitious and all the major developments currently ongoing in the country – not only in oil and gas, but also in renewables, power generation, logistics, infrastructure, manufacturing and mining – provide a paramount opportunity for them to be so. Progress comes when the market evolves and you are prepared to deal with it, taking advantage of what it has to offer and understanding how its changing will affect you, in terms of both potential opportunities and challenges.

What key areas will the Ministry of Energy and Minerals focus on in the coming years?
I would identify three main ones: ensuring the resilience of the oil and gas sector, shaping the structure of the minerals sector to transform it into a leading contributor to our economy and developing hydrogen-related initiatives.
Regarding hydrogen, we know that it is going to be a journey, but we also know that it is moving ahead and it is going to expand exponentially. It is just a matter of how to begin and how to implement the right business model. Once we get there, people and businesses become more comfortable, as happened with LNG. Back in the ‘90s, when we kicked off LNG operations, it was an unknown territory. Now we are aware of what works, what does not and what needs to be improved.
Finally, we are a reliable and skilled energy player, and both investors and partner countries are aware of that. In energy, the security element is paramount because it works as a key incentive. What is happening in Europe due to the war in Ukraine, for instance, highlights for us that what’s important is not being a supplier, but being a reliable and secure supplier. For importer countries, this translates into more affordable energy prices, which have a huge impact on the daily life of each of us, affecting areas from household electricity and heat to business activities.

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