Oman storage deal with Iraq boosts oil-trading strategy

Oman storage deal with Iraq boosts oil-trading strategy


Oman is set to sign a strategic oil storage deal with Iraq this week, part of the sultanate’s broader aim to expand as an oil-trading hub with easy access to Asian trade routes.

The memorandum of understanding will not specifically commit Iraq’s state oil company to any commercial terms but it adds another element to Oman’s plan, set out in last year’s royal decree, to expand the Duqm special economic zone by 15 per cent to 2,000 square kilometres, including storage facilities at the Ras Markaz Crude Oil Park and terminal.


The storage expansion dovetails with Oman’s planned expansion of refinery capacity, which was given a boost this month when Oman signed a deal with Kuwait to build a major new plant near the port in Duqm, which is located in Oman’s central Al Wusta region.

"We just signed a shareholders’ agreement with Kuwait and that is a major milestone for us," said Mohammed Al Rumhy, the sultanate’s oil and gas minister, referring to a deal first announced in November and signed this month between Kuwait Petroleum Co and Oman Oil Co whereby they will jointly build an oil refining and petrochemicals complex with a capacity of 230,000 barrels per day on a 900-hectare site in Duqm.


"The refinery and the storage are linked," said the minister, who was in Abu Dhabi to attend a GCC forum. "We cannot have the refinery without the storage and there is no need for the storage without the refinery."

The refinery project – Duqm Refinery and Petrochemical Industries Co – is a 50/50 joint venture between Oman and Kuwait. Previously, Abu Dhabi’s International Petroleum Investment Co had a stake in the project but pulled out when it was expanded to include petrochemicals, which did not fit with the latter’s strategic aims.


Isam Al Zadjali, Oman Oil’s chief executive, said this month that he expects the project will be financed 60 per cent by the equity partners, with the rest coming from project debt financing.

The oil minister said he has received bids for the main project contract – for engineering, procurement and construction. He expects to award that, between US$5 billion and $6bn, at the end of the summer.

Within the broader Duqm project, Oman’s largest single economic development, about 1,600 hectares has been allocated to accommodate up to 200 million barrels of crude oil storage in the Ras Markaz Crude Oil Park.


The Duqm strategy is to provide more flexibility for Oman in crude trading and to help facilitate economic diversification by adding a slate of refined oil and petrochemicals products and possibly further downstream development, such as plastics and other manufacturing.

"At the heart of the Ras Markaz Crude Oil Park’s appeal is its strategic location, offering easy access to markets in South Asia, the Far East and Africa, as well as land and sea access to producers in the Middle East," according to a report by the Middle East Policy Council, a think tank. "Moreover, the project is envisioned to position the sultanate as a major hub for crude oil storage in the region, meeting the requirements of crude market players."


For regional oil producers, this means having the flexibility to store oil in a location on the Indian Ocean that is 1,000 kilometres outside of the Strait of Hormuz and can either be refined nearby or shipped to destinations east or west.

Kuwait will be the first user of storage at Ras Markaz, Mr Al Rhumy said, "and when we talk to our friends in the region many of them are showing interest. Time will tell whether that will be converted into actually using it."


​amcauley@thenational.ae

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