Oman

Economy

Oman is a rural, agricultural country with great fishing industry and important overseas trading. The country is the largest oil and natural gas producer in the Middle East that is not a member of the OPEC (Organisation of the Petroleum Exporting Countries) and is highly dependent on its hydrocarbon sector. Oil in commercial quantities was discovered in Oman in 1964 and was first exported in 1967.

According to the World Bank, the GDP of Oman in 2020 was USD73.971 Billion (in current USD prices) and USD80.39 Billion (in constant 2015 USD prices) reduced from USD88.06 Billion (in current USD prices) and USD83.05 Billion (in constant 2015 USD prices) in 2019 respectively.

According to the Central Bank of Oman’s Annual Report for 2019, the hydrocarbon sector revenues represent roughly 34.4% of the nominal GDP of the country (in 2017 represented 30% of the GDP and in in 2016 represented 27% of the GDP) and 76% of the Government revenues during 2019.  Oil and gas activities are Oman’s principal revenue source accounting for about 86% of Government revenue in 2019.

Although the “Oil and Gas Journal”, estimated that the proved oil reserves of Oman were 5.4 Billion barrels on January 2018 ranking Oman as the 7^th largest proved oil reserve holder in the Middle East, according to the Ministry of Oil and Gas of Oman, the reserves of crude oil and condensates in the Sultanate totalled 4,841.71 Million barrels as of the end of 2019 allowing for 25-30 years of crude oil production at 2019 levels.

The average daily oil production of Oman in 2017 was approximately 980,000 barrels, in 2018 it reduced to 978,000 barrels and in 2019 it was further reduced to 970,900 barrels. The following year 2020, the average daily oil production was decreased to 950,800 barrels and increased to 971,000 barrels per day in 2021. According to estimates the daily oil production is projected to rise to 1.05 Million barrels per day in 2022

The total exports of oil and condensates during 2019 amounted to 310 million barrels. The most important oil customer of Oman is China that imports 78% of the exported crude oil and them Japan with 8%.

Regarding the exports of goods, Oman experienced a dramatic fall during the periods 2013-2016 and 2018-2020 when the value of the exports was reduced from USD56,43 Billion (BoP, current US$) in 2013 to USD27.54 Billion (BoP, current US$) in 2016 and from USD41.73 Billion (BoP, current US$) in 2018 to USD30.6 Billion (BoP, current US$) in 2020.

The top export products of Oman are Crude Petroleum (USD13.3 Billion), Petroleum Gas (USD4.4 Billion), Refined Petroleum (USD2.39 Billion), Semi-Finished Iron (USD1.03 Billion), and Nitrogenous Fertilisers (USD957 Million), exporting mostly to China (USD13.8 Billion), India (USD2.77 Billion), South Korea (USD1.93 Billion), United Arab Emirates (USD1.75 Billion), and Saudi Arabia (USD1.57 Billion).

A similar situation was recorded for the imports of goods. According to the IMF Oman’s imports of goods was reduced dramatically between 2013 and 2016 when the value of the imports collapsed from USD32 Billion in 2013 to USD21.3 Billion in 2016. There was a temporary increase of the imports in 2017 when they reached USD 24.12 Billion but the following year the value of the imports was reduced again to USD23.64 Billion in 2018, to USD20.45 Billion in 2019 and to USD18.9 Billion in 2020.   

According to the Oil and Gas Journal Oman held 23 Trillion cubic feet (TcF) of proved natural gas reserves in 2017 and 23.8 Trillion cubic feet as of the end of 2019. The production of dry natural gas during 2019 amounted to 1,292 Billion Cubic Feet and the local consumption was 857.42 Billion cubic feet. The exports of dry natural gas in 2019 reached 487.27 billion cubic feet. Oman has focused more on the gas production development ang according to estimates the gas production could rise by 4% YoY in 2022 on the back of the development of the Khazzan and Mabrouk gas projects. 

The State-owned Petroleum Development Oman (PDO) exploration and production company holds most of the country’s oil reserves and is Oman’s largest oil and gas operator. It started to export crude oil in 1967 and since then it has contributed significantly to the developed the oil industry of the country. The company delivers the majority of the country's crude oil production and natural gas supply.

PDO is owned by the Government of Oman (with a 60% interest), Royal Dutch Shell (34%), Total (4%) and Partex (2%). The company now has 192 producing oil fields, 52 gas fields, 29 production stations and around 9,000 active wells. The second largest energy operator in Oman after PDO is the U.S company Occidental Petroleum which has the largest presence of any foreign firm in Oman.

Late 1990’s the government of Oman decided to privatise its energy utilities and produced a commercial law in order to encourage foreign investment. Oman liberalised its markets in an effort to join the World Trade Organisation (WTO) and was accepted in 2000. By the mid-2000s, crude oil production had climbed to more than 900,000 barrels per day.

Currently BP and Occidental Petroleum, as well as, Shell, Total, Patrex and more recently ENI are undertaking oil and gas activities in Oman. In addition to these companies a large group of foreign exploration, survey and drilling companies operate in Oman such as KCA Deutag, Schlumberger, MB Petroleum, Gulf Petrochemical Services and Trading and Abraj Energy Services.

In 2019 the Government of Oman created OQ, a new state national energy investment company, integrating several government-owned upstream, midstream, and downstream oil and gas entities. The OQ group has participating interests in four producing blocks, one non-producing block, and five exploration blocks, both onshore and offshore Oman. OQ Group resulted from the integration of the ORPIC and Oman Oil group of companies.

Currently OQ Company runs operations via four main subsidiaries:

1. Takamul Investment Company S.A.O.C

• Oman India Fertilizer Co. (OMIFCO)
• Oman Oil Refineries and Petroleum Industries Company (ORPIC)
• Salalah Methanol Co. (SMC)
• Minerals Development Oman (MDO)
  • Innovation Development Oman Holding (IDO) [Shares transferred to OIA]
  • Vale Oman Pelletizing Company (Vale Oman)
  • Takatuf Oman
  • Sohar Aluminum Company (SAC)

2. Oman Oil Company Exploration and Production
3. Oman Oil Facilities Development Company L.L.C
4. Oman Oil Duqm Development L.L.C

The plan of the Government includes the integration of more state-owned companies into OQ.

These companies are Oman Gas Company SAOC, Salalah Methanol SAOC, OOCEP, refiner ORPIC, Oman Trading International, Oxea, Duqm Refinery & Petrochemicals Industries and Salalah Liquified Petroleum Gas. The ultimate target of the Government is to increase oil production through efficiency by raising and stabilising the production rate to 1 million barrel per day by 2030. 

In December 2020, the Sultanate of Oman created Energy Development Oman (EDO) to represent the government’s stake in PDO and raise financing for new projects. The new company took a stake in the country’s more established energy company PDO and develop its own projects. EDO will be entitled to raise financing independently of the Ministry of Energy and Minerals of Oman. EDO’s primary activities will be related to projects of PDO such as Block 6, which is Oman’s largest oil field. 

Oman has two operational refineries in Muscat (Min Al Fahl) with capacity of 106,000 bbl/d (16,900 m3/d)), and in Sohar (Wilayat of Sohar) with capacity of 198,000-b/d. Both refineries belong to Oman Refineries and Petro Chemicals (ORPIC) a company owned by the government of the Sultanate of Oman and Oman Oil Company SAOC. Beside these two refineries a third new refinery is under construction in Duqm. 

The new refinery belongs to Duqm Refinery and Petrochemical Industries Company (OQ8) a 50:50 joint venture between OQ owned by the Government of the Sultanate of Oman and Kuwait Petroleum International (KPI) owned by the Government of Kuwait and will have a capacity of 230,000 bbl/d and will become the largest oil refinery in Oman. Once operational the new refinery will receive 65% of its crude volume from Kuwait and the remaining 35% will be Omani crude oil.

Natural Gas production is the newest and most dynamic sector of the energy industry of Oman. Oman LNG LLC was established in February 1994 as a result to the discovery of large natural gas fields in Central Oman from 1989 to 1991. The Government decided to create in 1993 the new energy company (Oman LNG LLC) with the participation of several foreign companies and more specifically Royal Dutch Shell (30%), Total S.A (5.54%), Korea Gas Corporation (5%), Partex (2%), Mitsubishi (2.77%) and Itoch (0.92%).

The majority of the shares (51%) was kept by the Government of Oman. The production of the new company at LNG plant Qalhat started in 2000 and the first shipments were exported to South Korea, Japan and India. Besides the two initial LNG trains a third train named Qalhat LNG was inaugurated in 2006.    

In 2013 Oman LNG merged with Qalhat LNG to further increase operational effectiveness and lower the cost. The increase of the domestic demand for more natural gas in 2015 caused serious problems to the gas exports of the country, a situation that was improved two years later in 2017, when the Khazzan gas project came online, and Oman LNG began operating all three trains at full capacity. BP is currently producing around 1.5 Billion Cubic Feet per day of June 2021 from Khazzan.

In 2018 PDO announced the discovery of a new gas field on its own concession with estimated recoverable reserves of more than 4 Trillion Cubic Feet and 112 million barrels of condensate.

Despite being the largest non-IOEC Gulf exporter, Oman suffers from major structural issues including lower than predicted oil reserves over reliance on external funding high external vulnerability high public spending limited capacity to adjust to external shocks and high unemployment rates. The low oil prices and the lock down measures implemented during 2019 and 2020 in order to control the COVID-19 Pandemic have certainly caused serious problems to the economy of Oman. 

After a moderately recovery in 2021, the Omani economy is estimated to register a relatively stronger growth rate in 2022. Main contributors to this development are going to be the rising hydrocarbon production and prices, and the easing of COVID-19 restrictive measures. The programmed phasing out of the OPEC+ cuts in April 2022 could allow Oman’s oil production to rise by nearly 10% YoY, bringing its daily crude and other liquids production to 1.1 million barrels per day (b/d).

As the country’s oil reserves are ageing, Oman is focusing more on natural gas production development (the mining sector accounts for nearly 45% of the GDP of Oman) and natural gas production could rise by 4% YoY in 2022 on the back of the development of the Khazzan and Mabrouk gas projects. Coupled with rising energy prices, this could sustain Oman’s growth performance. The increase in private consumption will also have a positive impact on growth.

However, higher inflation following the introduction of a 5% VAT in April 2021 would further restrain the expansion of domestic demand. Investment growth will probably remain weak, mainly due to the government’s efforts to reduce fiscal spending to narrow the budget deficit. The economic diversification efforts and tax incentives for companies could also improve the business environment in the country. These efforts underline the willingness of the Government of Oman to attract foreign investments in order to diversify the economy away from oil by supporting sectors such as tourism, logistics, manufacturing, fisheries and mining, as mentioned in its 2040 Vision programme.

 Vision Oman 2040

The launch of the “Vision Oman 2040” in 2021 marks an important new phase in the development of the Sultanate of Oman. “Vision Oman 2040” is the Sultanate’s gateway to overcome challenges, keep pace with regional and global changes, generate and seize opportunities to foster both economic competitiveness and social well-being, while stimulating growth. Oman has potential in many industries such as tourism, fisheries, logistics, mining, creative and technology services and manufacturing.

The Omani government actively encourages foreign direct investment and has used the revenues from oil and gas industry to develop the country’s infrastructure and human resources. The government of Oman has consciously fostered the country’s growth, while preserving its local culture and heritage, developed the national economy on the principles of justice and free market, and is investing heavily in growing the country’s business base. Through significant investments in infrastructure and ensuring easy access to both domestic and international markets, Oman continues to attract new businesses operating in a variety of sectors.

Oman’s 10^th five-year plan (2021-2025) is the first implementation plan of the “Vision Oman 2040” program and will focus its efforts towards achieving economic diversification. The plan aims to move Oman away from the oil and gas-based sources of income and has earmarked five sectors of the economy that have high growth potential and economic returns. These are agriculture and fisheries, manufacturing, logistics and transport, energy and mining and tourism. 

“Oman’s Vision 2040” consisted of four Main Committees and the other supporting committees that were formed to prepare the future vision “Oman 2040”, including the “Technical Committee”, as well as the sectoral committees that comprised three committees according to the themes of the vision: “People and Society” Committee, “Economy and Development” Committee, and “Governance and Institutional Performance” Committee.

In addition, “National Priorities and Strategies Alignment” Committee, “Organisation and Follow up” Committee, and the “National Conference Preparation” Team were formed. Members of these committees comprise more than 100 people, representing all segments of the Omani society.

The participatory approach of the future vision “Oman 2040” project is based on the Royal Directives of His Majesty Sultan Qaboos bin Said and aims at enhancing social participation in exchanging views and creating a real societal dialogue around the key issues, in order to formulate the results that will shape a prosperous future for Oman.

In order to involve a wider range of stakeholders in all themes of the vision preparation, workshops are held in all Governorates of the Sultanate to inform them of the key issues identified and to include their proposals and perspectives within the future directions and long-term objectives in light of possible scenarios.

Based on the Main Committee’s decision to form the sectoral committees and approve the Vision's themes and their pillars, the phases of developing the Vision were identified and set to be completed and announced in the first quarter of 2019.

“Oman Vision 2040” has 3 main pillars:

1.People and society that aims at:

• Enhancing Family and Community Health and Well-being.
• Upholding the Omani Identity and Heritage.
• Developing the National Technical and Entrepreneurial Capabilities.

2.Economy and development that aims at:

• Reading Wealth through Economic Diversification and Private Sector Partnership.
• Ensuring Balanced Governorates Development.
• Preserving Environment Sustainability.
• Building World-class Infrastructure and Livable Cities.

3. Governance and institutional performance that aims at:

• Improving Governance Effectiveness and the Rule of Law.

The Targets of the main Oman 2040 Vision indicators are as follows

• Global Innovation Index: Value more than 51.98 or Top 20 Countries
• Skills, Global Competitiveness Index: Value more than 83.2 or Top 10 Countries
• Real GDP per Capita (Growth Rate): Increase by 90%
• Global Competitiveness Index: Value more than 76.6 or Top 20 Countries
• Real GDP: Growth 5%
• Omanis share of jobs created in the private sector: 40%
• Non-oil share of GDP: More than 90%
• Foreign Direct Investments Net Inflow percentage of GDP: 10%
• Environmental Performance Index: Value more than 74.69 or Top 20 Countries
• Government Effectiveness World Governance Indicators: Value more than 1.8 or Top 10 Countries

State Budget, Deficit, Debt

According to Royal Decree 1/2022 and A’ guide to State’s General Budget for Fiscal Year 2022, issued by the Ministry of Oman, the State Budget is expected to have USD27.51 Billion (10,580,000,000 Oman Rial (OMR), stable exchange rate 1 OMR = USD 2.6) Public Revenues, reduced by 3.3% compared to 2021 when the actual, according to preliminary results by the Ministry of Finance, Public Revenues reached USD28.46 Billion (10,944,000,000 OMR). 

It is important to mention the fact that the Public Revenues from the local Oil and Gas Industry during 2022 are expected to reach USD18.83 Billion (7,240,000,000 OMR) or 68.43% of the total annual expected Public Revenue.

According to the same source, the Expenditure of the State Budget of 2022 will reach USD31.54 Billion (12,130,000,000 OMR) reduced by 1% compared to 2021, when the actual Expenditure of the State Budget reached USD31.67 Billion (12,167,000,000 OMR), although initially the Government had approved a USD28.3 Billion (10,880,000,000 OMR) Expenditure Budget.

More specifically the Government of Oman voted to spend during 2022:

Defence and Security:	USD7.7 Billion (2,965,000,000 OMR)
Gas procurement and transport expenditures:	USD4.16 Billion (1,600,000,000 OMR)
Civil Ministries:	USD11.18 Billion (4,300,000,000 OMR)
Development:	USD2.34 Billion (900,000,000 OMR)
Service Public Debt:	USD3.36 Billion (1,294,000,000 OMR)
Electricity Subsidies:	USD1.3 Bilion (500,000,000 OMR)
Other Subsidies:	US939 Million (361,000,000 OMR)
Provision for Debt Settlement:	US520 Million (200,000,000 OMR)
Participation in local regional and International Institutions:	USD26 Million (10,000,000 OMR)

In comparison during 2021 the Government of Oman actually spent:

Defence and Security:	USD7.5 Billion (2,885,000,000 OMR)
Gas procurement and transport expenditures:	USD4.6 Billion (1,767,000,000 OMR)
Civil Ministries:	USD11.23 Billion (4,320,000,000 OMR)
Development:	USD2.86 Billion (1,100,000,000 OMR)
Service Public Debt:	USD2.78 Billion (1,070,000,000 OMR)
Electricity Subsidies:	USD1.43 Billion (550,000,000 OMR)
Other Subsidies/ Provision for Debt Settlement/ Participation in local regional and International Institutions:	US1.23 Billion (475,000,000 OMR)

Based on the sources mentioned above the State Budget had an actual deficit of USD3.18 Billion (1,223,000,000 OMR) in 2021 which is a percentage of 11% of the total revenue of that year and an estimated deficit of USD4 Billion (1,550,000,000 OMR) in 2022 which is a percentage of 15% of the total revenue of the State.

The 2022 State Budget seeks to attract more investment enable the private sector to increase its role in accelerating the local economy and create more jobs. Public Expenditure will focus on essentials like education, health care, housing, and social welfare. Furthermore the 2022 State Budget aims to improve the business environment and expand public private sector partnerships projects.

According to the preliminary estimates by the National Centre for Statistical Information (NCSI) Oman’s GDP is targeted to grow by 13.8% at current prices reaching USD83,22 Billion (32,000,000,000 OMR) by the end of 2021. The Government of Oman seeks to achieve a growth rate of 2.5% at constant prices in 2022.