Oman’s PDO leads in production and decarbonisation Steve-PHIMISTER

Our medium-term target is to reach well above 700,000 bopd while at the same time halving emissions by 2030.


Oman’s PDO leads in production and decarbonisation

April 27, 2023

Steve Phimister, managing director of Petroleum Development Oman (PDO), talks to The Energy Year about the company’s production goals and strategy to lead Oman’s decarbonisation journey, as well as the role of hydrocarbons in the country’s economic diversification. PDO, a venture between the government, Shell, TotalEnergies and PTTEP, is Oman’s largest producer of oil and gas.

This interview is featured in The Energy Year Oman 2023

What is Petroleum Development Oman’s current production and what are its goals for growing output?
PDO remains the main oil and gas player in Oman, producing approximately 650,000-660,000 bopd of oil, over 100,000 boepd of condensate and 60 mcm [2.12 bcf] per day of gas. In oil and gas, PDO’s portfolio includes primary, secondary and tertiary production methodologies and is becoming more complex over time with increasing levels of secondary and tertiary production. We are positioned among the world’s leaders when it comes to enhanced oil recovery techniques. Our purpose is to sustain the oil revenues the Omani economy counts on.
Our medium-term target for oil production is to reach well above 700,000 bopd and to potentially move towards 800,000 bopd, a significant increase that will be achieved whilst at the same time halving emissions by 2030.

How does oil and gas production figure into the country’s plans to diversify its economy in the future?
In 2022, oil and gas represented approximately 85% of the sultanate’s revenue base, with an average price of crude sales at USD 95.4. This highlights the significance this industry holds for the country, as a hydrocarbons-based economy.
However, to ensure future economic growth, there is an important element that is now being addressed concretely, which is economic diversification – including its implications for the country, the plans for its implementation and the strategies to finance it.
This is where the oil and gas industry comes in, including PDO. Besides the objectives set by Oman Vision 2040 to foster the development of the non-hydrocarbons economy, there is the commitment taken in October 2022 by His Majesty Sultan Haitham bin Tariq and launched during COP27 to reach net-zero emissions by 2050. Oman has now put together clear targets and a sectoral roadmap. The response will be based on the different sectors, and the respective roadmaps for each of those are now under development.
In PDO, we already embraced this challenge in mid-2021, when we established a net-zero 2050 objective for ourselves with an interim target to halve our current emissions by 2030, while at the same time continuing to grow our business. PDO has an existing strategy and roadmap to achieve this dual objective and is working with other players in the sector to develop the oil and gas industry roadmap as part of Oman’s NZE2050 [Net Zero Emission by 2050] response.


What are the pillars of PDO’s strategy to lead Oman’s decarbonisation journey?
Our new purpose is to build a sustainable low-carbon future to maximise value for Oman. The strategy to deliver that purpose has five key pillars, namely: cost competitiveness, carbon competitiveness, sustainable hydrocarbon growth, revenue diversification and supporting infrastructure (power, oil evacuation, water) ownership and operatorship.
To speak about the first of these pillars, we are already a top-quartile producer in terms of costs, but following macroeconomic analyses and predictions, it is reasonable to assume that macro prices are going to decline and carbon prices are likely to be introduced, and if you want to be the “last man standing,” the key is to be cost competitive. We already have a range of levers and means by which we can ensure we remain in the top quartile in cost.
Another major aspect is carbon competitiveness. Decisions are no longer made based on economics and costs alone: we must look at our carbon footprint. We have a full decarbonisation roadmap to achieve that with individual projects that make up our objectives.
Power generation is a major contributor (more than 60%) to PDO and oil and gas industry emissions. PDO produces around 1.6 GW of power for our own consumption, with around 10% of that coming from renewables and with the target of reaching 35% by 2026 and 50% by 2030. This means that we are going to invest in another 300 MW of renewables capacity, hitting 400 MW of renewable power within the next three to four years.
The full roadmap contains a range of projects including energy efficiency, flaring reduction (PDO will have zero routine flaring before 2030), fugitive methane elimination (PDO is signatory to the Oil & Gas Methane Partnership 2.0 and the Aiming for Zero Methane Emissions Initiative), water disposal projects, CCUS, LCF [low-carbon fuel] and NBS [nature-based solutions].
PDO’s commitment to sustainability is strong and rooted, as shown by the 150 projects we are carrying out in 2023 to reduce emissions, from renewables to water projects. The baseline we are using for halving them is 2019, which is aggressive if you consider that most oil and gas companies use 2016 as a starting point. Back in 2019, our baseline was around 12 million tonnes per year of CO2 equivalent, while today we are at about 10.5 million. Our aim is to reduce this to 6 million by 2030 and we are optimistic about reaching it although there are still some technology breakthroughs that we will need.
Cost and carbon competitiveness are essential today and will remain so in the future, and our strategy to grow the business sustainably pulls these levers strongly together with technology enhancements and applications to move production towards 800,000 bopd whilst halving emissions.

Can you walk us through some of the key steps taken by PDO to organically grow its low-carbon business?
PDO has a strategic pillar to diversify its revenue stream as a part of diversifying the Omani economy per Vision 2040. By leveraging our existing skills and asset base, the aim is to move first and foremost into carbon capture, utilisation and storage. Within this field, the scope is to be a user of CO2 – principally for EOR and EGR purposes – and in May 2022 we signed an agreement with Shell Development Oman to jointly study and collaborate on CCUS for blue hydrogen production on Block 10 given the natural adjacency between CCUS and blue hydrogen. For our part, our primary objective is the U: the utilisation of that carbon dioxide. That means building up the infrastructure and the capabilities to use that CO2, mainly for EOR practices.
Our strategy then goes on to look at the sequestration aspect – the process of capturing and storing atmospheric carbon dioxide – as we have a number of sites in which we can provide sequestration not only for our own emissions but also in the service of third parties in their efforts to decarbonise their businesses. These include aquifer-based sites or depleted reservoirs.
There is plenty of CO2 in Oman and ongoing sectoral decarbonisation plans affecting transport, households, industry and other segments will require some level of support and offsetting. In short, CCUS will become pivotal, with PDO strongly positioned to provide additional services to the country in the segment while playing a major role in blue hydrogen developments too.

How do you evaluate Oman’s position in the green hydrogen global framework and the role PDO will play in supporting it?
About our role, the answer is that it remains to be seen and that is why our approach to low-carbon fuels is intentionally organic: because no one yet knows the answer at the back of the book on hydrogen. PDO is, as I said though, more focused on a sustainable core oil and gas business with diversification into CCUS and blue hydrogen, both of which have a natural synergy and adjacency to PDO’s core business.
Nonetheless, Oman has started the race in a favourable position: geographically situated between Europe and Asia and having some of the best solar radiation levels in the world as well as high-quality wind intensity in the south of the country. We have the capabilities and the supply chain, and investors and developers are becoming increasingly interested in Omani green hydrogen.
Although it is going to be challenging in the first instance due to expected (European market) certification requirements and EU border taxation, I see demand for Omani green hydrogen coming from the Old Continent, as shown already by the queue of European players for this supply, including Germany, France, Austria and Portugal.
Having said that, the Asian market is also particularly interesting because they are more “colour agnostic” when it comes to the different hydrogen categories, and more innovative. Japan and South Korea might be the first markets for Oman’s hydrogen and, at a later stage, green ammonia exports. What is needed is access to long-term markets, a clear green hydrogen price and technology/cost maturation for economic viability.
A final important consideration is that if you want to be number one in the green hydrogen race, you need to have on board first-tier contractors that can ensure solid performance, high quality standards and robust HSE practices. It doesn’t matter if you are carrying it out by relying on local companies or by bringing in international ones. What matters is that you start from the very beginning by developing the right capabilities, skills and competencies.

What is your assessment of the key market dynamics and challenges related to the development of green hydrogen initiatives?
The main missing element is large-scale production of electrolysers able to sustain the planned projects around the world. It is a matter of global market costs, which will depend on the role of players like China. But in a decade or so we will get there: green hydrogen will come down the cost curve and I expect grey hydrogen to be substituted by blue by the mid-2030s.
However, another key problem with green hydrogen at the moment is the scale of the renewables projects needed to produce it. If you are going to carry it out in Oman, better that you do it for the sake of power generation, allowing gas to be used for something of higher value in your export market. And once you build excess renewables capacity, you can transition to green hydrogen. But, again, it is all dependent upon the market trends, and the domestic markets are not big enough, so it has to be an international base market.
All of the facets and preconditions are in line to make hydrogen initiatives work. Now we just need a clear implementation plan and a sensible investment framework. With the right incentives, the finance will come and the Ministry of Energy and Minerals is working in this direction.

What do you think of the current structure of the In-Country Value (ICV) programme and any key aspects that could be improved?
The genesis of ICV in Oman was with PDO and now it is a national objective, well-funded and well managed. Within PDO, we have looked at the changing landscape, redefining both our purpose and our strategy and looking at a number of supporting objectives that we have been revising.
We now have a new portfolio of opportunities and projects that are not only in conventional oil and gas; about 40-45% are now in low-carbon fuels and new energies. We are going down a transition path and we need to repurpose our assets, ourselves and, significantly, the supply chain by leveraging what is already in place in oil and gas and reshaping it based on a new energy model.
Moreover, the government has a major role to play in the evolving national ICV landscape. For example, there is a need to aggregate demand for ICV within Oman. At the moment it is a bit haphazard. It would be helpful having more clarity on what the demand is, where it is coming from, for how long and what its main needs are.
Secondly, more standardisation of ICV requirements for local companies’ activities and services would be beneficial. For example, in the domestic oil and gas industry at the moment, if an LCC [Local Community Contractor] or SLCC [Super Local Community Contractor] goes to one company, they will get a set of specification standards, but if they go to another company, they will get a different set of standards.
Finally, it is paramount to enhance the performance and accountability system within Oman. What happens is that a number of companies get away with underperforming. But if you want to be a big player on the international scene, standing tall and seen as a credible business actor, you cannot underperform, with safety and sustainability at the fore.
So far, the framework is patchy and there is only one entity in the country that can bring all these elements together in a pan-sectoral approach, and that is the government. Included in this is a need for a national uniform system that is applied in many if not all industries and combines all these factors and results in a competitive, level playing field to the advantage of Oman.

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