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Solar enhanced oil recoveryAn in-country value assessment for Oman

January 2014

In September 2013, GlassPoint Solar Inc. (GlassPoint) commissioned Ernst & Young LLP (EY) to conduct an economic impact assessment of the roll-out of solar thermal enhanced oil recovery technology in Oman over the next decade (years 2014-23).

This report presents the results of our analysis based on publicly available statistics and information on the Omani and other neighboring Persian Gulf economies as well as project information from GlassPoint.

The economic impacts presented in this report are in current prices, in USD millions.

For any information on the content of this report, please contact:

Mark Gregory Chief Economist, EY

+44 20 7951 5890 [email protected]

David OmomManager, EY


Pierre-Alexandre GreilExecutive, EY


1Solar enhanced oil recovery An in-country value assessment for Oman

Section Page

Executive summary 3

1. Enhanced oil recovery in Oman 9

Omani oil and gas sector 10

Enhanced oil recovery 13

Solar EOR and CSP technologies 18

2. Contribution to the Omani economy 25

Methodology 26

Commercial deployment of solar EOR 27

Direct economic contribution 28

Indirect economic impact of solar EOR 29

Induced effects 30

Use of natural gas savings 30

Summary of economic impact 33

Effectiveness of solar thermal for EOR vs. power generation in saving natural gas 34

Skill development and innovation 35

3. Security of energy supply, EOR potential and environmental impacts 36

EOR in the Middle East and technology export potential 37

38

39

Glossary 40

Appendices 41

Appendix A Methodology 42

Appendix B Sources 48

Appendix C Time-independent assumptions 49

Appendix D Time-dependent assumptions 50

Appendix E Industry nomenclature 51

Contents

2 Solar enhanced oil recovery An in-country value assessment for Oman


Executive summary


In 2012 the Sultanate of Oman (Oman) produced 920,000 barrels per day (bbl/d) of crude oil, ranking 21st in global oil production by country.1 It also produced 2.8 billion cubic feet (bcf) of natural gas, making it the 5th largest gas producer in the Middle East and the 26th largest in the world2.Over the last 10 years, due to the maturity of its

has increasingly relied on enhanced oil recovery (EOR) technologies. Several techniques have been deployed, although thermal EOR, the focus of this report, dominates. The main thermal EOR technique entails burning natural gas to produce steam, which is injected into the reservoir to heat heavy oil and reduce its viscosity. The process increases both the rate of production and the amount of oil that can ultimately be recovered.

in EOR. Petroleum Development Oman (PDO), which

in 2012 that EOR would grow from 3% of current oil production to 25% of total liquids production by 2020.

1 “Oman Country Analysis,” US Energy Information Administration,

30 October 2013.2 BP Statistical Review of World Energy 2013, http://www.bp.com/

content/dam/bp/pdf/statistical-review/statistical_review_of_world_energy_2013.pdf, accessed 30 October 2013.

Executive summary

Solar EOR is likely to play an important role in the mix of EOR technologies. Instead of burning natural gas to produce steam, solar EOR involves the use of concentrating solar power (CSP) technology to produce steam.

concentrate sunlight onto receivers that collect solar energy and then convert it to heat. The heat is then used to produce steam from water.

Solar EOR can generate the same quality and temperature of steam as natural gas3. Therefore, the use of solar EOR could reduce demand for natural gas required for EOR, which can be redirected to other economic activities, such as power generation, water desalination and as feedstock and energy for industrial processes4.

3 Sunil Kokal and Abdulaziz Al-Kaabi, “Enhanced oil recovery: challenges and opportunities,” EXPEC Advanced Research Centre, Saudi Aramco, http://www.world-petroleum.org/docs/docs/publications/2010yearbook/P64-69_Kokal-Al_Kaabi.pdf, accessed 30 October 2013.

4 Ibid.


Deploying solar EOR could provide a hedge that reduces

steam generated using solar energy is independent of the cost and availability of natural gas. Moreover, it also secures the long-term cost of steam once the system is installed since solar steam generators can produce at low operations cost5.

with limited availability of natural gas, thereby providing a way to create and inject steam for EOR with no capital investment in gas infrastructure and allowing

Moreover, owing to minimal operating expenses, use of solar EOR could enable producers to steam wells for a longer period of time compared to using gas-

of a reservoir.

PDO began investigating solar steam generation in

importance to Oman was going to create a long-term

tender process. This resulted in an award to GlassPoint Solar in August 2011 for the construction of a 7MWth

The pilot has delivered its targets so far, and large-scale deployment is contemplated.

Oman currently uses 22% of its natural gas resources for EOR6. The continuous increase in domestic demand for natural gas makes the deployment of solar EOR technology an attractive economic proposition for the Sultanate of Oman.

We have assessed the uptake of solar EOR under three alternative scenarios for 2014–23, analyzing the direct and indirect impact on jobs and economic value added. These scenarios assume that by 2020, approximately 35% of the total oil production in Oman, or 370,000 bbl/d will result from the deployment of thermal EOR technologies. This is in line with EOR production estimates from PDO, Occidental Petroleum Corporation (Oxy) and other industry stakeholders.

5 Stuart Heisler, “Oil and Gas Production: Emergence of Solar Enhanced Oil Recovery,” Oilandgasiq.com, accessed 30 October 2013.

6 Idris Kathiwalla, “Omani Oil and Gas Sector Note,” Oman Arab Bank, Investment Management Group, April 2013, http://www.oabinvest.com/Reports/Omani Oil Sector Note.pdf, accessed 30 October 2013.

We have also assumed that solar EOR accounts for varying proportions of this growth in thermal EOR production.

The Steady growth scenario assumes solar EOR accounts for only 22% of the total thermal EOR by the end of the deployment period.

The Leadership scenario assumes solar EOR accounts for half of total thermal EOR. In this scenario, we assume that the Sultanate of Oman accelerates the deployment of solar EOR and targets industry leadership with potential export opportunities to other Gulf Cooperation Council (GCC) countries.

The Full-scale deployment scenario assumes deployment that stretches the solar EOR technology to its technical limit, i.e., 80% of all thermal EOR coming from solar by the end of the deployment period.

of solar EOR in Oman.

The installation of the solar EOR systems will have a direct effect on economic activity and job creation in the Omani manufacturing and services sectors. The amount of natural gas displaced due to the substitution by solar EOR technology could be re-injected into the economy. This can be done either by enabling alternative industrial projects or feeding other thermal EOR projects, thereby enabling the extraction of more oil. Alternatively, it could simply

Executive summary


Table 1 below summarizes the contribution this solar EOR project could make to the Omani economy over the period 2014–23 under the Leadership deployment scenario.

Table 1: solar EOR possible future contribution to the Omani economy7,8

Source: EY analysis

Leadership scenario, 2014–23 portion of EOR steam from solar: 50%

Contribution to the Omani economy*USD,

present value

Direct 3.28b

Indirect 2.83b

Induced 1.41b

Total contribution (GVA) 7.52b

Natural gas savings

Displaced natural gas (MMBTU per day at end of period)

331,796

Cumulative savings on thermal EOR costs over deployment period (USD millions)

ca.722 m

Employment

Omani nationals 41,574

Total jobs created7 196,012

Capital expenditure per job (discounted USD)8

c.42,000

Note: *Gross value added (GVA), i.e., sum of value of all domestic economic outputs minus intermediate consumption. Excluding potential direct and indirect contribution linked to the alternative use of displaced natural gas for industrial projects. Induced impact related to job creation through industrial projects enabled by gas savings is included, however, assuming 100% of gas savings are used to enable industrial projects.

7 Maximum number of direct, indirect or induced manufacturing jobs created assuming that 100% gas savings are used to enable new industrial projects (including non-Omani) and excluding construction of industrial facilities enabled by gas savings.

8 Direct investment in solar EOR rollout (direct nominal output discounted at 8.2% annually) divided by total job creation.

The rollout of solar EOR technology under the Leadership scenario would

in the following aspects: It could lead to the creation of up to

196,000 jobs, including c.41,600 jobs for Omani nationals9 over the next decade, and add up to USD 7.52 billion to Omani GDP 10 over the same period.

gas savings, of approximately 331,796 MMBTU per day at the end of the deployment phase. Depending on the way they are channelled, these savings could either lead to:

Creation of ca. 30,000 jobs and an additional contribution to GDP

of industrial projects Up to USD 11 billion of additional

oil revenue through more EOR output

Up to USD 722 million of additional gas exports/reduced net gas imports for the country over the next decade

9 Assuming 100% of natural gas savings accrued below are channelled into the wider economy and excluding jobs related to the construction of the industrial facilities enabled by gas savings.

10 Excluding potential contribution made by industrial projects enabled by gas savings.

Executive summary


Table 2: Summary of the economic impact of various deployment scenarios11

Source: EY analysis

Steady Leadership Full-scale

Solar fraction of EOR steam 22% 50% 80%

Total investment (USD billions) 6.2 8.6 13.8

Gas savings (MMBTU/day at scale) 146,060 331,796 531,048

Output (USD millions)9

Direct 3,872 8,246 13,170

Indirect 3,208 6,832 10,911

Induced 2,634 5,753 9,178

Total output 9,714 20,831 33,259

GVA (USD millions)9

Direct 1,539 3,277 5,234

Indirect 1,329 2,831 4,521

Induced 660 1,409 2,253

Total GVA 3,528 7,517 12,008

Job creation directly enabled by solar EOR rollout10

Total, among which 58,251 165,848 251,275

Direct 24,714 70,489 106,593

Indirect 7,341 20,936 31,658

Induced 5,220 14,677 22,541

Construction-related 20,976 59,746 90,483

Job creation enabled by gas savings8


Direct industrial jobs 5,948 17,637 30,176

Indirect and induced jobs 4,225 12,528 21,435

Total job creation 68,424 196,013 302,886

Total excluding construction jobs 47,448 136,267 212,403

Total Omani jobs 14,560 41,574 63,825

11 Direct, indirect and induced.

Executive summary


An alternative use of CSP technology is for power generation. Other countries, such as the United Arab Emirates (UAE), have taken this path with

power station, a 100MW parabolic trough CSP plant. Saudi Arabia is also targeting a capacity of 25GW of CSP by 2032.12

By comparing gas savings per dollar of capital expenditure from the use of solar energy in power

saves up to six times as much gas per unit of capital expenditure as is saved by a CSP plant.

Omani content, which will serve as a platform for the development of skills and innovation in the Sultanate. A large sustained deployment will expose local engineers to solar technology and its supply chain, enabling them to bridge skills from the existing oil and gas base in Oman and to widen their expertise to skills applicable across a variety of sectors. Experience in solar technology would also transfer to other uses, e.g., power generation, desalination and process steam, creating a technologically cross-skilled local workforce. Deployment of solar technology also provides scope for global leadership and innovation

and through funding of research into different areas, such as subsurface effects and behavior of solar power-generated steam at rock model, lab and simulator levels, and understanding of the local environmental conditions and solar energy; as well as primary research on materials, durability of equipment and construction methods.

Technical and commercial leadership in solar EOR could also allow Oman to tap regional and global export opportunities likely to open up in the next decade. Although the volume of EOR production in the Gulf Cooperation Council (GCC) countries outside of Oman is currently minuscule, EOR potential is estimated at 475 billion barrels of oil13

this opportunity will be thermal EOR, for which solar EOR is likely to compete. The most likely immediate

12

Energy Deployment.13 Manaar Consulting: “EOR and IOR in the Middle East,” http://

www.manaarco.com/images/presentations/Fleming%20Gulf%20Manaar%20EOR%20Abu%20Dhabi%20March%202013.pdf, accessed 30 October 2013.

steam injection project led by Chevron that is under

injection is expected to begin in 2017 and to produce up to 80,000 bbl/d with subsequent phases boosting production to more than 500,000 bbl/d. The expected thermal EOR production in this project alone is almost

may provide an immediate export opportunity.

Substitution of natural gas by solar EOR will contribute to the reduction in emissions of CO2 and other polluting agents. Considering the volume of natural gas saved and the average emissions from burning natural gas, we estimate emission abatement of 8.1 million tons of CO2 on an annual basis in the leadership deployment scenario when the systems are fully deployed. In addition, the technology currently deployed in the pilot project by GlassPoint and PDO does not have the environmental costs normally associated with large CSP systems, such as consumption of large quantities of water. Moreover, the ecological and visual impacts due to the large land footprint typically caused by CSP is also limited due to the relative compactness of the technology (three times less acreage compared to standard parabolic systems) and also because

At a macro level, solar EOR will improve both short-term and long-term energy security for Oman. It will reduce the long-term risk of scarcity of gas, if deployed

natural gas (LNG) cargoes, which are subject to sudden short-term changes in availability and costs.

its USD 60b LNG deal with Iran for the next 25 years, both its long-term and short-term security of energy supply require consideration. Use of solar EOR carries obvious advantages in terms of security of energy supply for Oman as it limits exposure to imports and

sectors, thereby reducing the risk inherent in reliance

Executive summary


This section provides an overview of the Omani oil and gas sector, a description of the enhanced oil recovery process and a description of the solar enhanced oil recovery process and key technologies.

1Enhanced oil recovery in Oman


Omani oil and gas sector Omani crude oil productionProduction of oil and gas in the Sultanate of Oman began in 1967, and the country today remains an important hydrocarbon supplier. In 2012, Oman produced 920,000 barrels per day (bbl/d) of crude oil, ranking 21st in global oil production by country14.

970,000 bbl/d, but dropped to 710,000 bbl/d in 2007

Since then, the decline has been successfully reversed and oil production has increased on an annual basis

15.

Figure 1: Total oil supply, consumption and net exports in Oman, 2005–12Source: US Energy Information Administration

Oil

supp

ly/c

onsu

mpt

ion

in t

hous

and

barr

els/

day

0100200300400500600700800900

1,000

2005

2006

2007

2008

2009

2010

2011

2012

Total petroleum consumption(thousand barrels per day)

Net exports

14 “Oman Country Analysis,” US Energy Information Administration,

30 October 2013.15 Ibid.

The increase in oil production is due to the use of EOR techniques, as well as additional gains as a result of

of Oil and Gas, the Sultanate aimed to produce an average of 940,000 bbl/d of crude oil in 2013, and to maintain production at that level for the

16.

(84% in 2012) is exported to Asian markets. China

accounting for 50% of all Omani oil exports, followed by Japan (14%) and Taiwan (12%), respectively.

Omani natural gas productionIn 2012, Oman produced 2.8 billion cubic feet/day (bcf/d) of natural gas, equivalent to 0.9% of global production, making it the 5th largest gas producer in the Middle East and the 26th largest in the world17.

production in EOR. In 2012, the Sultanate used up to 22% of its dry gas production for this purpose18.

three LNG trains at two production facilities in 2000 and 2005. Prior to 2000, Oman produced relatively small quantities of natural gas, averaging just 154 bcf/year between 1990 and 1999. With the continuing rise of its natural gas demand (an increase of 168% between 2002 and 2011), Oman plans to end all of its LNG exports and divert natural gas supply to domestic consumption by 202419.

Oman has historically exported rather than imported oil and gas. However, since 2008, the imports of dry natural gas have risen sharply, and in 2011 stood at

dependence on imported natural gas, the use of alternative EOR technologies could potentially save a large amount of gas, allowing it to be used in more valuable applications.

16 Ibid.17 BP Statistical Review of World Energy 2013,

http://www.bp.com/content/dam/bp/pdf/statistical-review/statistical_review_of_world_energy_2013.pdf, accessed 30 October 2013.

18 Idris Kathiwalla, “Omani Oil and Gas Sector Note,” Oman Arab Bank, Investment Management Group, April 2013, http://www.oabinvest.com/Reports/Omani%20Oil%20Sector%20Note.pdf, accessed 30 October 2013.

19 Ibid.

1 Enhanced oil recovery in Oman


Figure 2 below provides an overview of the natural gas market in Oman.

Figure 2: Total natural gas supply and consumption in Oman, 2005–2011Source: US Energy Information Administration

2005

2006

2007

2008

2009

2010

2011

Gas

sup

ply/

cons

umpt

ion

in b

cf

Table 3 below provides an overview of the oil and

Table 3: Key statistics of the Omani oil and gas sectorSource: US Energy Information Administration

Fuel Key statistics

Crude oil (million barrels)

Proved reserves, 2013 — 5,500

Total oil supply, 2012 — 338 Total petroleum

consumption, 2012 — 53 Reserves-to-production

ratio — 16 to 17 years

Natural gas (billion cubic feet)

Proved reserves, 2013 — 30,000

Dry natural gas production, 2011 — 937

Dry natural gas consumption, 2011 — 619

Reserves-to-production ratio — 32 years

Overview of the supply chain and key market participantsOil and gas production is dominated by Petroleum Development Oman, which produces more than 80% of

owned by the Sultanate of Oman (60%), Royal Dutch Shell (34%), Total (4%) and Partex (2%)20. PDO explores

drilling wells and constructing and operating various hydrocarbon treatment and transport facilities.

Occidental Petroleum Corporation, which has been operating in Oman for over 30 years, is another key

Block 62 in northern Oman21. At Mukhaizna, Oxy has implemented an aggressive drilling and development

produced about 120,000 bbl/d of oil, which was over 15 times higher than the rate of production in September

production systems on behalf of the Government of Oman. The gas is delivered to the Government Gas

power stations and some of its industries, and to the

near Sur. As part of its gas production, PDO also supplies some 50,000 bbl/d of condensate (liquid hydrocarbons that condense out of natural gas) and about 200

for cooking22.

Oman is connected to the rest of the Gulf Cooperation Council countries by the Dolphin pipeline, which runs

Oman exported gas to the UAE on a three-year contract that ended in August 2008. Since then, it has imported

23.

20 Background, Petroleum Development Oman, http://www.pdo.co.om/Pages/AboutUs.aspx, accessed 30 October 2013.

21 Background, Occidental Oman, http://www.oxy.com/OurBusinesses/OilAndGas/MiddleEastRegion/Pages/oman.aspx, accessed 30 October 2013.

22 Background, Shell Development Oman, http://www.shell.com/sdo/aboutshell/who-we-are/shell-sdo.html, accessed 30 October 2013.

23 Justin Dargin, “The Dolphin Project: The Development of a Gulf Gas Initiative,” Oxford Institute for Energy Studies, 1 January 2008.



tonnes per year. However, exports have been running low in recent years, averaging 8.4–8.6 million tonnes a year, down from a peak of 9.1 million tonnes in 2006. Oman LNG has experienced a more pronounced decline, with exports dropping from 6.6 million tonnes per year in 2006 to 5.4 million tonnes per year in 201124. In September 2013, the two companies merged to create Oman LNG LLC25. In 2012, Oman exported a total of 131 LNG cargoes,

26.


25 LNG Become One,” Oman LNG LLC, http://www.qalhatlng.com/Press%20release%20ENG.pdf accessed 30 October 2013.

26

October 2013.

Figure 3 below shows the key players in the Omani oil and gas sector.

Figure 3: Overview of the oil and gas sector in OmanSource: Ministry of Oil and Gas, Oman

Exploration: 12 companies,18 blocks, Production: 8 companies, 11 blocks

Petroleum Development Oman, Occidental Oman, Daleel Petroleum,Petrogas E&P, DNO Oman, CC Energy Development, Circle Oil, Odin Energy,

Petrotel Oman, BP Exploration (Epsilon), Masirah Oil,Allied Petroleum Exploration, OOCEP, Petrotel Oman,

Forinter Resources Oman, MOL Oman

LNG/oil shipment

Oman LNG LLC — operates 3 liquefaction trains (2 own trains)Qalhat LNG SAOC — owns 1 train operated by Oman LNG at Qalhat near Sur

Marketing and distributionShell Oman Marketing Company SAOGand Petrochemical

Company (ORPIC)

ProductionExploration

Distribution End-uses

Transportation

OIL

70%

OIL




The Ministry of Oil and Gas (MOG) is responsible for the development and implementation of plans and policies to optimize the exploitation of oil and gas resources. Its key tasks include developing legislation, laws and regulations governing the sector, and conducting the survey of resources and marketing production on behalf of the Sultanate. It also supervises

sector and oversees all the oil and gas exploration and production (E&P) activities in the concession areas. The MOG has established petroleum agreements with companies whose terms and conditions it oversees27.

Natural gas import/consumption outlookThe decline in LNG exports is partly due to the shortage

rapidly over the past decade, seeing a 135% increase between 1999 and 200928. Moreover, the composition of the end-use of gas has also changed dramatically. In 2005, more than 40% of the total production was exported in the form of LNG cargoes, an additional 20% used in power generation and desalination plants and major industries and a further 16% used for oil production29. By 2011, LNG exports accounted for 24% of consumption, with industry, power generation and oil production accounting for 34%, 20% and 22% of production, respectively30.

27

& Gas, Oman, http://www.jccp.or.jp/english/wp-content/uploads/s1-4_ali-presentation-4.pdf, accessed 30 October 2013.

28 Oman Country Analysis,” US Energy Information Administration,

30 October 2013.29 Economist Intelligence Unit, “Oman: LNG companies merge,”

October 11 2013, http://www.eiu.com/industry/article/641050248/oman-lng-companies-merge/2013-10-15, accessed 30 October 2013.


The increase in overall gas demand, as well as a rebalancing towards domestic industry and power generation, is expected to continue, and a shortfall

development, especially its industrial policy. Over the last four years, petrochemicals projects valued up to USD 3.49 billion have been cancelled or forestalled due to lack of guaranteed gas feedstock31. In addition there are at least 28 projects that have applied for gas allocations totalling 134 million cubic feet/day (mcf/d) that are yet to be granted32. This continuous increase in domestic demand for natural gas makes a planned rollout of a solar EOR technology in Oman an attractive economic proposition.

exploration programme is currently underway. As of September 2012, an estimated USD 1.8 billion

�execution. Much of this work was related to offsetting

are a handful of new developments taking place as

reserves are in place in reservoirs located 4 km below ground. This project is expected to cost approximately USD 15 billion over 10 years and is being developed

outcome of ongoing negotiations between BP and the Government of Oman.

Enhanced oil recoveryIdentifying new oil resources to meet the forecast increase in long-term global oil demand33 remains both a priority and a challenge. Given the scarcity of new oil sources, one approach is to maximize the extraction of oil from

account for an increasingly large proportion of the global oil supply. EOR in general terms refers to technologies and strategies that oil producers use to maximize the amount of oil recovered from existing reservoirs.

31

Nov 15, 2011, http://www.arabianoilandgas.com/article-9667-omans-great-gas-conundrum/#.Une1v6KBoVg, accessed 30 October 2013.

32

Issue No 30 23-29, July 2010, http://www.meed.com/sectors/oil-

article, accessed 30 October 2013.33 OPEC World Oil Outlook, 2012, http://www.opec.org/opec_web/

accessed 30 October 2013.


The various EOR techniques

These techniques can be described in the form of stages of oil development and are presented in Figure 5 below.

Figure 5: Technologies for improved/enhanced oil recoverySource: Enhanced Oil Recovery: Challenges & Opportunities, Saudi Aramco

Primary oil recovery

Secondaryoil recovery

Tertiary oilrecovery

Crude oil is forced out by pressure generatedfrom gas present in the oil. Uses are:

Natural ow Arti cial lift

Reservoir is subjected to water ooding or gas injection to maintain a pressure that continuesto move oil to the surface. Uses are:

Water ooding Pressure maintenance

Introduces uids/gases that reduce viscosity and improve ow. Uses are:

Thermal steam, hot water, combustion Gas injection CO2, hydrocarbon, nitrogen/ ue Chemical alkali, surfactant, polymer Other microbial, acoustic, electromagnetic

~Less than 30%

30–50%

>50% and up to 80%+

Type of recovery Methods of recovery Oil recovery

Enhancedoil recovery

Improvedoil recovery


Tertiary oil recovery is what is generally referred to

consist of gases that are miscible with oil (typically carbon dioxide), steam, air or oxygen, polymer solutions, gels, surfactant-polymer formulations, alkaline-surfactant-polymer formulations, or microorganism formulations.

depth, the properties of the oil contained therein,

Figure 6, steam injection to thin oil or polymers to thicken water and improve the sweep of oil recovery

the Middle East. Conversely, carbon dioxide and other gases that become miscible with oil and reduce the residual oil saturation in the reservoir are better suited

pressure and temperature.



Figure 6: Choice of EOR technology based on reservoir depth and oil viscositySource: EY, Enhanced oil recovery (EOR) methods in Russia: time is of the essence34

Res

ervo

ir d

epth

(ft)

Oil viscosity (centipoise, cP)

10

2,000

4,000

6,000

8,000

10,000

12,000

10 100 1,000 10,000 100,000

Gas injection

Steam injection

Polymer injection

Surfactant injection

Carbon and CO2 injection

Nitrogen injection

34 EY, “Enhanced oil recovery (EOR) methods in Russia: time is of the essence,” December 2013, http://www.ey.com/Publication/vwLUAssets/EY_-_Enhanced_oil_recovery_(EOR)_methods_in_Russia:_time_is_of_the_essence/$FILE/EY-Enhanced-Oil-Recovery.pdf, accessed December 2013, citing, Enhanced Oil Recovery (EOR) Report, Royal Dutch Shell.

The majority of global EOR production is based on thermal methods, predominately the injection of high pressure steam into a reservoir) to lower the viscosity

through to the reservoir.

EOR techniques are actively used in Oman, the USA, Venezuela, Indonesia, Canada and China. In the USA, thermal EOR accounts for over 40% of EOR production35.

35

gov/fe/science-innovation/oil-gas/enhanced-oil-recovery, accessed 30 October 2013.

Figure 7 provides a high-level illustration of how thermal EOR works.

Figure 7: Mechanics of thermal EORSource: EY

Gas steam generator Production well

Injection well

OilSteam andcondensedwater

Hot water Oil bank


The role of EOR in global oil supply has remained constant over the last two decades, but this is expected to change as oil wells mature. Total world production of oil using EOR has remained relatively unchanged during this period at around 3 million bbl/d or around 3.5% of daily production of oil36.

experiences of Chevron, the successful application

instrumental in the production of heavy oil at Kern River hitting a milestone of 2 billion barrels of oil produced, as shown in Figure 8 below.

Source: California State Department of Conservation, Division of Oil, Gas and Geothermal Resources; Chevron

0

10

20

30

40

50

1895

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Ann

ual p

rodu

ctio

n (M

b/a)

Primary Steam ood

36 Sunil Kokal and Abdulaziz Al-Kaabi, “Enhanced oil recovery: challenges and opportunities,” EXPEC Advanced Research Centre, Saudi Aramco, Kokal and Al-Kaabi, 2010, http://www.world-petroleum.org/docs/docs/publications/2010yearbook/P64-69_Kokal-Al_Kaabi.pdf, accessed 30 October 2013.

In 2011, the global market for all EOR technologies was worth USD 126.02 billion37, more than doubling from a market total of USD 54.96 billion in 2007.

EOR in OmanOman has been a leading user of EOR techniques, due to the declining of its existing oil resources. As a result of these techniques, oil production from EOR now accounts for an estimated 210,000 bbl/d or 23% of production in 201238. Table 4 provides a summary of key EOR projects in Oman.

37 SBI Energy, “Enhanced Oil Recovery Market Valued at $126.02 Billion; Gas/CO2 Leads Growth,” Jul 10, 2012, http://www.

2013. 38 EY estimates from PDO, Occidental reports and EIA.




Source: EIA, PDO, OOCEP

EOR technology Key details

Mukhaizna Thermal EOR (steam

Operated by Occidental, this is the largest EOR project in the region. EOR commenced in 2005, and by the end of 2011, Mukhaizna was producing about 120,000 bbl/d.

to a plateau rate of c.150,000 bbl/d39.

Qarn Alam Thermal EOR (steam injection)

injection EOR project based on a novel EOR technique called thermally assisted gas oil gravity drainage (TAGOGD), which involves the use of steam to drain oil to lower producer wells.

This project is expected to boost recovery rates from 3% to 5% under cold production to ca.20 to 35% with steam TAGOGD.

PDO expects the project to increase production by 40,000 bbl/d by 201540.

Harweel Miscible gas injection

Oman. In this project a miscible gas injection technique was selected to increase the

recovery factor from 10% to 50%. Re-injecting produced sour gas is expected to increase oil production by 40,000 bbl/d.

years, up from the current 44,000 bbl/d41.

Marmul Polymer injection

Marmul is a heavy-oil sandstone reservoir located in southern Oman42.

extension of the production plateau by 20 years. Commercial-scale polymer

Marmul is expected to yield an additional 10,000 bbl/d.

Amal West/East

Thermal EOR (steam injection including solar EOR)

PDO is also investing to increase production at both the Amal East and Amal

In December 2012, GlassPoint completed the construction of a 7MWth pilot 43.

Karim cluster

Thermal EOR (steam injection)

to the Nimr production facility, operated by MedcoEnergi (Indonesia) currently produces 18,000 bbl/d. PDO is aiming to boost production to c.35,000 bbl/d in the short-term.

Rima cluster

Thermal EOR (steam injection)

44.

39

October 2013.40 Manaar Consulting: “EOR and IOR in the Middle East,” http://www.manaarco.com/images/presentations/Fleming%20Gulf%20Manaar%20

EOR%20Abu%20Dhabi%20March%202013.pdf, accessed 30 October 2013.41 Ibid.42 Shell Global Solutions International BV, Enhanced Oil Recovery, http://s05.static-shell.com/content/dam/shell/static/future-energy/downloads/

eor/eor-brochure-2012.pdf accessed 30 October 2013.43

44

October 2013.


Figure 9 highlights our estimates of current EOR production in Oman, as well as our estimates of future production based on publicly announced projects and investment plans.

Figure 9: Estimated EOR production in OmanSource: EY estimates from US Energy Information Administration, PDO, Occidental

Cru

de o

il pr

oduc

tion

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0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Crude oil productionEOR supplyPrimary supply

Our analysis suggests that 23% of Omani oil production in 2012 was supplied by EOR, although this volume

EOR production as a percentage of the total portfolio of projects is still relatively low. In 2011, EOR and sour

project portfolio, with primary and secondary recovery projects accounting for 48% and 41%, respectively45. The proportion of EOR and sour oil projects is expected to increase to 18% by 2021, while primary recovery wells decline to 36% and secondary recovery wells increase only slightly to 42%.

PDO announced in April 2013 that the proportion of EOR in its portfolio would grow from 3% of its total current production to 25% of all liquids production by 2020. The increase in thermal EOR means that solar EOR is likely to play a role in the mix of technologies advanced and suggests considerable potential for the use of solar EOR in Oman over the next decade.46

45 Sour gas and EOR project portfolios are provided in aggregate and

46 Muscat Daily, EOR to account for 22% of oil output by 2020, says PDO, 03 June 2013, http://www.muscatdaily.com/Archive/Business/EOR-to-account-for-22-of-oil-output-by-2020-says-PDO-2b48, accessed 30 October 2013.

PDO has also announced plans to drill more than 100

of USD 800 million. By 2022, it plans to commission 16 megaprojects with a combined value of more than USD 11 billion, producing a target of more than 1 billion bbl of oil. Key projects include three EOR projects at Rabab Harweel, Yibal Khuff/Sudair and Budour, expected to add c. 200,000 bb/d of capacity,

projects is expected to cost well over USD 1b and to be implemented over the next 8–10 years.

Solar EOR and CSP technologiesIn “conventional” steam injection thermal EOR, steam is produced by burning natural gas. In solar EOR, concentrating solar power (CSP) technology replaces natural gas in the production of steam. Mirrors are used

collect solar energy and then convert it to heat, which is then used to produce steam from water.

Advantages of solar EORCSP technologies can generate the same quality and temperature of steam as natural gas. As a result, they have the potential to reduce the amount of natural gas used in thermal EOR, releasing gas for other uses such as power generation, water desalination and industrial development47. Although production and injection from CSP can be variable relative to the constant production from conventional methods, that has no negative impact on oil production levels48. Thus it is technically a comparable substitute for natural gas.

Taking into account the total cost of ownership of the system, including capital and operating expenditure

be competitive with that of natural gas for EOR.49 Moreover, by reducing fuel costs, solar steam removes the largest and most variable part of thermal EOR production costs (the cost of natural gas). This reduces

of steam generated via solar energy is independent of natural gas.

47 Ibid.48 Van Heel, A.P.G., et al. “The Impact of Daily and Seasonal Cycles in

Solar-Generated Steam on Oil Recovery.” SPE (Apr. 2010): 1-14. OnePetro, 22 May 2010.

49 GlassPoint Solar Inc.




with limited availability of natural gas, thus providing a way to create and inject steam for EOR with no capital investment in gas infrastructure, which would add considerable cost to a thermal EOR project.

Once commissioned, solar steam generators can produce at predictable and low operations cost for as long as 30 years, providing certainty on the cost of steam. In addition, because solar EOR has minimal

steaming wells for a longer period of time than if gas-

Experiences in solar EOR

renewables arm, ARCO Solar, constructed a solar steam generation pilot using central tower technology in Taft, California. The system generated 1MW of thermal energy during peak operating conditions. Though technically feasible, the system was not cost-effective

time solar steam was applied to facilitate heavy oil recovery50.

As of 2013, there are three operational solar EOR projects, with several more planned. Table 5 highlights these installations, two of which were built by GlassPoint.

50 Stuart Heisler, “Oil and Gas Production: Emergence of Solar Enhanced Oil Recovery,” Oilandgasiq.com, accessed 30 October 2013.

Table 5: Summary of solar EOR projectsSource: GlassPoint, BrightSource

Project Kern County 21Z Coalinga Amal West

Technology provider GlassPoint BrightSource GlassPoint

LocationMcKittrick, California, USA County, California, USA Southern Oman

Commissioning date February 2011 October 2011 February 2013

Peak capacity 300kW 29MW 7MW

CSP technology Enclosed trough Solar tower Enclosed trough

Key project details First commercial solar EOR project.

System spans c. 1 acre and produces c.1MMBTU/hr of solar heat.

First project to use

Project spans 100 acres and consists of 3,822 mirror systems, or heliostats, each with two 10-foot (3-meter) by 7-foot mirrors mounted on a 6-foot steel pole focusing light on a 327-foot solar.

EOR project.

Produces a daily average of 50 tons of steam feeding directly into existing thermal EOR operations.

Outside Oman, other oil companies in the Middle East are exploring solar EOR. Chevron Corp., for instance is considering using solar EOR to produce steam to pump

Saudi Arabia and Kuwait.



Concentrating solar power (CSP) technologiesCSP is a type of solar thermal technology that uses

generate steam. The steam is directly fed to the oil well or used in driving a turbine to generate power in the same way as conventional power plants.

Solar thermalConverts light to heat

PhotovoltaicConverts light to electricity

Solar thermal CSP vs. solar PVThe two main technologies for harnessing solar energy are solar photovoltaic (PV) and solar thermal.

Solar PV converts solar energy directly into electricity

material. In contrast, solar thermal delivers thermal energy which can then be converted into electricity. CSP, a type of solar thermal technology, uses mirrors

steam. The steam can be used to drive a steam turbine to generate power in the same way as conventional power plants. Alternatively, the steam from CSP can be used in process heat applications such as thermal EOR, water desalination, cooling, or industrial processes.

Solar PV is the more widely deployed technology. As of February 2013, cumulative installed capacity of solar PV stood at 100GW up from only 1.5GW in 2000. CSP on the other hand is a re-emerging technology. Up to 350MW of capacity was installed in California in the 1980s as part of the Solar Energy Generating Systems (SEGS) project, which consists of nine solar power plants located at three separate sites throughout the Mojave Desert. In the 2000s, CSP re-emerged, and at the end of 2012, 2.8GW of capacity was installed.

Solar PV installations are predominantly micro-generation installations on rooftops, although a sizeable volume of grid-connected capacity has been installed in recent years. Until 2006, the largest PV plant was the Carrisa Plain plant at 5.6MW. Desert Sunlight Solar Farm, a 550MW project being built by First Solar, which is expected to commission in 2015, is a new generation of large-scale solar PV plants under construction. CSP, on the other hand, is primarily designed for commercial power generation. The largest CSP project at present is the 392MW Ivanpah Solar Electric Generating System

by BrightSource, Bechtel and NRG.

Sources: IEA, Solar (PV and CSP), http://www.iea.org/topics/solarpvandcsp/; James Montgomery, 100 GW of Solar PV Now Installed in the World Today, RenewableEnergyWorld.com, 12 February 2013; Desert Sunlight Solar Farm, http://www.



CSP is commercially proven in power generation with an installed capacity of 2.8GW at the end of 201251. There are four main variants of CSP technologies, three of which to date are being adapted to produce steam for solar EOR. These are:

Solar tower

Linear Fresnel

Stirling dish

Parabolic trough

Solar tower technology

mirrors (heliostats) follow the movement of the sun

the mirrors onto a solar receiver at the top of a tower. The receiver is used to directly or indirectly heat

The main developers of this technology include BrightSource, Abengoa Solar, eSolar, SolarReserve and Torresol.

Linear Fresnel collector technologyLinear Fresnel collectors are similar to parabolic

or slightly curved, mirrors placed at different angles to concentrate the sunlight on either side

equipped with a single-axis tracking system and is optimized individually to ensure that sunlight is

consists of a long, selectively-coated absorber tube. Major technology developers include Areva and Novatec.

51 Schlumberger Energy Institute, Concentrating Solar Power, June 2013, http://www.sbc.slb.com/SBCInstitute/Publications/~/media/Files/SBC%20Energy%20Institute/SBC%20Energy%20Institute_Solar_Factbook_Jun%202013.ashx, accessed 30 October 2013.

The Stirling dish technologyStirling dish system consists of a parabolic dish-shaped

solar irradiation onto a receiver at the focal point of the dish. The receiver may be a Stirling engine (dish/engine systems) or a micro-turbine. Stirling dish systems require the sun to be tracked in two axes, but the high energy concentration onto a single point can yield very high temperatures. As a result, they

Typical sizes range from 5 to 50kW which make them modular and highly scalable from cumulative several MW to hundreds of MWs depending on need. Unlike other CSP technologies, they use mechanical energy rather, than producing steam to produce electricity and are therefore unable to serve the thermal EOR application. Stirling dish systems are also yet to be deployed at any scale.

Parabolic trough collector technologyParabolic trough collectors (PTC) consist of solar collectors (mirrors), heat receivers and support structures. The parabolic-shaped mirrors are

into a parabolic shape that concentrates incoming sunlight onto a central receiver tube at the focal line of the collector. The main technology developers include Flagsol, Solar Millennium, Abengoa Solar and Aries Solar, to name a few.



Comparison of solar thermal technologiesFigure 10: Images of different CSP technologies

Solar tower Stirling dish

Linear fresnel Parabolic trough

The four technologies described above are in various stages of technical and commercial applications.

In general, the parabolic trough plant is the most widely deployed variant of CSP for power generation. It is a relatively commercially-proven technology and carries less technology risk than other CSP variants. However, compared to other non-solar steam or power generation technologies it is less mature and provides

performance improvements.

Enclosed trough technology for solar EORGlassPoint deploys an advanced parabolic trough technology, called the “enclosed trough.” The enclosed trough was designed from the ground-up for the oil and gas industry, rather than for power generation.

and other delicate components are protected inside a glasshouse structure. The glasshouse protects the system from the humidity, sand and dust common

Gulf region where soiling rates are often 30 times higher and average wind speeds three times greater than in California and other locations where CSP is typically installed.

The parabolic mirrors are made of ultra-lightweight material and are suspended from the glasshouse structure. The mirrors automatically track the sun throughout the day and concentrate sunlight on a stationary boiler tube containing water. The heat from the sun boils the water to produce high-pressure steam for EOR.



Cost considerations for solar EOR vs. solar electricityThe enclosed trough was designed to reduce the cost of steam for EOR by 50% compared to older exposed CSP designs. The key cost advantages include:

Low-cost materials: to reinforce the solar collectors from harsh desert winds. It also enables the use of low-cost, lightweight mirrors and

weight of exposed parabolic trough systems.

Automated washing:

glasshouse each night. More than 90% of the water is recaptured and reused. The washing unit minimizes manual labour and water use, which is scarce and expensive in desert environments.

Operating temperatures: CSP technologies designed for electricity generation operate at much higher temperatures

costly to produce. The enclosed trough produces lower temperature steam within the desired range for thermal EOR.

eliminates the need for expensive desalination, water treatment and heat exchangers. In addition, the enclosed trough

Source: GlassPoint

Figure 11: Enclosed trough design

Source: GlassPoint



Table 6: Comparison of solar CSP technologiesSource: International Renewable Energy Agency (IRENA), Renewable Energy Technologies: Cost Analysis Series

Parabolic trough Solar tower Linear Fresnel Enclosed trough Dish-Stirling

Maturity of technology

Commercially proven

Pilot commercial projects

Pilot projects Pilot commercial projects

Demonstration

Technology development risk

Low Medium Medium Low Medium

Operating temperature (oC)

Up to 550 Up to 565 Up to 550 Up to 350 Up to 750

Receiver/absorber Absorber attached to collector, moves with collector, complex design

External surface or cavity,

Fixed absorber, secondary

Fixed receiver tube

Absorber attached to collector, moves with collector

Heat transfer oil or molten salt

Treated water, direct steam generation or molten

Treated water, direct steam generation

Minimally treated water, direct steam generation

n/a

Washing solution Manual trucks and hand washing

Manual and semi-automated trucks

Manual and prototype cleaning robots

Automatic proven cleaning robots with water recycling

Manual, hand-washing

Land use (tons of steam per day per hectare)

6 12 24 33 n/a

Maximum operating wind speed

Low Low Medium High Low

natural gas.


2Contribution to the Omani economy

This section provides our analysis of the domestic economic impact of solar EOR for the Sultanate over the period 2014–23.


Methodology

i.e., their contribution to the Omani Gross Domestic Product (Gross Value Added or GVA) and the jobs it creates.

The indirect effect on GVA and employment

goods and services along its supply chain in Oman. Indirect employment impact arising from industrial jobs created as part of projects using diverted gas saved through solar EOR substitution is presented separately.

The induced effect arising from solar EOR providers

a share of their income on the consumption of goods and services in the wider Omani economy. Effects are also induced from the private consumption generated by employees hired as part of the industrial projects that would be enabled by the gas savings generated by solar EOR substitution.

These effects are assessed for the period 2014–23 based on the following deployment scenarios developed with GlassPoint for the solar EOR technology, listed in Table 7 below.

Table 7: Deployment scenariosSource: GlassPoint, EY

Tons of steam per day 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Full-scale - 1,360 4,420 21,420 38,420 72,148 105,876 139,604 173,332 207,060

Leadership - 1,360 4,420 10,370 17,850 40,154 62,458 84,762 107,066 129,370

Steady - 1,360 4,420 10,370 17,850 25,670 33,490 41,310 49,130 56,950

These effects are measured using the Input/Output (I/O) model, also known as the Leontief model, a quantitative economic technique commonly used to measure the interdependencies between the various industrial branches of a national economy.

In order to calculate relevant industry multipliers, this model requires a comprehensive system of national accounts (SNA) in the format of detailed Input/Output tables. As these are not available in Oman, we assumed that the structure and interdependencies in the Omani economy were broadly in line with those of another GCC country, Kuwait, and therefore used the 2010 Kuwaiti Input/Output tables as a proxy to calculate relevant Omani multipliers. This approach is in line with various academic attempts made in the recent past to devise an Omani I/O table using the Kuwaiti I/O as a proxy52.

52 These attempts include the Global Trade Analysis Project (GTAP) by Purdue University, who produced a 31-sector I/O table for Oman in 2005 based on the available Kuwaiti I/O ratios. This work is not publicly available but a summary of their methodology can be found at: https://www.gtap.agecon.purdue.edu/resources/download/6071.pdf, accessed 10 October 2013. This methodology

Omani economy. We have not pursued a similar approach as the time

not compatible with the timeframe for this project. Moreover, the

with regard to employment and compensation, applied to the results derived from the Kuwaiti Input/Output tables. The employment impact is measured as per the maximum number of job years generated under each scenario over the deployment phase, on a cumulative basis over one single year of project-related activity. We assume that this number of job years will be made permanent after the end of the deployment period, mainly through the development of appropriate regional and global export channels for the solar EOR technology conceived and manufactured in Oman.

Relevant expenditure for the purpose of calculating output and GVA impacts is composed of capital expenditure related to the project, as well as operating expenditure. Each capital or operating expenditure item

Output table.

Other relevant assumptions are disclosed in Appendices A, C and D.

2 Contribution to the Omani economy



Commercial deployment of solar EOR

Acknowledging the growing importance of thermal EOR to Oman and the potential long-term gas supply issue it could generate, PDO began investigating solar-powered EOR in 2005. In 2009, the company initiated a tender process that resulted in a 2011 award to GlassPoint for a pilot project. In February 2013, GlassPoint and PDO successfully commissioned

pilot plant in Amal, Oman.

Deployment scenariosThe economic impact of the commercial rollout of solar EOR is intrinsically dependent on the evolution of technology costs but also on the scale of the rollout (installed operational generation capacity by the end

variation in new capacity installed annually.

We have assumed three possible 10-year deployment scenarios for solar EOR in Oman as shown in Table 8. The scenarios all assume that by 2023, approximately 370,000 bbl/d of oil production in Oman will result from the deployment of thermal EOR technologies. This is in line with EOR production estimates from PDO, Occidental and other industry stakeholders. We have also assumed that solar EOR accounts for varying proportions of this growth in thermal EOR production.

The Steady growth scenario assumes a minimal amount of solar EOR installation. Under this scenario, solar EOR accounts for only 22% of all thermal EOR capacity by the end of the deployment period. Due to this relatively low deployment, its impact on the Omani economy, although visible, remains below its full potential.

The Leadership scenario assumes a higher level of deployment of solar EOR. By 2023, it accounts for 50% of all thermal EOR capacity. In this scenario we assume that the Sultanate of Oman accelerates the deployment of solar EOR and targets industry leadership with potential export opportunities to other GCC countries and is therefore willing to invest at a higher level than in a steady deployment scenario.

The Full-scale (deployment) scenario assumes deployment that stretches the solar EOR technology to its technical limit, i.e., 80% of all thermal EOR capacity coming from solar by the end of the deployment period. Under this scenario, the Sultanate has fully embraced a solar EOR “revolution” and its effects on the economy are transformational.

For the purpose of simplicity, we will mainly be discussing the economic impact of the project assuming the Leadership scenario, which will be our base case, with mentions of sensitivities related to the two other scenarios.

Table 8: Deployment scenariosSource: GlassPoint data, EY analysis

Scenario Assumptions

Steady 53,550 tonnes of steam produced per day53

9.4GWth of installed capacity Total discounted54 capex required:

USD 6.2 billion 22% of Omani EOR is solar-

generated in 2023

Leadership 121,550 tonnes of steam produced per day53

21.3GWth of installed capacity Total discounted capex54 required:


generated in 2023

Full-scale 194,480 tonnes of steam produced per day53

34.0GWth of installed capacity Total discounted capex required54:


generated in 2023

53 Once project reaches required scale.54 Nominal capex discounted annually at 8.2%.


In the economic impact assessment, we do not make any assumptions on the likelihood of any of these scenarios in terms of either capital investment or technical requirements. However, based on current developments in the global solar CSP market and ambitious solar generation programs announced by countries such as Saudi Arabia (41GWe, or roughly 120GWth in 2030) and Morocco (2GWe, or roughly 6GWth in 2020), we are comfortable that all three scenarios described below represent plausible development possibilities.

Figure 12 below shows the expected path in terms of EOR market share for solar steam generation based on each of the three scenarios above.

Figure 12: Fraction of solar EOR (as a % of total Omani EOR) from 2014–23Source: EY analysis

80%

50%

22%

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Full Leadership Steady

Direct economic contributionCapital expenditure assumptionsThe installation of a solar EOR system consists of various processes and equipment. These include site preparation and infrastructure, manufacture of the solar package and tank, and actual construction.

We have made the following assumptions in relation to the breakdown of capital expenditure.

Table 9: Capex breakdownSource: EY, GlassPoint

Capital item Industry code55 % of Capex

Solar package FMET 30.0%

Greenhouse BMET 19.0%

Piping and controls FMET 20.0%

Construction CONS 13.0%

Other OMAN 18.0%

For the purpose of calculating the direct economic impact associated with the installation of the solar EOR generators, a standard industry code has been associated with each of the main capital expenditure items, which in turn determines which relevant

System of National Accounts (SNA) will be used for the calculation of output, GVA and jobs created55.

The economic impact of this project also crucially depends on the proportion of its content that is “made in Oman.” In that regard, we have made the following assumptions based on GlassPoint plans for localization.

Table 10: Proportion of Omani content56

Source: EY, GlassPoint

Capital item Omani content57

Solar package 96.0%

Greenhouse 96.0%

Piping and controls 42.4%

Construction 100.0%

Other 72.7%

Direct contributionThe installation of the solar EOR systems will have a direct effect on economic activity and job creation in the Omani domestic manufacturing and services sectors.

jobs created for the purpose of the solar EOR roll-out in Oman will extend over the rollout period, as the technology would be exported to neighboring oil-

55 Industry code used in the nomenclature in the standardised System of National Accounts. Cf. Appendix E

56 Cf. Appendix A for detailed methodology.




Assuming deployment takes place according to the Leadership scenario, in which enough capacity to provide a daily average of 121,550 tonnes of steam is installed by the end of 2023, solar power could be originating up to 50% of current annual EOR oil output in Oman by 2024, and its deployment could directly support the creation of up to 21,700 manufacturing, operations and maintenance jobs for Omani nationals over the period between 2014–23.

We can also expect that such a rollout would create a direct contribution of USD 3.6 billion in Gross Value Added GVA to Omani GDP over the same decade.

Table 11 below shows the sensitivity created by the various deployment scenarios on direct GVA and Omani employment.Table 11: Sensitivities on direct GVA and employment impact, based on deployment scenariosSource: GlassPoint data, EY analysis

2014–23 Steady Leadership Full-scale

Direct GVA (USD m) 1,539 3,277 5,234

Total jobs, among which

39,114 111,561 168,701

nationals578,182 23,336 35,289

Direct construction jobs 14,400 41,072 62,108

As the scale of solar capacity installment increases, it may be viable to consider fabrication and welding of structural steel used in the glasshouse trusses and the building and commissioning of a solar package factory for specialized processes for the Oman projects and for potential export to other GCC countries. We have assumed that given the large-scale deployment across the three scenarios, that technology providers would build a local factory in all three cases.

In Appendix A, we describe how we have calculated the direct economic output and direct jobs resulting from the deployment of solar EOR, as well as key assumptions used.

57 Once project reaches appropriate scale.

Indirect economic impact of solar EORThe main indirect impact of the project is linked to the

along the supply chain, mainly as part of its capital expenditure and intermediate consumption. Similarly

of the indirect value added and manufacturing jobs created by the solar EOR supply chain in Oman would extend over the rollout period through exports.

would amount to USD 2.83 billion in GVA and would create up to 7,071 manufacturing and services jobs for Omani nationals.

Table 12 below shows the sensitivity created by the various deployment scenarios on indirect GVA and Omani employment.Table 12: Sensitivities on indirect GVA and employment impact, based on deployment scenariosSource: GlassPoint data, EY analysis

Sensitivities Steady Leadership Full-scale

Direct GVA (USD m) 1,329 2,831 4,521

Total jobs, among which

11,886 33,900 51,263

nationals582,479 7,071 10,693

Indirect jobs supported by construction activity

4,545 12,964 19,605

In Appendix A, we describe how we have calculated the indirect economic output and indirect jobs resulting from the deployment, as well as key assumptions used.

58 Based on current ratio of Omani workers to total domestic employment, as published by the Omani National Centre for Statistics and Information (NCSI).


Induced effectsThe rollout of solar EOR technology will also have induced effects on the Omani economy via the private consumption of goods and services by employees of technology providers installing the solar EOR projects and their suppliers, which in turn would create additional jobs. These induced effects also include consumption by people employed in the industrial projects that are enabled by gas savings59.

As Oman develops a competitive advantage and subsequent export capacity on solar EOR, these induced effects (including job creation) would tend to remain after the end of the planned rollout.

Assuming the technology is rolled out on the basis of the Leadership scenario, the expected induced effect on GDP is USD 1.32 billion over the deployment phase, which in turn would lead to the creation of up to

a total of c.20,400.

Table 13 below shows the sensitivity created by the various deployment scenarios on induced GVA and Omani employment.

Table 13: Sensitivities on induced GVA and Omani job creation, based on deployment scenarios

Source: GlassPoint data, EY analysis


Induced GVA (USD m)

609 1,322 2,108

Total jobs 7,251 20,387 31,312

nationals57

2,371 6,663 10,111

Direct construction jobs 2,031 5,710 8,771

Use of natural gas savingsIn addition to the indirect effects on the supply chain of solar EOR component manufacturing, the introduction of solar EOR could have three additional indirect effects:

1. Release natural gas otherwise used for EOR into the wider economy, which would allow projects otherwise unfeasible due to lack of natural gas availability to be developed and trigger additional permanent job creation in the Sultanate

59 Results presented in this section assume that 100% of gas savings are re-injected in the wider economy.

2. Allow this excess of available natural gas to be used on other thermal EOR projects in order to increase petroleum extraction and therefore increase exports and government revenue

3. Improve natural gas net trade balance, all other things being equal

The indirect impact of natural gas savings due to solar EOR rollout has been modelled on the basis of percentages of natural gas savings allocated to each of these three purposes.

Natural gas as a constraint in the Omani economy

past decade, seeing an annual increase of c.12% from 1999 to 2009. The trend is continuing, and a shortfall in feedstock for power generation is already hampering

industrial policy.

Over the last four years, petrochemicals projects valued up to USD 3.49 billion have been cancelled or forestalled as a result of a lack of guaranteed gas feedstock60. In addition, there are at least 28 projects that have applied for gas allocations totalling 138,268 MMBTU per day that are yet to be granted61.

Investing in some of these projects would not only create employment in the Sultanate but also contribute to further diversify the Omani economy away from its current heavy petrochemical industry focus. A list of these projects has been established by the Omani Ministry of Commerce and Industry (MOCI), and we assume that gas savings induced by the rollout of solar EOR would be redirected to these projects in priority.

60

Nov 15, 2011, http://www.arabianoilandgas.com/article-9667-omans-great-gas-conundrum/#.Une1v6KBoVg, accessed 30 October 2013.

61

Issue No 30 23–29, July 2010, http://www.meed.com/sectors/oil-

article, accessed 30 October 2013.



Basic savingsSolar EOR would progressively replace natural gas for the generation of the steam required for EOR.

Under the Leadership scenario, by the end of 2023, the envisaged deployment of solar EOR would allow Oman to save 331,796 MMBTU of natural gas per day on an ongoing basis. Table 14 below shows the sensitivity created by the various deployment scenarios on gas savings in 2023.

Table 14: Sensitivities on cumulative gas savings, based on deployment scenariosSource: EY analysis


Gas savings (MMBTU/day at end of deployment)

146,060 331,796 531,048

These natural gas savings will have an indirect economic impact of their own, which will depend on how they are channelled into the wider economy, either enabling industrial projects or additional oil production or simply saved from a trade balance perspective.

Effects on the wider economyThe Omani Government has been actively seeking to reduce its dependence on oil income through an accelerated/intensive industrialization process in recent years.

If we assume that 100% of the natural gas savings occurring due to substitution by solar EOR are allocated to the wider economy, this surplus would be redistributed in priority to industrial projects that are currently infeasible mainly due to the lack of access to gas resources, with a focus on those with the lowest gas consumption-to-job ratio.

particularly likely to be enabled by the rollout of the solar EOR technology and the subsequent release of 331,796 MMBTU/day of available natural gas once full solar EOR deployment has been reached. These projects have been extracted from the previously mentioned list of projects that have applied for gas allocations but have yet to be granted due to lack of access to gas.

Table 15: Projects likely to be enabled by the release of available natural gasSource: MOCI

Name

Gas required (MMBTU/

day)

Total direct

FTE

Castings and rolling 204 1,200

Calcined Gypsum 103 75

Steel bars 608 160

MEG and PET 1,201 300

Sulphur Bentonite 122 20

Highway guards 1,183 148

Merchant Bar 1,676 200

Porcelain tiles 1,743 154

Magnesium 8,121 600

Plaster board 1,075 75

Calcined lime 2,966 170

3,337 150

8,899 338

PTA/PET 11,161 400

MX/PIA 3,148 100

Integrated lime processing 1,669 50

PET (Expansion) 2,855 75

Salt Cluster 31,481 400

Cement 31,593 340

Steel castings and rolling 20,316 200

Total 133,461 5,155




The median project on this list requires 5,804 MMBTU of natural gas per annum per job created. For the

that the least energy-intensive projects per job created would be prioritized and secondly that once all the projects on the above list were enabled by gas savings, the remaining displaced gas would create additional jobs on the basis of the median project requirements.

Figure 13: Cumulative direct job creation related to gas savings over the period 2014–23Source: NCSI, GlassPoint (data), EY analysis

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Food, beverages and tobaccoOther chemical products

Non-metallic productsBasic metal products

Based on employment statistics produced by the National Centre for Statistics and Information (NCSI), we can assume that 22.4% of manufacturing jobs created as a result of gas savings would go to Omani nationals. As a result, under the Leadership deployment scenario, gas savings alone have the potential to directly create up to c.17,700 jobs over the period 2014–23, c.4,000 of which would

Table 16 below shows the sensitivity created by the various deployment scenarios on job creation related to gas savings over the period.

Table 16: Sensitivities on Omani job creation related to gas savings62, based on deployment scenarios63

Source: EY analysis


Direct Omani jobs created due to gas savings

1,334 3,957 6,770

Other gas-related direct manufacturing

expatriates62

4,614 13,680 23,406

Other indirect and induced jobs

4,225 12,528 21,435

Total permanent jobs created by gas savings

10,173 30,164 51,611

Industrial projects that would be enabled by this release of natural gas would also support their own set of jobs in the supply-chain, as well as induced employment through individual consumption. In the “Leadership” scenario, the total number of jobs that the released gas could directly or indirectly support or induce in Oman could amount to up to c. 30,000 full-time equivalents

Increased oil revenuesProved oil reserves in Oman currently stand at 5,500 million barrels. A large part of these reserves are currently not being exploited due to lack of natural gas availability to be used for EOR purposes. Solar EOR will release natural gas due to the substitution by solar-powered methods.

Under our Leadership scenario, assuming 100% of this released natural gas resource is channelled towards oil extraction64, up to 216.2 million extra barrels could be produced over the period 2014–23. Based on forecast Dubai crude oil prices by the US Energy Information Administration, this could generate a discounted USD 11 billion extra oil export revenue over the period

62 Direct, indirect and induced, excluding construction jobs related to the building of the relevant manufacturing facilities enabled by gas savings.

63 Assuming 22.4% of new industrial jobs related to gas savings

statistics from the NCSI). Rounded-up to the nearest hundred.64 Rather than to the wider economy, the effects of which are explained

in Page 31.


2014–23, USD 6b of which would go to the

oil export revenue generated by solar EOR could amount to up to USD 38.9 billion.

Table 17: Value of additional oil exports generated by gas savingsSource: GlassPoint data, EY analysis

Value of additional oil exports (Discounted USDm) Steady Leadership Full-scale

2014–23 5,992 11,003 18,464

Project lifetime 18,231 38,804 62,961

Natural gas trade balanceAnother alternative is that the release of natural gas goes towards an improvement of the net natural gas-related trade balance, allowing for an increase in LNG net exports.

Under the Leadership scenario, assuming 100% of these savings are not used for other economic purposes but simply deducted from the national energy bill65, they would have a discounted net impact of USD 722.3 million66

solar EOR generators and that a gas-powered thermal EOR capacity equivalent to the solar EOR rollout would have been installed in any case, the market value of these cumulative savings could amount to

65 That is none of these savings would be channelled to the wider economy of the oil & gas industry, but simply sold on the spot market/not be imported.

66 Assuming LNG prices as per Appendix C.

Table 18: Value of improved gas trade balanceSource: GlassPoint data, EY analysis

Value of improved gas trade balance (Discounted USDm) Steady Leadership Full-scale

Cumulative value of annual savings, 2014–2367

339 722 1,171

Cumulative value of saved gas over project lifetime68

3,859 8,234 13,350

Summary of economic impactTable 19 below summarizes the main economic indicators related to the three project rollout scenarios.

to the Omani economy in the following ways:

Over the deployment period, the project could lead to the creation of up to c.196,000 domestic jobs69 and add up to USD 7.5 billion to Omani GDP70. As Oman will develop a competitive advantage and subsequent

portion of these effects would become permanent.

natural gas savings that, depending on the way they are channelled, could either lead to:

Additional permanent job creation and

portfolio of industrial projects. Up to USD 11 billion of additional oil

revenue through more EOR output over the deployment period.

Up to USD 722 million worth of additional gas exports/reduced net gas imports for the country as the technology is rolled-out over the next 10 years.

67 Market value of cumulative year-on-year gas savings, assuming that LNG prices are as per Appendix C, saved gas is not imported/

natural gas trade balance. This implies that no additional gas-powered thermal EOR capacity is added over the period and no more savings are made after the end of deployment.

68 Cumulative value of gas savings with reference to EOR-related gas

operational life (25 years per annual tranche of installed capacity).69 Filled by Omanis or expatriates in Oman. Assuming 100% of natural

gas savings evoked below are channelled into the wider economy (page 31).

70 Excluding potential contribution made by industrial projects enabled by gas savings.



Table 19: Summary of the project’s economic impact71, 72,

Source: EY analysis

Steady Leadership Full-scale

Solar fraction of EOR steam

22% 50% 80%

Total investment (USD billions)

6.2 8.6 13.8

Gas savings (MMBTU/day at scale)

146,060 331,796 531,048

Output (USD millions)71

Direct 3,872 8,246 13,170

Indirect 3,208 6,832 10,911

Induced 2,634 5,753 9,178

Total output 9,714 20,831 33,259

GVA (USD millions)71

Direct 1,539 3,277 5,234

Indirect 1,329 2,831 4,521

Induced 660 1,409 2,253

Total GVA 3,528 7,517 12,008

Job creation directly enabled by solar EOR rollout72


Direct 24,714 70,489 106,593

Indirect 7,341 20,936 31,658

Induced 5,220 14,677 22,541

Construction-related 20,976 59,746 90,483

Job creation enabled by gas savings72


Direct industrial jobs 5,948 17,637 30,176

Indirect and induced jobs

4,225 12,528 21,435

Total job creation 68,424 196,013 302,886

Total excluding construction jobs

47,448 136,267 212,403

Total Omani jobs 14,560 41,574 63,825

71 Direct, indirect and induced.72 Assuming 100% of natural gas savings accured below are

channelled into the wider economy and excluding jobs related to the construction of the industrial facilities enabled by gas savings. Job creation directly enabled by solar EOR roll-out excludes potential contribution made by industrial projects enabled by gas savings.

and induced.

Effectiveness of solar thermal for EOR vs. power generation in saving natural gasOn page 24 we compared and contrasted various CSP technologies. In this section, we look more closely at alternative end-use applications for parabolic trough

with the Shams solar power plant in the UAE73.

was commissioned in March 2013. Shams 1 is a 100MW plant and is the largest solar power electricity generator in the Middle East. It cost about USD 600 million to build.

There are technical differences between the Shams and GlassPoint projects driven primarily by end-use application, which affect the appropriateness of direct comparison of the cost per ton of steam generated.

Estimating gas savings per unit of capital expenditureIn light of the discussion above, we have assessed the gas savings from using solar in EOR relative to installing

We have also assessed the gas savings from developing a solar CSP power plant relative to a Combined Cycle Gas Turbine (CCGT).

A 100MW CSP power plant such as Shams producing an estimated 230GWh of electricity annually would cost USD 510 million. A hypothetical CCGT operating at a capacity factor of 87% and producing a similar amount of electricity (or fractional ownership of a CCGT) would cost USD 28 million74. However, the CCGT would consume up to 1,340,000 MMBTU of gas compared to 540,000 MMBTU for the CSP power plant (assuming it has gas boosters). Thus for USD 490 million, the CSP power plant saves an additional 800,000 MMBTU a year of gas. On an annual basis this is equivalent to USD 20/MMBTU.

73 In CSP solar thermal power generation, solar energy is used to heat water until it turns into a saturated liquid. It is then compressed into steam, which is transferred to a turbine where the pressure of the steam is reduced by expansion over the turbine blades to generate electricity. The low pressure steam is condensed back to a liquid and

back to the boiler.74 Overnight cost of solar thermal at £5,096 per kW and £970 for

a CCGT – see latest EIA. Capacity factor of the CCGT is assumed to be 87% (EIA).



In contrast, a solar EOR steam generator producing 5,820,000 MMBTU of steam output per year would cost approximately USD 660 million without consuming any gas. An OTSG with a similar output of steam would cost USD 72 million and consume approximately 6,840,000 MMBTU of gas per year. Thus for USD 586 million, the solar EOR unit saves an additional 6,840,000 MMBTU of gas annually, which is equivalent to USD 3.40/MMBTU.

When the two above scenarios are compared, investing in solar EOR saves up to six times as much gas per unit of capital expenditure compared to a CSP power plant, that is, USD 3.4 per MMBTU as opposed to USD 20 per MMBTU of gas.

Skill development and innovationThe deployment of solar EOR provides an opportunity

The scale of the project would expose local engineers to solar technology and its supply chain, enabling them to bridge skills from the existing oil and gas base in Oman and to widen their expertise to a potentially fast-growing strategic industry.

Solar experience would also transfer to other uses — for instance, power generation, desalination and process steam — creating a cross-technologically skilled local workforce.

EOR sector could contribute to the development of innovation and skills in Oman include:

Establishing an industry-university partnership, e.g., with the Sultan Qaboos University and/or endowing a professorship. Industry-university partnerships are widely developed in the US and Europe. Such a partnership could fund research into areas such as subsurface effects and behavior of solar steam at rock model, lab and simulator level; understanding of local environmental conditions and solar energy and primary research in materials, durability and construction methods. Moreover,

would provide a focal point for solar EOR-related research and raise the visibility of solar EOR-related research in Oman. Examples of successful programs include a current research program on microbial

researchers from the Department of Biology College of Science and the Petroleum and Chemical

Engineering Department, College of Engineering received a USD 1m grant and have been leading an international research programme investigating the possibility of using microbiological process to enhance oil recovery.75

Establishing and managing a corporate staff development program with PDO and other potential clients. Formal staff development

bring “best practices” together with international thermal experts.

Establishing and managing a corporate staff development programme to serve the solar EOR Oman supply chain. This would serve any factories opened in Oman and improve the quality of production establishment and project execution within Oman.

Solar EOR provides an opportunity for industry-leading innovation in Oman. Strategic efforts in that direction could transform Oman into a major renewable energy hub within the Gulf region and the “solar EOR revolution” — if embraced — could bring tangible

large-scale projects such as Masdar City in the UAE or the K.A.CARE procurement in Saudi Arabia.

economies, the “solar EOR revolution” provides an

yet distinctive way.

75

edu.om/tabid/5835/language/en-US/Default.aspx, accessed 30 October 2013.



3Security of energy supply, EOR potential and environmental impacts

In this section we discuss: The potential EOR production in the region The potential for technology exports for Oman The security of energy supply impacts of solar EOR on Oman


3 Security of energy supply, EOR potential and environmental impacts

EOR in the Middle East and technology export potential

different approaches to increasing production. Gas is primarily re-injected to produce more oil. As a result, most countries are now struggling to meet gas demand76. In 2008, the UAE, for instance, consumed 653 bcf per annum for re-injection, which is expected to rise to 1,590 bcf per annum in 202077

face similar challenges, though to a lesser extent.

The volume of EOR production in the GCC outside of Oman is currently minuscule; however, EOR potential is estimated at 475 billion barrels of oil,78 suggesting there is a large medium- to long-term market throughout the region. Table 20 highlights current projects as well as those planned. In the Leadership scenario, Oman is likely to develop the supply chain, local capabilities, and expertise to export solar EOR technologies to the region and the world.

Thermal EOR in KuwaitKuwait is implementing EOR measures to boost

is currently centered on the Partitioned Neutral Zone (PNZ) area shared with Saudi Arabia. Oil and gas produced in this zone is shared equally.

Onshore production in the PNZ centers on the Wafra

3.4 billion barrels of oil in proven and probable reserves. Onshore production in the PNZ has a capacity

injection project led by Chevron is under development

phase of steam injection is expected to begin in 2017 and to produce up to 80,000 bbl/d. Thermal EOR is expected to eventually boost production to more than 500,000 bbl/d, while the amount of recoverable oil is more estimated at 6 billion bbl.

76 Gas demand in the UAE for re-injection is expected to grow

approximately 45 bcm by 2020. Raed Kombargi et al, “Gas Shortage in the GCC, How to Bridge the Gap,” Booz & Company Inc., 2010,

accessed 30 October 2013.”77 Ibid.78 Manaar Consulting: “EOR and IOR in the Middle East,” http://


Table 20: Current and planned EOR projects in the Middle EastSource: Manaar Consulting, EOR and IOR in the Middle East

Current projects Future/potential projects

Saudi Arabia

Ghawar CO2 EOR trial

Kuwait/ Saudi Arabia

Wafra steam

KuwaitUnited Arab Emirates

Masdar CO2 EOR project

Dubai CO2 EORAbu Dhabi offshore chemical EOR

Turkey Bati Raman, CO2 EOR project

Bahrain

Iraq

Iran Iran CO2 EOR

Qatar 2 EOR

Syria

Egypt

of capacity, with an ambitious target to increase supply by 201579. Key to increasing production is the development of the Lower Fars heavy crude

until recently not seen as commercially viable due to depth and complexity.

In 2010, the Kuwait Oil Company negotiated a joint development plan with ExxonMobil, Shell, and Total that was subsequently abandoned80. KOC is currently planning to invest up to USD 7 billion in capital

at an initial increment of 60,000 bbl/d production in 2018, to be ramped up to 270,000 bbl/d by 2020.

Kuwait to use an unconventional technique such as the cyclic steam stimulation (CSS).

79 Kuwait Country Analysis,” US Energy Information Administration,

October 2013.80 Oxford Business Review “Digging deep: Exploring new ways to

extract oil,”http://www.oxfordbusinessgroup.com/news/digging-deep-exploring-new-ways-extract-oil, accessed 30 October 2013.


Thermal EOR in BahrainOil and gas production in Bahrain is predominantly in the Bahrain Field previously perceived as nearing the end of its productive life. However, the National Oil and Gas Authority (NOGA) initiated an EOR project in 2009 handing responsibility for its redevelopment to Tatweer Petroleum. Tatweer is owned by nogaholding (the business and investment arm of NOGA), Occidental Petroleum Corporation and Mubadala Development Company.

Tatweer is implementing various EOR techniques,

bbl/d. Gas delivery capacity is also expected to increase to over 2 bcf/d, through installation of new facilities and new well completion techniques.81

Implications for solar EORThe potential for EOR in the Middle East is estimated at 475 billion barrels of oil82

of which would be recovered via thermal techniques. This suggests there is a large market for solar EOR technology throughout the region. Assuming solar EOR captures even 1% of this volume, this would represent a larger market than the entire EOR production in Oman at present.

Corp. is considering using solar EOR to produce steam

straddling Saudi Arabia and Kuwait

81 Corporate background, Tatweer Petroleum, http://

accessed 30 October 2013.82 Manaar Consulting: “EOR and IOR in the Middle East,” http://


EOR for OmanUsing natural gas to create the steam used in thermal EOR has adverse impacts on the environment. Burning natural gas increases carbon dioxide (CO2), nitrogen oxide (NOx) and sulphur dioxide (SO2) emissions into the atmosphere. Methane can also be emitted when natural gas is not burned completely. Using solar energy as a substitute for natural gas for thermal EOR can thus lead to a reduction in emissions of CO2, NOx and SO2.

In Table 20 below, we provide quantitative estimates

technology in Oman, taking into account the volume of natural gas saved under the three scenarios presented in the report, as well as the average emissions from burning natural gas, and therefore the emissions abated.

In our Leadership deployment scenario, CO2 emissions are expected to decline by 8.1 million tons per annum when the systems are fully deployed. The process would also produce NOx and SO2 emissions.

Table 20: Emissions abatementSource: Environmental Protection Agency, USA, GlassPoint

Emissions Steady Leadership Full-scale

CO2 (Million tons/year) 3.5 8.1 13.0

Notes: We have used an estimated 0.172 tons of carbon dioxide per ton

earlier, solar-powered technologies can also pose some challenges to the environment. Argonne National Laboratory (2013) suggests that CSP technologies using wet cooling systems can consume large quantities of water (although dry cooling systems use less than a tenth of the amount of water used by wet cooling systems)83

technology does not use a cooling system, meaning their developments in Oman do not cause this adverse impact to the environment.

83 Argonne National Laboratory, “Solar Energy Planning for the Southwest,” 2013, http://www.evs.anl.gov/program-areas/land-renewable-resources/highlights/solar-peis.cfm, accessed 30 October 2013.




Use of CSP technologies may also have potentially

resources in the region of operation. For example, use of solar energy-powered systems precludes use of land within the project footprint, while the removal of vegetation can also lead to damage to biological soil

where solar EOR would be installed in Oman, these impacts are likely to be minimal.

of solar EOR for Omansecurity for a country as being the uninterrupted availability of energy sources at affordable prices84. This is particularly important in the Middle East

rather than natural gas.

There are two types of energy security: long-term and short-term. Long-term security of energy supply is mainly linked to timely investments to supply energy in line with economic developments and environmental needs. This relates to absolute scarcity — potential exhaustion of resources such as oil and gas. By contrast, short-term security of energy supply focuses on the ability of the energy system to react promptly to sudden changes in the supply-demand balance.

short-term vulnerabilities. This relates to relative scarcity, measuring the temporary absence of resources, such as those caused by missing supply capacity. A single measure of energy security requires consideration of both absolute and relative scarcity of energy supply.

USD 60 billion LNG deal with Iran for the next 25 years, both its long-term and short-term security of energy supply require consideration85.

84 International Energy Agency (IEA), “Energy Security,” http://www.iea.org/topics/energysecurity/, accessed 30 October 2013.

85 Daniel Fineren, “Oman signs MoU to import Iranian gas,” Reuters, 27 Aug 2013, http://uk.reuters.com/article/2013/08/27/uk-iran-

Oman imported nearly 200 billion cubic meters of gas between 2008 and 2011 due to increasing demand from its industrial and domestic sectors. These imports

(WGI) rank each country by political stability and an

of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism86.

greater stability), suggesting it is one of the most

reliance on Iran following the aforementioned LNG deal

is ranked 10 in the WGI rankings, suggesting it is one of the most politically volatile countries in the world.

Given this context above, use of solar EOR carries obvious advantages in terms of security of energy supply for Oman. Using solar power rather than natural gas for oil

industrial sectors, in turn reducing the risk inherent

86

info.worldbank.org/governance/wgi/index.aspx#home, accessed 30 October 2013.


bbl/d Barrels per day

bbl Barrel

BTU British Thermal Unit

bcf Billion cubic feet

cf Cubic feet

CSP Concentrated solar power

EOR Enhanced oil recovery

E&P Exploration and production

FTE Full-time equivalent

GCC Gulf Cooperation Council

GDP Gross Domestic Product

GVA Gross Value Added

IEA International Energy Agency

I/O Input/Output

LNG

mcf Million cubic feet

MMBTU Millions of British Thermal Units

MOCI Ministry of Commerce and Industry (Oman)

MOG Ministry of Oil and Gas (Oman)

MOSES Model of Short-Term Energy Security

MPC Marginal Propensity to Consume

NCSI National Centre for Statistics and Information (Oman)

OMR Omani rial

ORPIC

PDO Petroleum Development Oman

SBSSG Standard Block Solar Steam Generator

SOM Shell Oman Marketing

SNA System of National Accounts

TAGOGD Thermally Assisted Gas Oil Gravity Drainage

Glossary


Appendices


AAppendixMethodology

generate for the Omani economy can be estimated by calculating the direct, indirect and induced effects,

i.e., their contribution to the Omani Gross Domestic Product and the jobs it creates.

demand for goods and services along their supply chain in Oman.

a share of their income on the consumption of goods and services in the wider Omani economy.

Figure 14: Overview of our methodology for economic impact assessmentsSource: EY

Inputs Allocation Multiplier calculations Outputs

Economicactivity

Contributionto GDP

Gross valueadded

Localpurchases

Imports

Compensation ofemployees

Indirect multipliers

Induced multipliers

Demand

Consumption

Indirect GVA

Induced GVA

Direct

Indirect

Induced


These effects are measured using the Input/Output (I/O) model, also known as the Leontief model, a quantitative economic technique commonly used to measure the interdependencies between the various industrial branches of a national economy.

In order to calculate relevant industry multipliers, this model requires a comprehensive system of national accounts (SNA) in the format of detailed Input/Output tables. As these are not available in Oman, we assumed that the structure and interdependencies in the Omani economy were broadly in line with those of another Persian Gulf country, Kuwait, and therefore used the 2010 Kuwaiti Input/Output tables as a proxy to calculate relevant Omani multipliers. This approach is in line with various academic attempts made in the recent past to devise an Omani I/O table using the Kuwaiti I/O as a proxy87.

87 These attempts include the Global Trade Analysis Project (GTAP) by Purdue University, who produced a 31-sector I/O table for Oman in 2005 based on the available Kuwaiti I/O ratios. This work is not publicly available but a summary of their methodology can be found at: https://www.gtap.agecon.purdue.edu/resources/download/6071.pdf. This methodology implies several adjustments

not pursued a similar approach as the time needed to adjust for all

purpose of this study.

with regard to employment and compensation, applied to the results derived from the Kuwaiti Input/Output tables. The employment impact is measured as per the maximum number of job years generated under each scenario over the deployment phase, on a cumulative basis over one single year of project-related activity. We assume that this number of job years will be made permanent after the end of the deployment period, mainly through the development of appropriate regional and global export channels for the solar EOR technology conceived and manufactured in Oman.

Relevant expenditure for the purpose of calculating output and GVA impacts is composed of capital expenditure related to the project as well as operating expenditure. Each capital or operating expenditure item

Output table.

Other relevant assumptions are disclosed in Appendices B and C.

These effects are assessed for the period 2014–23 based on the following deployment scenarios developed with GlassPoint for the solar EOR technology, listed in Table 21 below.

Table 21: Deployment scenariosSource: GlassPoint

Tons of steam per day 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

— 1,360 4,420 21,420 38,420 72,148 105,876 139,604 173,332 207,060

Leadership — 1,360 4,420 10,370 17,850 40,154 62,458 84,762 107,066 129,370

Steady — 1,360 4,420 10,370 17,850 25,670 33,490 41,310 49,130 56,950

Appendix A Methodology


Oil and gas exploration in Oman

the Oman Basin, which spans most of the country.

exclave on the Musandam Peninsula, all of which are

production in the country occurred in Block 8 off the coast of the Musandam Peninsula88.

As of 2013, there were E&P activities occurring in 28 exploration blocks. Oman anticipated awarding two onshore exploration blocks in late 2013, and plans to put another seven blocks (four onshore and three offshore) to tender in the near future. Recent exploration developments likely to affect future oil

in March 2013 that Block 53 could contain hundreds of millions of barrels of oil.89

88 US Energy Information Administration, Oman Report October 2013.89 Ibid.

wells at an estimated cost of USD 800 million. By 2022, it plans to commission 16 megaprojects with a combined value of more than USD 11 billion, producing a target of more than 1 billion bbl of oil. Key projects include three EOR projects at Rabab Harweel, Yibal Khuff/Sudair and Budour, expected to add c. 200,000 b/d of capacity, offsetting natural

expected to cost well over USD 1 billion and to be implemented over the next 8–10 years.

Similar levels of investment are expected for natural gas. As of September 2012, an estimated USD 1.8 billion worth of major gas-related project work was under execution. Much of this work was related

although there are a handful of new developments

70–130 tcf of gas reserves are in place in reservoirs located 4 km below ground. This project is expected to cost c. USD 15 billion over 10 years and is being

depend on the outcome of ongoing negotiations between BP and the Government of Oman.




Table 22: New oil and gas projects in OmanSource: EIA

Project Completion date* Project details

Rabab Harweel Integrated Project

Development of oil and gas reserves and construction of an integrated oil and sour gas facility. Gas will be taken from the Rabab

to maximize recovery.

Yibal Khuff/ PDO aims to increase recovery rates at Yibal to 55% through

via a gathering system to a new central processing facility. The gas is then exported into the northern gas network while the condensate/oil will be fed into the existing oil export pipeline running from Yibal.

The project is expected to be tendered in 2014.

Budour

carrying the oil and gas to a new production facility. Apart from PDO, other exploration and production activity from DNO

of Norway, OOCEP and MOL, among others.

Musandam oil and gas plant

2014 Production capacity of 20,000 bbl/d of stabilized export crude oil, 45 mcf/d of gas and 80 t/d of LPG.

Gas feedstock expected to come from Bukha and West Bukha oil

(scalable to 240MW). Project is being developed by Oman Oil Company Exploration

& Production (OOCEP). EPC contract worth USD 600 million was awarded to Hyundai Engineering in December 2010.

OOCEP is also developing the Abu Butabul gas processing plant located in block 60, which will have a capacity of 90 mcf/d.

Khazzan tight 2019 The most ambitious tight gas project in Oman is planned for block 61, where c. 70–130 tcf of gas reserves are in place in reservoirs located 4km below ground.

The project is expected to cost c. USD 15 billion over 10 years and is being developed by BP. Final investment decision depends on the outcome of the ongoing negotiations between BP and the Government of Oman.

history and may encourage other unconventional gas developments, including Yibal sour gas and Khulud tight gas, both of which are under study by PDO.

Khazzan is expected to increase gas production to 4.7 bcf/day in 2019 from the present 3,400 cf/day, offsetting declines in gas production from PDO.


Review of system cost drivers

that affect the cost assumptions used in this report, for completeness of the study.

Direct normal irradianceDirect normal irradiance (DNI) is the amount of solar radiation from the direction of the sun. DNI is measured in kilowatt-hours per square meter per day (kWh/(m²•day). CSP plants require abundant direct solar radiation in order to generate steam for solar EOR or for power generation, given that only strong direct sunlight can be concentrated to the temperatures required for electricity generation. This limits CSP to hot, dry regions. At present, CSP power plants require direct normal irradiance DNI levels of 2,000kWh/m2/year or more to be economical, although they can technically operate at lower levels of DNI.

CSP plants in areas with high DNI will have a lower Levelized Cost of Energy (LCOE), all else being equal. Higher levels of DNI have a strong impact, although not one-to-one, on the LCOE. The amount of irradiance annually received by a surface can be maximized by keeping it normal to incoming radiation.

Table 23 highlights the differences in DNI across selected cities in Oman. Estimated annual averages across selected cities range from 1,653 in Sur to 2,222 in Khasab at the very northern tip close to Iran and 2,211 in Salalah near Yemen.

Table 23: Global solar radiation data for different cities in Oman (kWh/m2/day).Source: Sujit Kumar Jha, Application of Solar Photovoltaic System in Oman — Overview of Technology, Opportunities and Challenges, International Journal of Renewable Energy Research, Vol.3, No.2, 2013

CityAverage daily

insolationEstimated

annual insolation

As Sib 5.6 2,044

Suwaiq 5.59 2,039

Buraimi 5.38 1,963

Sur 4.52 1,653

Salalah 6.06 2,211

Ibri 5.6 2,047

Muscat 5.6 2,042

Fahud 5.69 2,077

Khasab 6.09 2,222

Sohar 5.43 1,981

Note: Annual estimate is calculated as the monthly average multiplied by calendar days




Figure 15 below shows differences in costs due to varying levels of insolation. Assuming all else constant, the implied cost differentials are due to varying levels of irradiance.

Figure 15: Levelized cost of energy of a CSP plant as a function of DNISource: International Renewable Energy Agency (IRENA), Renewable Energy Technologies: Cost Analysis Series

Per

cent

age

com

pare

d to

refe

renc

e pl

ant i

n Sp

ain

DNI in KWh/M% Compared to reference plant in Spain

60%

65%

70%

75%

80%

85%

90%

95%

100%

105%

110%

2000

2100

2200

2300

2400

2500

2600

2700

2800

2900

3000

ItalyGreece

Southern Turkey

Spain Tunisia Arizona, USA

Saudi Arabia

Nevada, USA

MoroccoAusralia

California,USA

AlgeriaSouthAfrica

Chile

-24–25%-18–19% -33–35%

PortugalUAE

Oman(max)

We have not explicitly modelled the impact of solar insolation on the economics of the deployment scenarios presented in this report and have used average steam output data. However, as the differences in average irradiance show, the location of the plant and the amount of insolation received will have an impact on steam output.


BAppendixSources

UK Department of Energy and Climate Change (DECC)

International Energy Agency, World Energy Outlook

International Monetary Fund

World Bank

Ministry of Oil and Gas, Oman

Ministry of Commerce and Industry, Oman

National Centre for Statistics and Information (NCSI), Oman

Central Statistical Bureau, Kuwait

US Energy Information Administration

US Bureau of Fossil Energy

Oxford Economics

Booz

SBI Reports

XE.com

Global Trade Analysis Project (GTAP), Purdue University

Enhanced Oil Recovery: Challenges and Opportunities, Saudi-Aramco, World Petroleum Council, Kokal and Al-Kaabi, 2010

IHS Global Insight

Argonne National Laboratory


CAppendixTime-independent assumptions

Economy

OMR/USD exchange rate 2.60

3.0%

Annual Omani petroleum output (2013–23)

942,000 bbd

Annual Omani EOR (2013) 68,000 bbd

Petroleum price (USD/bbl, 2013)

100.70

LNG price (USD/MMBTU, 2013) 12.00

Estimated Omani marginal propensity to consume (MPC)

81.5%

Tax

Corporation tax rate 12.0 %

Royalties — oil & gas 55.0 %

Social security contributions (employer)

9.5 %

Social security contributions (employee)

6.5 %

Income tax none

VAT none

Timing

Nominal discount rate 8.2%

Real discount rate 5.0%

Construction period 12 months

First unit construction start date

1 January 2014

Cutoff date for analysis 31 December 2023

Technical conversion rates

(MMBTU/MMBTU)0.85

(MMBTU/ton)2.18

MWh/ton of steam produced 0.586

Steam mass conversion (bbl/ton)

6.58

conversion (cf/MMBTU)0.00103

Steam required for EOR (bbl/bbl)

4.50


DAppendixTime-dependent assumptions

Project’s steam production (tons/day) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Full deployment — 1,360 4,420 21,420 38,420 72,148 105,876 139,604 173,332 207,060

Leadership deployment

— 1,360 4,420 10,370 17,850 40,154 62,458 84,762 107,066 129,370

Steady deployment

— 1,360 4,420 10,370 17,850 25,670 33,490 41,310 49,130 56,950

Hydrocarbon prices (USD)

Gas (/MMBTU)

11.50 11.00 10.90 10.80 10.70 10.60 10.50 10.50 10.50 10.50

Oil (/bbl) 99.60 98.90 98.00 97.20 96.60 96.20 95.80 95.80 95.80 95.80

Oil production (‘000 bbd/day)

EOR (‘000 bbd/day)

155 202 249 296 303 346 371 371 371 371

Total (‘000 bbd/day)

942 942 942 942 942 942 942 942 942 942


EAppendixIndustry nomenclature

Industry Code

Agriculture and livestock AGRI

Fishing FISH

Crude petroleum and natural gas CPET

Food, beverages and tobacco FOOD

Textiles and wearing apparel TEXT

Wood and wood products WOOD

Paper products, printing and publishing PAPE

PREF

Other chemical products OCHE

Non-metallic products NMET

Basic metal products BMET

Fabricated metal products FMET

Other manufacturers OMAN

Electricity and gas ELEC

Water WATE

Construction CONS

Wholesale and retail trade TRAD

Hotels and restaurants HOSP

Transport and storage TRAN

Communication COMM

Financial institutions FINI

Insurance INSU

Real estate REST

Public administration PUBL

Sanitary services SANI

Education services EDUC

Medical and health services MEDI

Recreational and cultural services RECR

Personal and household services PERS


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EYG No. DW0329

1379460.indd (UK) 01/14. Artwork by Creative Services Group Design.

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