Oil growth fuels logistics expansion

Public spending increased by nearly 40 per cent to RO1,520mn in the first two months of 2013, from nearly RO1,086mn in the same period of 2012.

Oil production is continuing to expand apace in the Sultanate – and surprise those who spoke too soon of its decline. Thanks largely to gains from enhanced recovery projects, 2012’s oil production spike – which saw production rise from 878,800 bpd in the first half of 2011 to 915,000 bpd over the same period in 2012, according to the Ministry of Oil and Gas – shows no sign of slowing this year. As a consequence, oil handling capacity has been sharply brought into focus, and this is good news for the logistics sector.
The spending cushion afforded by the sharp rise in oil export earnings in recent years has been locked into a multi-billion dollar programme to expand the country’s hydrocarbon production capacity. Last year’s oil revenue windfall created a budget surplus of RO2.90bn in the first nine months of 2012 alone, according to data from the Ministry of Finance. Indeed, in April, the Ministry of National Economy announced that public spending increased by nearly 40 per cent to RO1,520mn in the first two months of 2013, from nearly RO1,086mn in the same period of 2012.

With oil production remaining high, a slew of upgrades are now planned for the related logistics sector. In January 2013, it was announced that state-owned Oman Oil Company (OOC) had teamed up with the Takamul Investment Company to establish a firm that will construct a new storage facility at Ras Markaz, some 70 km south of the oil and petrochemicals hub currently under development at Duqm. With the first phase of the project set to be operational by 2017, the facility is set to form part of Oman’s broader goal to carve a niche for itself as a regional hub for oil storage.

Moreover, this facility is set to offer a capacity of 200 million barrels of oil and a connection to the main pipeline network via a 440-km line. The development is slated to become the biggest tank farm operating in the Middle East. There will also be a second pipeline, set to link the project to a planned refinery and export terminal at Duqm.

In a separate move aimed at further shifting the focus of its energy export industry towards its Indian Ocean littoral, in February the government announced plans to develop a large loading facility at the port of Duqm, sited inside the Special Economic Zone. Among the first ventures to get underway in the Industrial Zone will be a major export refinery with a capacity to process 230,000 barrels per day of heavy crudes. As part of the project, a petrochemicals complex is set to be added during the later stages.

In recent years, with activity picking up, logistics capacity has been under strain, and the investment in these strategically situated projects is timely. Indeed, in April, the government revealed foreign trade rose 10.7 per cent to RO20bn during the 2012, up from RO18bn in the previous year. This increase was attributed to an 8.9 per cent increase in oil and gas exports, which amounted to RO13.97bn at the end of December 2012, compared to RO12.83bn in the previous year.

What these figures suggest, therefore, is that it is not simply a case of the current facilities having to cope with rising activity in oil and gas exports. Non-oil exports increased by 18.5 per cent at the end of December 2012 to RO3.59bn, in contrast to RO3.03bn in the previous year.

Given this, it is not just oil storage that is on the agenda and the developments to upgrade oil logistics capacity will inevitably have positive multiplier effects for related activity. At the Port of Salalah, for example, the Sultanate is enhancing cargo linkages for all logistics activity, including the allocation of over $3.5bn to be invested in industries in the adjacent Salalah Free Zone, in an effort to enhance the city’s position in general cargo services. In addition, the port’s general cargo terminal is currently being renovated to triple its capacity for dry and liquid shipments as the port plans to exert an even greater influence over the global logistic chain. In this way, the spending boom generated by high oil prices is benefitting the wider logistics sector.

It does not stop with the ports. Air cargo is also being targeted for expansion, with additional capacity set to be added to the existing air cargo terminal at Muscat International Airport. And, once the new airport is operational, it will boast a 200,000 tonne capacity air cargo facility. Furthermore, this will be linked to the facilities at regional airports; in Salalah, a 100,000 tonne capacity terminal is being established, while the regional airports of Sohar and Duqm will each feature a 25,000-tonne capacity facility in the first phase of their development, and expandable in later phases.

The aim of all this is to not only expand logistics and supply chain capabilities, but to enhance Oman’s position as a natural and obvious ‘Gateway to the GCC’ and beyond the region. In a recent interview with local press, Warith Al Kharusi, chairman of the Oman Logistics & Supply Chain Association, said he expected these upgrades “will result in attracting Foreign Direct Investment and in turn stimulate SMEs development, growth in supply chain and logistics sector and most importantly job creation.” None of these highly desirable and important benefits will happen overnight, but this brief analysis of some of the significant capital investments underway shows a very strong commitment from the government to develop the Sultanate’s logistics infrastructure and establish a strong base from which to develop the broader economy.

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