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Oman’s power sector, with its emphasis on renewables and clear hydrogen, stays the important thing driver of the nation’s financial progress, complementing far-sighted public sector and monetary reforms which have formed the nation’s turnaround because the COVID pandemic.
“It doesn’t should be oil and fuel,” mentioned Salim Al Aufi, Oman’s Minister of Vitality and Minerals, in an unique interview with Al-Monitor. “We’re additionally embarking closely on renewable power and hydrogen.”
Al Aufi mentioned a various power improvement portfolio that additionally consists of wind, photo voltaic, geothermal and tidal power sources.
“All of them will contribute, and that is actually our contribution towards offering a sustainable supply of power,” he mentioned. “Oman is blessed with all these totally different choices.”
Oman is making an particularly important funding in and dedication to hydrogen.
Inexperienced hydrogen “is as clear as you will get,” mentioned Al Aufi, who was appointed minister by Sultan of Oman Haitham Bin Tarik in June 2022. “However we’re additionally working fairly aggressively on decreasing our carbon footprint on the subject of oil and fuel actions, in transportation and so forth.”
Requested if Oman expects to fulfill its targets for improvement and export of hydrogen and ammonia, Al Aufi replied, “Completely.”
“We have now been signing quite a few MoUs with international locations in Europe and within the Far East,” he defined. “All of that appears to be moving into precisely the way in which that we deliberate it and generally it is even barely higher.”
Oman’s power sector has been instrumental within the nation’s latest financial progress. Oman’s economic system contracted two years in a row, from 2019-2020, and struggled with important debt. However a far-sighted reform program underneath Haitham, who got here to workplace in January 2020 following the demise of his cousin and predecessor Qaboos bin Stated, mixed with a strong and diversified power technique have led to what will probably be three straight years of strong development, making Oman an more and more enticing vacation spot for overseas funding.
Al Aufi is optimistic that Oman can maintain its financial progress regardless of the potential influence of a worldwide financial recession on oil costs.
“I feel the cushion is fairly conservative and strong,” he mentioned, referring to Oman’s projected worth of $55 per barrel for the 2023 funds (the present worth of oil is round $75 per barrel). He added, “We will solely management our price. We won’t management the market worth. So our price must be very resilient and will be capable to proceed supplying the power market even at low oil costs, and that is our goal.”
“I feel we stand at an excellent place,” he mentioned, including, “Even when oil costs dropped to $30 or $25 per barrel, we must always be capable to proceed producing. “
Al Aufi is bullish on Oman’s potential for clear power and renewables, together with wind and photo voltaic.
“What we have completed final 12 months, because the starting of final 12 months, is absolutely establish all of the potential areas for top photo voltaic and wind mixed areas, and that is as a result of we predict that’s the successful horse to get the bottom potential levelized price of manufacturing renewable power, to have the ability to produce it in an space the place wind and photo voltaic coexist,” he mentioned.
Al Aufi mentioned the funding surroundings is “completely open” for each native and worldwide gamers in Oman, who’re handled “in precisely the identical method” within the public sale and bidding course of. He defined that there are usually extra “worldwide consortiums with extraordinarily robust builders within the combine. In order that’s why we’re feeling a bit bit upbeat and fairly happy with the end result to date.”
A frivolously edited transcript of the interview follows.
Al-Monitor: Oman will publish an estimated $3 billion surplus in 2022, in contrast with a deficit in 2021. Heading into COVID, Oman’s economic system appeared shaky, struggling a 1.1% contraction in 2019 and a 3.2% decline in GDP in 2020. The economic system is now on tempo a projected 4.4% development final 12 months, after 3% in 2021. What function has power performed on this turnaround in Oman’s economic system?
Al Aufi: Fairly a bit really. As you recognize, oil and fuel contributes fairly considerably to the nationwide earnings of the nation and it is the principle driver for the economic system. So the improved oil and fuel costs contributed considerably. After all, that is not the one contribution. The opposite contribution got here from the federal government’s actions on the subject of the extent of spending and the extra centered actions towards the place the extent of spending must be directed, and so forth. Along with the opposite measures on the subject of removing of some subsidies, notably the gasoline and electrical energy [subsidies], and the introduction of tariffs, notably the worth added taxes and the advance in a few of the taxes that the federal government is generally taking. However the important contribution did come from oil and fuel, improved pricing for oil and improved pricing for fuel, and the wonderful efficiency of this sector when it comes to manufacturing.
Al-Monitor: How has Oman’s power coverage supported the Medium-Time period Fiscal Plan (MTFP) and broad public-sector reforms in 2020 which have allowed this turnaround – apart from the plain benefit of excessive oil costs? And might you maintain these efforts even when there’s extra worth volatility in power markets?
Al Aufi: The pricing set for oil worth within the funds is at $55, as a median for this 12 months, 2023, which is taken into account to be a suitable degree, and it is a fairly conservative place contemplating we’re at about $75 to $80 as we enter the 12 months. And naturally, Oman sells its crude two months upfront. So we have already got pricing for January and pricing for February, and the January-February pricing is averaging round $75 plus per barrel. That after all, does not imply it may possibly’t go down. There are nonetheless probabilities that it does, however I feel the cushion is fairly conservative and strong. Even with that, there’s a small deficit that the federal government is making an attempt to shut utilizing both loans or extra aggressive management on the spending and so forth.
However we predict it is fairly a wholesome place, and that is actually how the oil and fuel sector is supporting the fiscal plans for ’23. Fuel appears to be on robust floor, so we’re utilizing after all the identical index for oil, however fuel appears to be going fairly stronger in that regard. So each oil and fuel appears to be on an excellent observe to assist the federal government insurance policies and actions to attempt to cut back the entire deficit and naturally, shut out the hole between the entire degree of borrowing and what the federal government should pay again when it comes to ideas and curiosity. Along with, after all, engaged on all the opposite sectors, be it tourism, logistics industries and so forth, however the principle contributor is coming nonetheless from oil and fuel actions.
Al-Monitor: You’ve got mentioned that power have to be inexpensive, sustainable, and local weather pleasant — how does Oman search to attain this stability?
Al-Aufi: In the affordability, after all, supplying power on the lowest potential price, and that is an space that we work in. We will solely management our price. We won’t management the market worth. So our price must be very resilient and will be capable to proceed supplying the power market even at low oil costs, and that is our goal, that is our mission. That is why we proceed difficult all of the operators when it comes to their exercise ranges and spend and so forth. I feel we stand at an excellent place. Even when oil costs dropped to $30 or $25 per barrel, we must always be capable to proceed producing. And naturally, that may restrict how a lot is left to enter the federal government books. However when it comes to with the ability to produce and be capable to cowl our working price and our spend degree, we must always be capable to function at that degree.
After all, if we begin slicing the actions, we must always be capable to function at a a lot decrease pricing .
That is the affordability half.
The sustainability is being in a position to have a look at all of the totally different choices out there to us. We do have oil, we do have fuel, we do have renewable power. We’re wanting very significantly into the potential of geothermal and tidal, the place Oman is blessed with all these totally different choices.
So from a sustainability perspective, we’re wanting into all of the totally different choices out there in order that we are able to proceed supplying power to the world. It would not should be oil and fuel. We’re additionally embarking closely on renewable power and hydrogen. We’re wanting into, as I mentioned, geothermal and tidal. All of them will contribute, and that is actually our contribution towards offering a sustainable supply of power.
The challenges after all, we face with renewable energies, can we retailer a day daylight to a night manufacturing? And that is a problem that not solely Oman is dealing with, however globally. And we’re working with many international establishments, corporations, universities and so forth, to attempt to discover enticing options beside the lithium batteries, and the same old ones, in order that we are able to present sustainable power all through.
And the final half is clear — clear within the sense that we’re embarking closely on renewable power and we’re embarking on hydrogen, inexperienced hydrogen, which is as clear as you will get, however we’re additionally working fairly aggressively on decreasing our carbon footprint on the subject of oil and fuel actions, in transportation and so forth.
So we’re making an attempt to provide the cleanest potential power to the worldwide market, and to the native market. However we aren’t saying that we’ll cease producing oil and fuel, however we’ll make our carbon footprint for producing oil and fuel as little as it may possibly presumably be.
And that is after all, introducing renewable power into the oil and fuel actions, changing a few of the present processes in order that we introduce a lot cleaner and greener applied sciences to assist us proceed producing, decreasing our transportation footprint by being extra environment friendly and more practical.
These are the pillars for the three messages: inexpensive, sustainable and clear.
Al-Monitor: You spoke simply now in regards to the improvement of inexperienced hydrogen. You set a aim of a minimum of 1,000,000 tons by 2030 and also you mentioned that you just anticipate $20 billion to be invested in inexperienced hydrogen and ammonia, the ammonia industries. Inform us extra about that? Do you see ultimately hydrogen specifically and ammonia as viable power exports?
Al Aufi: Completely.
Al-Monitor: And do you anticipate that funding to be heading in the right direction within the coming years?
Al Aufi: Completely. What we have completed final 12 months, because the starting of final 12 months, is absolutely establish all of the potential areas for top photo voltaic and wind mixed areas, and that is as a result of we predict that’s the successful horse to get the bottom potential levelized price of manufacturing renewable power, to have the ability to produce it in an space the place wind and photo voltaic coexist. And we have been blessed by an unlimited space within the southern a part of Oman and naturally the shore of Oman the place wind and photo voltaic exist in the identical location. So we invested loads of time final 12 months to attempt to establish the utmost potential space, clear it from any potential interfaces on the subject of city improvement or environmental protected zones. And we have been capable of establish fairly a large land that we’ve got began dividing into smaller blocks and auctioning to the worldwide market.
And truly, our first public sale was launched late October, early November with two potential blocks. And the curiosity to date appears to be very robust. Over 50 corporations have already submitted their RFQ [Request for Quote] in order that we are able to examine the viabilities, technical capabilities and monetary capabilities of those builders. The RFP [Request for Proposal] was issued two weeks again, and to date, as much as 4 consortiums have purchased the RFP. We’re anticipating to obtain some bids someday later this month in order that we are able to consider them. And hopefully, with all the knowledge already given to the builders and intensive dialogue which have taken place final 12 months, we must always be capable to signal some agreements earlier than the tip of this quarter.
Now, that’s after all the bidding course of or the public sale course of. In parallel, we’ve got legacy initiatives which were already discussing with us some land potential early final 12 months. And we’ve got accepted to run these legacy initiatives in parallel with the public sale course of in order that we are able to create anchor initiatives to drive funding within the nation and enhance the curiosity within the manufacturing of renewable power and hydrogen. We have now been signing quite a few MOUs with international locations in Europe and within the Far East in order that we begin securing some off-takers, and likewise introducing the potential of renewable power and hydrogen and in the end ammonia for export from Oman.
So all of that appears to be moving into precisely the way in which that we deliberate it and generally it is even barely higher. So we’re fairly assured that we must always be capable to signal some agreements hopefully within the first quarter of this 12 months.
Al-Monitor: Inform us in regards to the function of the Ministry of Finance, Vitality Improvement Oman group in managing authorities investments in oil, fuel and renewables?
Al Aufi: The Ministry of Vitality is the policymaker and the regulator for renewable power and… for the hydrogen economic system. So our function is just about establish the land, agree on the principles of the funding, after which hand over the potential land to Hydrogen Oman firm in order that they will begin advertising the blocks to the worldwide market and negotiating the industrial phrases with the potential builders ending with the signing of a sub consumer …between Hydrogen Oman (Hydrom) , and the potential developer stating precisely what the phrases and situations are when it comes to the period of the time period, the character of the built-in challenge from renewable power in the end to possibly ammonia or hydrogen plus business, the royalties that will probably be given to the federal government as a part of this course of, the taxation methods and so forth.
So there are literally two gamers on this… Three gamers, I might say. The primary one is the Minister of Vitality and Minerals because the coverage and technique for the general economic system of the hydrogen economic system. The second is Hydrogen Oman because the orchestrator of your entire course of, be it the public sale course of or the legacy course of. And eventually the builders and a few of the builders are additionally native corporations like OQ, which is 100% owned by the federal government. So that is the construction. The Ministry of Finance would not actually play a serious function, besides they’re concerned within the dialogue once we finalize the industrial [terms] with the builders.
Al-Monitor: And given the reforms and the initiatives we have been speaking about, what are the probabilities for overseas buyers and overseas possession of Omani property within the power sector?
Al Aufi: It is completely open. It is really the public sale course of we provide to worldwide builders and Omani builders. Nearly all of the businesses which have submitted their RFQ are worldwide corporations with or with out native companions. And if they’ve an area companion, then they kind a consortium. If they do not have an area companion, they’re completely free to return and bid on their very own. We do our due diligence to all of the potential builders, be it native or worldwide, in precisely the identical method. So we do not distinguish, we set them each in opposition to the identical requirement and the identical rigor examine. So the funding surroundings is absolutely open for native in addition to worldwide gamers.
Al-Monitor: Are you bullish on the worldwide economic system and Oman’s function in it, given a few of the headwinds which were indicated by the IMF and others? Simply immediately, the Head of the IMF, Kristalina Georgieva mentioned {that a} recession might hit one third of the world in 2023.
Al Aufi: Probably there’s. I feel that may most likely have an effect on ’23 and ’24. It will not have an effect on the renewable power initiatives as a result of they are usually extra long-term. This 12 months goes to be extra of signing the agreements, beginning to acquire all the info required for the challenge and so forth. I do not anticipate any challenge will get into FID [Final Investment Decision] earlier than subsequent 12 months or possibly even ’25. We’re not anticipating any manufacturing to start out earlier than 2030. So the fast recessions which can be taking place globally is not going to have a serious influence on the renewable power initiatives as a result of they are usually a bit bit extra long-term. It might have some influence on the potential oil and fuel actions if the worldwide economies begin to decelerate and that after all will outcome into decrease demand for oil and decrease exercise degree.
We have seen this earlier than. Our technique has all the time been to remain resilient, do not change the exercise degree as a lot as potential as a result of we need to bounce again robust when the markets begin to get well. However I do not see it affecting a lot the renewable power economic system as we’re at present growing.
Al-Monitor: Thanks, Mr. Minister, is there anything you wish to share with our readers?
Al Aufi: I feel I’ve given you adequate data on the subject of the variety of bids for the renewable power they usually are usually extra of worldwide consortiums with extraordinarily robust builders within the combine. In order that’s why we’re feeling a bit bit upbeat and fairly happy with the end result to date. If the end result would have been barely totally different, I might have been hesitant to sound as optimistic as I’m proper now.
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