The easing of lockdowns, as vaccination picks pace across the globe, increased the demand for oil by 6mb/d (million barrels per day) to an average of 96mb/d for FY21 as per OPEC’s monthly report for August 2021.
As against the demand, the non-OPEC supply is expected to average at 64mb/d for 2021 while the OPEC crude oil production averaged to 26mb/d.
With demand surpassing supply, the global growth is forecasted at 5.5 per cent for 2021. Brent prices have surged to $75/bbl in the month of July and are expected to remain at current levels for the remainder of the year, taking an average position of $68.7/bbl for 2021.
Going forward, Brent prices are expected to dwindle to an average of $66/bbl for 2022, with global growth forecasted to decrease to 4.4 per cent for 2022 as oil supply would surpass demand. Oil demand is forecasted to increase by 3.3mb/d year-on-year in 2022, whereas OPEC production is likely to increase to 28.7mb/d and the non-OPEC supply is to swell by 2.9mb/d to 66.9mb/d in 2022.
As per BP’s statistical review of world energy for 2021, Oman’s total proved reserves stood at 5.7 million tonnes at FY20-end. In other terms, Oman’s reserves are to run dry within a relatively short period, unless bolstered by new, sizable finds.
Consequently, the Vision 2040 was put into motion with a focus on expanding into tourism, mining, logistics, fisheries, manufacturing and clean energy projects, thus paving a way for diversification for an economy heavily dependent on hydrocarbons.
This is evident through contracting oil’s contribution to Oman’s GDP to 26 per cent at March 31, 2021 versus 32 per cent the previous year.
As per CBO’s monthly bulletin of June 2021, oil constituted approximated 52 per cent of RO 3.55 billion revenues from Jan to May 2021, followed by the non-oil sector contributing 32 per cent.
Oman, as a country dependent on hydrocarbons, is concerned over the fast paced spread of the Delta variant which continues to hinder global growth, with multiple countries going in and out of lockdowns.
However, the resumption of activities along with a quick paced vaccine roll-out has had a positive impact with IMF projecting Oman’s GDP growth at 2.5 per cent for 2021.
In another attempt to reduce dependency on oil, apart from diversification, Oman also announced a decision to invest in green hydrogen projects.
The world’s largest green hydrogen project is to start building in 2028 and aiming to reach full capacity by 2038. The project cost of approximately $30bn will be raised through OQ, InterContinental Energy and EnerTech. Oman is currently targeting to source 11 per cent of power generation through renewable energy by 2023, and aiming to surge it to 30 per cent by 2030.
As a part of diversification, as well as to reduce the state’s budgetary burden, the state controlled Energy Development Oman (EDO) was created in December 2020, representing Oman’s 60 per cent stake in oil and 100 per cent stake in gas in Block 6.
The company will raise financing independently against the projects, starting off with $2.5bn of debt financing secured in August 2021 to finance the government’s Block 6 funding requirement. The company is also responsible for growth, efficiency and governance of Oman’s oil, gas and new energies.
(Nidhi Negandhi is a Muscat-based credit analyst. Email: [email protected]]
