OQ Gas Networks transports 35.1 bcm of gas across Oman in 2020

GAS REGULATION: The value of OQ Gas Network’s regulatory asset base (RAB) topped $2.5 billion at the end of 2020

Wholly state-owned OQ Gas Networks (OQGN), a subsidiary of OQ – the Sultanate’s integrated energy group – transported 35.1 billion standard cubic metres (bcm) of natural gas to large consumers distributed across the Sultanate last year, underscoring its critical role as a national economic lifeline.

Formerly known as Oman Gas Company, OQGN is currently the exclusive operator of Oman’s gas transportation system comprising a network of around 4,000 kilometres of pipelines that supply gas as fuel and feedstock to as many as 59 customers presently.

End-users include power and water desalination plants, refineries and petrochemical industries, fertilizer, steel and cement plants, manufacturing hubs, and oilfield operators.

Under a 50-year concession approved via Royal Decree 122/2020, OQGN has exclusive rights within the Sultanate to own and operate a system of pipelines, metering, compressor and gas supply stations under a new revenue framework, based on the internationally recognised Regulatory Asset Base (RAB) framework.

Regulating piped gas transportation services in the Sultanate and overseeing the smooth implementation of the RAB framework is the Authority for Public Services Regulation, which is the regulator of the gas transportation system.

“The RAB legal framework, which OQGN has been operating under since January 1, 2018, is aimed at supporting OQGN in securing efficient funding from sources of long-term capital through the provision of a predictable tariff setting regime that provides a guaranteed, stable, cost-reflective revenue stream in proportion to OQGN’s asset base and approved cost of capital, each as reviewed and set from time to time by the Regulator,” according to parent group OQ.

The RAB framework authorises OQGN to levy gas transportation fees – known as Allowed Revenues – that are determined by the regulator based on a price control mechanism.

Allowed Revenues are calculated based on four components: a permitted return on RAB, an operational expenditure allowance, a depreciation allowance, and a tax allowance.

OQ explained: “OQGN receives its allowed revenues under the RAB framework on a cost reflective basis that ensures a guaranteed level of return for it based on its RAB asset value. This provides both certainty of return and eliminates exposure to both volumes transported, reflecting the fact that OQGN charges for the transportation capacity which it makes available, and volatility in gas prices, as OQGN does not own the gas transported.”

Significantly, the value of the RAB as of December 31, 2021 was $2.5 billion (RO 963 million), OQ Group – part of Oman Investment Authority (OIA) – stated.

All gas flowing through OQGN’s system is currently shipped on behalf of the Ministry of Energy and Minerals, but additional shippers may be added in the future, says OQ.