Q: Beginning with the big picture, how does Oman fit into Shell’s overall strategy?

A: We refer to Oman as a microcosm of the global Shell strategy because of the almost perfect alignment between our strategy as a group, and our footprint in-country and what we are trying to do with it. I can broadly describe it as resting on three pillars, the first being liquids – oil. Our strategy in Oman is to sustain oil production, which mainly comes from PDO [Petroleum Development Oman in which Shell is the lead foreign partner with 34%], and grow it if we can while lowering its emissions. We do that by aligning the company with Oman’s NDC [Nationally Determined Contribution to cut CO2 emissions], which aligns in turn with Shell’s 2050 net-zero commitment. I think there is also a fair degree of alignment on things like routine flaring and absolute emission reductions.

So that’s one pillar of our strategy in Oman, and it matches globally what we’ve committed to the market. The second pillar is gas. We have the ambition to grow here, and we’re progressing well with that ambition. In 2023, we started the first Shell-operated gas business in Oman [Block 10’s Mabrouk Northeast field: MEES, 20 January]. We expect it to ramp up to its plateau of around 0.5bn cfd in early 2024. And from there we still have quite a bit of exploration potential in our Oman blocks. So we’re going to continue exploring for further discoveries, aiming to grow them in coordination with what the government and the country needs on the timeline in which they would need them.

And then the third pillar is to establish and mature what we call low-carbon value chains. There, we are working on both blue and green hydrogen. It’s still in early stages, I think ‘blue’ is a bit ahead of ‘green’. But we are also holding our breath for 2024, for what the markets will bring in East Asia and in Europe in terms of pricing mechanisms and demand to take this from a feasibility stage into a market stage, concept select, and move it forward.

We also have a big downstream presence in Oman. We’re probably best known for our mobility networks, we have more than 200 [filling] stations in the country and we have a lubricant business. We believe our downstream position enables us at some point to be able to offer low-carbon solutions to customers in the retail sector which complements the overall effort to sustain liquids, grow gas, and established low-carbon value chains.

Q: Given that Oman is this month holding its Green Hydrogen Summit, could you provide any updates on the blue and green hydrogen projects that you have?

A: We’re actually super excited about that. We’ve decided globally to concentrate our focus on a number of large projects that have the potential to see the light, rather than scatter our focus on tens or hundreds of projects regardless of size and strategic importance. Two of those are in Oman. One of them is what we call Blue Horizons, which is a blue hydrogen project. And the other one is our entry as lead developer into the Green Energy Oman (GEO) consortium, which includes companies like OQ, InterContinental Energy and EnerTech, which is a Kuwaiti partner [MEES, 15 December].

Blue [hydrogen] started a bit earlier than green by virtue of the Block 10 concession. Part of our commitment under the Block 10 concession was to mature this project to a concept select stage. We did a lot of pre-feasibility work, both commercial and technical and now we’ve reached a milestone in 2023, where we can demonstrate commercial and technical feasibility.

We’ve identified a world class CO₂ store in the Block 6 [PDO] concession in partnership with PDO, serendipitously very close to the location we have selected [for the Blue Horizons hydrogen project] in Duqm, so it offers adjacencies from a geographical perspective. And the next big step is going to be plunging into the market in 2024 on the international side, most likely through ammonia as the vector.

But we also see a lot of exciting opportunities in Duqm. A lot of hydrogen-dependent and hard-to-abate industries are moving closer to where the low-carbon molecules are. That’s probably the most competitive way to develop these resources. And we’re working with a number of potential customers and partners in Duqm, because our philosophy is that if these projects were to take off, they have to take off first with a significant domestic anchor demand, and then subsequently tap into the export markets rather than the other way around.

With GEO, we have just entered the project in 2023. We spent the last few months working with our partners on a contractual framework, shareholder agreements, and the constitutive work that needs to happen. We’re hopefully about to finalize our incorporation process that is required by [Omani state green hydrogen firm] Hydrom, hopefully before the end of the year. Then we want to enter 2024 with all cylinders pumping, to also get that green hydrogen project into a place where we can demonstrate technical and commercial feasibility.

It’s a bit more difficult for green than blue, given that Oman is blessed with high quality gas resources which are competitive. The competitiveness of green is more a global challenge. It’s probably ‘when’ rather than ‘if’ these global challenges are solved, and when they are, Oman will be one of the most competitive countries to produce green hydrogen. Hopefully that positions it quite well, both for attracting industries into Oman, but also for becoming a hydrogen exporting nation.

Q: There’s been a lot of optimism about Oman’s green hydrogen potential. But major concerns expressed at the conference, and more broadly, are problems over offtake and financing. Do you see those as the main challenges going forward?

A: I wouldn’t call them problems; I would indeed call them challenges. There is a very clear policy framework that is starting to come up in countries like Japan, Korea, in economies like the EU, around the role that low-carbon hydrogen has to play in these economies. And there is a staircase of demand that is starting to crystallize: starting small and then growing over time. But this also recognizes that the technology and the cost curves of these value chains will come down over time.

And there are challenges around transportation: how do you transport hydrogen? Possibly, through a vector like liquid hydrogen. I think the jury is still out which would be the winning vector, or vectors, because it is unlikely to be to be just one. But the world is moving at pace to also address these challenges.

We do expect in 2024 market mechanisms to start crystallizing in these major economies like Taiwan, for example, and of course the US is on its own journey with the Inflation Reduction Act (IRA). I do think 2024 will be a pivotal year. It will give us clarity on how big the markets are and what price levels they are able to support, most of which is going to be done through government subsidies in those markets. So that also means that the commercial space for these to be economic will also be limited.

Our approach is that we want to make these value chains from a levelized cost of production of either hydrogen or ammonia as competitive as possible so we have the highest chance of competing in those markets when these mechanisms are announced.

Q: You mentioned earlier Duqm and the potential partners there. Is Shell working towards partnering with either specific industries or companies?

A: Absolutely. So, we’re doing a number of things with Duqm. Obviously, we’re developing blue hydrogen in Duqm, so we have become in a way an industrial tenant ourselves. We are working with the port and the free zone authority on a master plan for decarbonizing Duqm, turning it into a low-carbon industrial and export complex.

And then we’re talking to existing and potential investors in Duqm. Primarily those value chains that are both hydrogen-dependent and hard to abate: you can think of chemicals, you can think of steel, you could also think in this context of CCS [carbon capture and storage], particularly on pre-combustion emissions. There are synergies between what we’re trying to do for blue [hydrogen], and the needs of customers in Duqm to decarbonize.

It is at serious but still early stages of maturity, primarily given the uncertainty in the market. But because in Duqm you’re doing it new, unlike for example at Sohar, it enables us to start with carbon resilience in mind rather than primarily retrofitting solutions for existing industrial complexes. For this reason Duqm is an exciting story for Oman.

Q: I wanted to also ask about gas, because gas in Oman has seen a renaissance in recent years. It is a large part of your upstream presence in Oman, how much potential do you see in both Blocks 10 and 11?

A: We’ve managed to bring Block 10 on stream on budget and ahead of schedule. Obviously, that tells you we’re proud of what we’ve achieved, but it also tells you that the quality of the resource is one that lends itself to on- and above-target delivery. We think there’s more mileage in Block 10 beyond what we initially thought and agreed with the government, and we’re trying to understand how big that potential is, and how quickly it can be developed.

Gas is a resource where you need the market to come before you commit to a development, unlike oil molecules. So, we will need to also take our steer from the government in terms of when do they think supply and demand gaps are likely to happen, and what will be the most suitable sink for these molecules. But the potential is there.

Block 11 is quite promising. We have a very aggressive exploration campaign over the next two years, we’re confident that we will add more molecules to our resource base. We will need to wait until that exploration campaign finishes to understand the magnitude of what we think we can develop in Block 11, and again, what would suit the government in terms of development timelines and what kind of sinks would Oman need for this additional gas.

But gas in general in Oman has been a huge success story. For as long as I have known Oman, people were concerned about the supply and demand picture, and whether there is enough gas in the country. But more discoveries keep coming in, and so I’m quite optimistic. I don’t see a supply and demand gap opening up in the near future. It might do in the mid to late 2030s. But we have all the time between now and then to make sure that more resources are added to address those gaps if they are to come.

Q: Related to gas, one of the main avenues for its utilization in Oman is LNG. As I understand it, Shell is set to be the largest offtaker of Oman LNG volumes. Do you have plans for those future volumes and what is Shell’s overall strategy in terms of LNG?

A: We will become the largest offtaker in 2025. Oman LNG started in the early 2000s and its license was set to expire in 2025. We’ve been in very, very deep discussions with the government over the past two years on what to do with the asset after its expiry. The government expressed the desire for us to continue in Oman LNG, but also wanted to see more value being put on the table from the private shareholder side to justify extending the participation of private shareholders at the asset beyond 2025. And I think we’ve achieved that with flying colors.

This is an extension that satisfies every single thing the government wanted to get out of it. And through our market position, becoming the largest offtaker and being in the upstream, I think we created enough value for us to get out of the extension what we want, and most importantly for the government to do that as well.

In 2025, we will become the largest [private] shareholder and offtaker, and we also have a market leading position in LNG between the international energy companies. These volumes will fit very nicely in our demand profile and the supply profile that exists on the global portfolio level. And they will find their way to customers, depending on the specific terms of the offtake contracts that we have with Oman LNG.

Q: Finally, what are you most excited for in one, two or even five years’ time, here in Oman?

A: There’s a lot I’m excited about, I think 2023 was a very big year for us. We entered GEO, passed a major milestone in blue hydrogen, and we started up Block 10. I think the safety performance in all of our ventures after the number of years of very hard work has dramatically improved. And we’re very proud of that. 2023 I think was probably the first year since I came into Oman, where on every one of those very important fronts, we’ve made material gains.

What excites me most is that this momentum helps us make it better in 2024 and better in 2025. The values based on which we conduct our business are more important than the delivery of the business itself.

Hydrogen, I think, is going to have a monumental year in 2024. I think we have the right capabilities, we have the right resource base to be successful, but it’s going to require a lot of hard work and a bit of luck. So that is what excites me the most, and obviously the growth potential in the gas business as well is something that I’m looking forward to.

Interview conducted by MEES Gulf Analyst James Marriott in Muscat on 14 December. See MEES, 22 December for related analysis.