INTERVIEW: Oman's OQ diverting oil products exports away from Red Sea, but sees limited impact

Oman's state energy company OQ -- an important supplier of distillates to Europe -- is having to divert westbound oil product shipments away from the Red Sea because of the security situation affecting the key shipping route, but does not see it having a significant financial impact, its Chief Executive of Strategy and Transformation, Al Muthir Al Kharusi, told S&P Global Commodity Insights.

In an interview on the sidelines of the 42nd JCCP International Symposium in Tokyo on Jan. 25, Al Kharusi also updated on the ramp-up to full capacity of the new Duqm refinery and talked about Oman's ambition to capitalize on its rich natural resources for renewable energy with aims to export a first green hydrogen shipment of around 300,000 mt by 2027-2028.

On the diversion of exports, which comes as a number of major shipping companies have started avoiding the Red Sea amid attacks by Houthi rebels in Yemen and instead opted for the much longer Cape of Good Hope route, Al Kharusi said that while it was impacting his company's bottom line it was "not a significant hit, basically."

"We have to hire the ships, and they're saying that they're not going to go through the Red Sea and go down to the south [around Africa] to avoid it just for safety purposes. And we understand that, and we understand the cost of it. So it impacts us a little bit financially," he said.

Speaking on a panel discussion at the same symposium, other industry players echoed the view that the impact on oil trade flows was minimal.

"It actually means a couple of dollars, extra cost of transportation. So [while] it is really a hot political topic... actually it's not a critical development, and thus has very minor impact on the flow of oil and price of oil, very minor impact," said Fereidun Fesharaki, the founder and chairman of consultancy FGE.

Shipping market participants in Singapore and Tokyo have noted that none of OQ's ships have been observed going via the Suez Canal recently, while trade sources have also noted prices for the company's ULSD exports to East Africa have risen due to the shipping diversions.

The wider surge in freight costs has also driven up OQ's delivery cost of naphtha to Japan significantly, they said. Japan has emerged as one of the buyers of naphtha from Oman's new Duqm refinery -- which is owned and operated by OQ in a joint venture with Kuwait Petroleum International -- since it commenced operations last year.

Located in southeast Oman, the 230,000 b/d refinery is expected to hit full capacity in the first half of this year, said Al Kharusi.

"We don't have any issues with it. There are no problems. So it's running pretty smoothly, we met all the milestones we've set ourselves for the startup," he added.

Green horizon

OQ's target to export its first green hydrogen shipment around 2027-2028 will be contingent on its projects achieving feasibility, said Al Kharusi.

Oman aims to reach green hydrogen production capacity of 1 million mt/year by 2030.

"The current markets we're talking to are mainly Japan, Korea and Europe. But they are companies, not governments," he said.

"Offtake agreements haven't been set, prices haven't been set. So this will take time. We know it will take time."

To secure offtakers, the cost of production must be known, and buyers could make a reasonable margin out of it, said Al Kharusi, adding that such hydrogen projects are fairly large, in the range of 20-30 GW.

The projects are mainly located in southeast Oman like Duqm and Selalah -- which are naturally rich in solar and wind energy -- to reduce energy costs.

"It's a good platform to start looking at hydrogen generation and export of possible technologies mature sufficiently that the prices come down," he said.

For instance, Shell Oman had selected Duqm for its proposed blue hydrogen and ammonia manufacturing project, as the area is suitable for a storage facility due to its potential to supply local industries with low-carbon blue hydrogen.

OQ is also looking to include hydrogen and ammonia storage capabilities when expanding its Duqm oil terminal, which is located on a site that can potentially accommodate up to 200 million barrels of oil.

"We are discussing with various customers on the expansion, but we don't have any projects that have achieved FID yet," said Al Kharusi.

"We're looking at maybe in the next 2, 3 years, another 20 million barrels. Something that we are studying, but nothing is final."