Strategic Framework
Oman’s National Energy Strategy 2040 manages one of the defining tensions of Vision 2040: the need to diversify away from oil dependency while continuing to generate sufficient hydrocarbon revenues to fund the diversification transition itself.
The strategy has three components:
- Manage the hydrocarbon base — optimise production, extend field life, maintain fiscal revenues
- Develop renewables — build a renewable electricity sector to reduce gas consumption and enable new industries
- Create new energy industries — green hydrogen, blue hydrogen with CCS, LNG optimisation
Hydrocarbon Sector Management
Oman’s oil production has historically been constrained by the maturity of its fields. Unlike Saudi Arabia or the UAE, Oman does not have large conventional low-cost oil reserves. Its production (approximately 1 million barrels per day) requires sophisticated Enhanced Oil Recovery (EOR) techniques — water injection, steam flooding, polymer flooding — which PDO and OQ deploy at significant cost.
PDO (Petroleum Development Oman): The 60/34/6 JV between the Omani government, Shell, Total, and Partex, PDO produces approximately 70% of Oman’s crude oil. Its Block 6 concession covers the largest producing fields. PDO has invested heavily in EOR to maintain production from maturing fields, including world-class steam injection operations at the Marmul heavy oil field.
OQ (formerly Oman Oil/Orpic): Oman’s fully state-owned integrated energy company manages upstream production (outside PDO), the refining and petrochemicals complex, and international energy investments. OQ’s Liwa Plastics project at Sohar represents a major downstream diversification into higher-value petrochemical products.
OPEC+ constraints: Oman is an active member of the OPEC+ alliance, which has imposed production quotas that constrain Oman’s ability to maximise short-term production. Oman’s OPEC+ quota has limited production below its theoretical capacity, creating a tension between quota compliance and fiscal revenue maximisation.
Renewable Energy Target
The 30% renewable electricity target by 2030 drives a significant pipeline of solar and wind projects:
Solar pipeline (major projects):
- Manah Solar I and II (500 MW each, ACWA Power) — under construction
- Ibri II Solar Project (500 MW, EDF/Marubeni) — operational
- Dhofar Wind Farm (50 MW) — operational
- Multiple additional projects in procurement through OPWP
Renewable energy economics: As solar costs have fallen below $20/MWh at scale in Middle Eastern conditions, renewable electricity is now cheaper than new gas-fired generation for baseload applications. The economic case for renewable deployment has strengthened significantly since Vision 2040 targets were set.
Grid integration: Oman’s electricity grid (operated by OETC — Oman Electricity Transmission Company) requires upgrades to handle high penetrations of variable renewable generation. Smart grid investment and interconnection with the wider GCC grid are necessary enablers.
Gas Sector Optimisation
Natural gas serves multiple functions in Oman’s economy: power generation feedstock, industrial process fuel, petrochemical feedstock, and LNG export commodity. The energy strategy seeks to optimise gas use by substituting renewable electricity where possible, freeing gas for higher-value export.
LNG: Oman LNG and Qalhat LNG export approximately 10 million tonnes per annum from the Qalhat facility. Long-term contracts with Asian buyers (Japan, South Korea) provide stable revenue. As renewable energy displaces gas in domestic power generation, more gas becomes available for LNG export — a significant fiscal benefit.
OQ Group and OQEP
OQ Group has been reorganised to create OQ Exploration and Production (OQEP), which was listed on the Muscat Stock Exchange in 2024 in Oman’s largest-ever IPO (valued at approximately OMR 975 million / $2.5 billion). The OQEP listing:
- Raised capital for upstream investment
- Improved corporate governance and transparency
- Created a domestic equity investment vehicle for Omanis
- Demonstrated the viability of state asset partial privatisation under Vision 2040
PDO Production
PDO’s Block 6 concession agreement was renewed through 2044, providing long-term operational certainty. PDO has committed to:
- Maintaining production from existing fields through EOR investment
- Reducing operational greenhouse gas emissions
- Developing EOR technology partnerships
- Investing in Omani workforce development (Omanisation within PDO is approximately 80%)
Energy Security
Oman’s energy security position is complex. As an oil and gas exporter, it faces no import dependency for primary energy. However:
- Domestic electricity generation depends heavily on natural gas, creating a gas-to-power vulnerability
- Renewable energy development reduces this gas dependency
- The OMR-USD peg creates a structural link between oil prices and Oman’s fiscal and monetary stability
- Regional geopolitical risks (Strait of Hormuz proximity) affect export route security
The energy strategy addresses security through diversification of both generation sources (adding renewables) and export routes (Duqm port provides an alternative to Hormuz-adjacent loading terminals).