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Oman's economic diversification endeavours amid its fossil fuel dependence


Even though countries around the world have big plans to switch to renewable energy sources, fossil fuels are still the main source of energy in most of them. The Gulf countries are some of the major oil and natural gas suppliers and exporters in the world. Their economies are highly dependent on the revenues generated by these exports, and their energy systems are centred on the extraction and refining of fossil fuels.

Like the other GCC countries, the Sultanate of Oman is mostly based on its oil and gas reserves, which have been the backbone of its economy for many years. The Ministry of Energy and Minerals (MEM) says that the country had proven oil stocks of about 5.2 billion barrels as of June 2022. MEM also says that new oil finds will add 50,000 to 100,000 barrels to Oman's output over the next two to three years.

As of 2017, Oman had 23 trillion cubic feet (Tcf) of proved gas reserves, which made up about 0% of the world's total natural gas stocks of 6,923 Tcf. This put Oman at number 28 in the world. Oman has proven stocks that are 29.7 times more than what it needs every year. This means it has about 30 years of gas left (at the present rate of use and without counting any unproven reserves). The oil and gas business makes up more than 70% of the country's export earnings and 50% of its gross domestic product.

According to the Statistical Analysis of the World Energy Outlook in 2022, Gulf countries like the Sultanate of Oman will continue to rely heavily on fossil fuels for decades to come. But in the past few years, many Gulf countries have come to realise that they need to diversify their businesses and rely less on fossil fuels. To diversify its energy balance, Oman is also investing in renewable energy sources such as solar and wind power. The country's objective is to increase its renewable energy capacity to 10% by 2025, and it is actively encouraging private investment in renewable projects.

This shift is primarily motivated by concerns about the environmental consequences of burning fossil fuels, the volatility of global oil and gas markets, and the long-term viability of their economies. Each energy crisis strains energy markets, evoking parallels with the most significant energy disruptions. Nevertheless, the world is currently experiencing the first genuine global energy crisis with long-term repercussions. The unprovoked invasion of Ukraine by Russia in 2022 had far-reaching effects on the global energy system, altering supply and demand patterns and severing long-standing trade ties. Significant geopolitical factors drove price increases both then and now, resulting in severe inflation and economic devastation. The crises in both instances revealed the energy system's fundamental fragility and interdependence. The combination of high prices and economic and energy security concerns strengthened the economic incentives to act. Rising tensions have led to an increase in energy prices, which could cause inflation and economic damage in a number of nations.

In spite of these risks, industry reports predict that the global oil and gas market will expand consistently between 2023 and 2028. The market is anticipated to expand due to the growing demand for energy in emergent economies and the rebound in demand following the pandemic. The market is also expected to benefit from the expansion of natural gas infrastructure and the eventual recovery of crude prices. However, geopolitical threats, concerns about climate change, and the expansion of renewable energy sources will continue to pose challenges for the industry. In addition, due to the industry's modest development, businesses must develop long-term strategies to manage risks and capitalise on market opportunities.

The Sultanate of Oman's oil and gas sector is likely to grow at a rate of more than 5% each year between 2023 and 2028, according to a recent analysis by the Indian research firm Mordor Intelligence. The country's massive oil and gas reserves, as well as ongoing exploration and development activity in new areas, will be key contributors to this expansion during the next five years.

Furthermore, the analysis stated that a large number of discoveries in recent years, as well as current exploration operations, are projected to present huge potential for market participants in the country's oil and gas business. However, Oman confronts increasing competition from other oil and gas producers in the region as Saudi Arabia and the United Arab Emirates increase their production capacities. The increasing shift towards renewable energy sources poses a long-term threat to the oil and gas industry in Oman.

Oman has been investing in other areas in an effort to diversify its economy away from oil and gas. The nation has been enacting economic reforms and promoting industries including manufacturing, logistics, tourism, and agriculture. To lessen its dependency on fossil fuels, Oman has also been investing in renewable energy sources including solar and wind power. The long-term plan of Oman to maintain sustainable economic growth and lessen its sensitivity to changes in oil prices includes attempts to diversify the economy. Even though the nation still depends on its oil and gas reserves, it is aggressively working to shift to a more diversified economy that depends less on these limited resources.

Overall, Oman's oil and gas industry is expected to have a bright future in the coming years as it continues to increase output, hunt for new reserves, and invest in renewable energy sources to diversify its energy supply. However, increasing competition and a global trend towards renewable energy sources may pose long-term challenges for the nation's energy sector.

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