Oman seeks industry backing for changing Asia's benchmark crude

Sep 12, 2001 02:00 AM

Oman wants to see a multilateral proposal backed by the oil industry for changing Asia's benchmark crude, not just one suggestion from a single party, Oil Minister Mohammed bin Hamad Seif Al Rumhy said. Rumhy was responding to the recent industry debate over whether Oman crude should play a bigger role than bellwether Dubai crude in pricing Asia's 11 mm bpd of Middle East crude imports.
"It has not been presented properly to us and to others who are key in this issue... I'm speaking from the producers' point of view," Rumhy told on the sidelines of the Asia-Pacific Petroleum Conference (APPEC). "What we need is to create a bigger body with all concerned -- producers, traders, refiners -- under one umbrella, under one formula, under one agenda," he said.

Rumhy said that at least one buyer, Japan's largest refiner Nippon Mitsubishi, has raised the benchmark issue with Oman but has not made any formal proposal. "We can discuss this but a unilateral initiative may not necessarily work," he said.

The topic of alternative pricing benchmarks to Dubai has come to the forefront of the APPEC conference. Middle East crudes from the likes of big OPEC producers Saudi Arabia and Iran are now priced on assessments linked to spot Dubai trade. Oman is a strong contender with Dubai as it is Asia's most liquid spot crude market, with about 900,000 bpd output. But Oman sells its crudes based on a government set retroactive official selling price (OSP), that is calculated using an undisclosed formula -- a major hindrance for free-market price discovery. Rumhy expressed concerns about making Oman a marker.
Oman is a developing country, and had to be careful about safeguarding its revenues from crude exports, he said. "Oil is our blood, we have to take it extremely seriously," Rumhy said. Oil and gas made up almost 80 % of Oman's income in 2000. "My first concern is, am I going to earn more or less? Nobody is able to give me comfort in that question," he said. "When people say that Dubai prices are too high, my immediate reaction is: does this mean they want to lower the prices in Asia?" he added.

Rumhy however said he had no problems with a recent proposal put forward by oil pricing agency Platt's, a McGraw-Hill publication, to allow Dubai sellers to deliver Oman cargoes in Dubai contracts, when making its market assessments. This would be a small step towards elevating the role of Oman as a market benchmark and boost the Dubai market's liquidity.
It would link Oman and Dubai assessment prices, putting a floor on Oman prices and a ceiling on Dubai prices. Platt's has however said it has not made a final decision to go ahead with the assessment changes. Meanwhile, Oman said shipments of LNG from Oman LNG to India's Dabhol Power are likely to be delayed past February because of the payment dispute between Enron and the Indian state of Maharashtra.

First shipments to Dabhol had been scheduled to begin between November 2001 and February 2002, said Oman's Oil Minister Mohammed Al Rumhy at the Asia Pacific Petroleum Conference in Singapore. Enron's plan to pull out of the power project because of $ 64 mm in unpaid bills owed by Maharashtra state made deliveries during that timeframe unlikely, he said. "The project in Dabhol is not completed after the withdrawal of Enron," Al-Rumhy said. "The facilities are not ready. We're expecting (shipments) to be delayed."
Dabhol Power, in which the Enron owns a 65 % stake, signed a 20-year agreement with Oman LNG in 1998 to take 1.6 mm tpy of liquefied gas, or 24 % of Oman LNG's production. The delay may push back plans to build a third LNG production line, although it shouldn't hurt the company's attempt to refinance $ 1.3 bn in debt.

Source: Gulf News Online
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