Bahrain is starting the new decade on a better footing in global hydrocarbon markets.
In spite of efforts toward economic diversification, the oil and gas sector is still a major contributor to Bahrain’s economy, especially as the Kingdom’s other major industries, aluminum smelting and petrochemicals, are highly oil-intensive.
Some of the required crude oil for export and internal consumption comes from an onshore oilfield, Awali, which is managed by the Tatweer Petroleum Company—a subsidiary of the National Oil and Gas Authority (NOGA). Awali’s production amounted to 50,000 barrels per day in 2015.
A much larger offshore field, however, is jointly owned with Saudi Arabia. As per a deal signed in 1958, the two countries evenly split the Abu Safah oilfield’s yield, which produces roughly 300,000 barrels of crude per day.
Although Saudi Aramco operates the field, Bahrain takes care of the refinery and marketing of its own half of the output. The country’s share is pumped into a pipeline which makes its way to the Sitra refinery on mainland.
In 2018, the news was out that yet another field was discovered off the coast of Bahrain—for the first time since 1932.
Containing a surprisingly large quantity of tight oil, the new field can reposition Bahrain among oil producing nations.
The new oilfield is estimated to contain over 80 billion barrels of tight oil, which—to put things in perspective—is equal to Russia’s entire proven oil reserves combined, to say nothing of the 10-20 billion cubic feet natural gas which lie in the field, as well.
However, since tight oil is often contained in deep rock formations, Bapco—another subsidiary of NOGA—is currently in talks with American oil companies which have some expertise in the extraction of shale oil, said the Kingdom’s oil minister, Sheikh Mohammed bin Khalifa Al Khalifa in February, 2019.
Hydraulic fracturing—or simply fracking—is the extraction of oil pockets trapped in porous shale rocks. The procedure often entails the pumping of high pressure water into deep horizontal wells to fracture the rocks and release the trapped oil content.
The US is a market leader in fracking, producing about 6.5 million barrels of tight oil per day in 2018, according to the US Energy Information Administration (EIA).
The search is still on for conventional oil and gas blocks in Bahrain’s northern territorial waters. In January, 2019, NOGA signed a memorandum of understanding with the Italian oil giant, Eni, for offshore exploration activities.
With additional shale and conventional crude production, Bahrain will need more refining capacity, although even before the discovery, the country was keen to raise capacity.
A new refinery will be commissioned sometime in 2022-2023, according to Bapco. In May, 2019, a statement by the petroleum firm revealed that Bapco had reached a financial close with a syndicate of over 20 banks and credit agencies on the modernization and upgrade of the Sitra refinery.
The expansion program will cost roughly USD4 billion, boosting the Sitra refinery’s present nameplate capacity of 260,000 barrels per day to over 360,000.
The Kingdom’s oil industry has an eye on the Asian markets and their growing demand.
In a 2019 interview, Bapco’s CEO, Pete Barlett, told Reuters that the company’s “core markets will remain within the greater GCC,” but Bapco will be increasingly “competing for opportunities in Asia.”
And, Bahrain is in a slightly better position than its neighbors to supply the Asian markets.
Despite being a major player in the market, Bahrain is not an OPEC member, which gives the country a unique freedom: in most cases, the Kingdom follows OPEC’s directions, but when it feels that no good can come of an OPEC decision, Bahrain can go a separate way.
This freedom, coupled with a potential leap in proven reserves and the refining capacity when the ongoing enterprises bear fruit, will improve Bahrain’s position in the global energy market in the early 2020s.
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