The news that Bahrain may have discovered “highly significant” oil and gas reserves in the more than 80 years of its petroleum history is raising hopes of economic transformation in the country. Bahrain is one of the oldest petroleum producing countries in the region, even before Saudi Arabia, with production starting in 1932 and a thriving industry evolving over the years.
However, crude oil reserves are running low and are currently at around 125 million barrels. Production went down from about 100,000 barrels a day at one time to about 49,000 barrels in 2016. With such modest reserves, it must be an achievement to still maintain this much of production.
In addition, Bahrain received almost 154,000 barrels a day in 2016 as its share from Abu Saafa, the field jointly owned with Saudi Arabia and operated by Saudi Aramco. Moreover, Bahrain imported close to 210,000 barrels a day of crude oil from Saudi Arabia to satisfy the demand by its Sitra refinery, with a capacity of 260,000 barrels a day. The Saudi oil giant is currently replacing the old pipeline with a new one that will also cater to the new refinery’s capacity.
While Bahrain’s domestic consumption is modest at 30,000 barrels a day, products exports are substantial and in 2016 were around 235,000 barrels a day. Sitra is one of the oldest refineries in the region and is undergoing a $10 billion (Dh36.73 billion) expansion to produce 360,000 barrels a day. In addition, there is a clean fuels project that will ensure high quality products for the intended markets. Recently, the refinery added high quality lubricating oil production.
Bahrain depends on natural gas to satisfy the great majority of its energy needs. Current reserves are again modest at 92 billion cubic metres (bcm), while production has been steady in recent years at 15.5-bcm a year, all consumed domestically for power generation and industry needs.
To conserve its resources, Bahrain has been seeking imports of natural gas for years now. Attempts to import gas by a sea pipeline from Qatar failed though the distance is short and water depth is shallow. Bahrain then opted for a 4-bcm a year floating LNG terminal costing $741 million to satisfy its need for natural gas.
The government has tried hard to diversify its economy but still relies on oil for 86 per cent of its revenue. Therefore, when oil prices collapsed in 2014, the economy was heavily impacted and this forced the country to “trim subsidies and raise taxes” to reduce the budget deficit and debt.
Given the above, it’s no wonder then the reported new discovery is making headlines. The discovery announced in April is off the west coast of the country and is said to contain hydrocarbons in place for 80 billion barrels of oil and 11-bcm of gas of “conventional-unconventional” type formation.
But these initial estimates must undergo further scrutiny to assess the viability of the find. Although the numbers were assessed by independent consultants, Oil Minister Shaikh Mohammad Bin Khalifa Al Khalifa said that an “agreement has been reached with Halliburton to commence drilling on two further appraisal wells in 2018, to further evaluate reservoir potential, optimise completions, and initiate long-term production.”
The first well drilled by Schlumberger in October 2017, resulted in “high quality oil from the wells during the testing and flow back phases,” according to Schlumberger.
Some observers suggested that based on US experience with shale oil production, some 5-10 per cent of the oil in place might be recoverable, which is still highly significant compared to current reserves. Others suggested that a production of 200,000 barrels a day of oil and 10-bcm a year of gas can be expected according to, the Bahrain National Oil and Gas Authority (NOGA).
But there is a long way before any of this can happen and the is not expected to be in production before the next five years, provided Bahrain can lure experienced investors, especially from the US to help it develop.
Sceptics are loud too. A recent article in ‘Forbes’ said that “some analysts have urged caution about how difficult and costly it might be to exploit the new finds.”
Because the reservoir is bordering on conventional and unconventional oil, this may complicate matters and increase the production cost. Wood Mackenzie has said that “the oil will also be technically challenging and potentially high cost to develop.”
No matter what, let us hope that Bahrain can expedite the process of developing its great find not only to enhance its current modest resources but to realise the expected benefits to its economy.
Saadallah Al Fathi is former head of the Energy Studies Department at the Opec Secretariat in Vienna.