Bahrain Energising the Future

Shaikh Mohammed

Shaikh Mohammed

Bahrain’s oil and gas find to spur economic revival

Independent appraisals have confirmed Noga’s find of highly significant quantities of oil in place for Khaleej Al Bahrain, with tight oil amounting to at least 80 billion barrels, and deep gas reserves in the region of 10-20 trillion cubic feet

Bahrain's discovery of "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.

The oil discovery could help the island kingdom dramatically improve its economic and fiscal strength, according to analysts at Moody’s credit ratings agency.

In early April, Bahrain’s Oil Minister Shaikh Mohammed bin Khalifa Al Khalifa announced the kingdom’s biggest discovery of hydrocarbon deposits in decades.

The deposits are estimated to be of at least 80 billion barrels of tight oil and between 10 and 20 trillion cubic feet of deep natural gas.

Found off Bahrain’s west coast, if it is verified by an international oil consortium as being technically and economically recoverable it could be a boon for the nation’s economy.

"The find… could stimulate private investment in the country’s energy sector in the near-term, and in the medium-term could increase government oil and gas related revenue, and reduce the country’s fiscal and current account deficit," Moody’s analysts Alexander Perjessy, Matt Robinson and Marie Diron say in a note.

Like other Gulf nations, Bahrain is keen to diversify its economy away from oil, but revenues from oil exports still make up the bulk of government income. Hydrocarbon-related revenue accounted for 75 per cent of government revenue in 2017, down from 87 per cent in 2013.

Bahrain’s hydrocarbon endowment is relatively small, Moody’s noted, with an output of around 198,000 barrels per day (bpd) of which around 150,000 bpd comes from an offshore field that it shares with Saudi Arabia. By contrast, Saudi Arabia produces 12.3 mbpd.

Bahrain’s onshore oil reserves are estimated to be around 125 million barrels which, at the current rate of production, would last less than seven years, the analysts noted, making the new discovery of as much as 80 billion barrels very important.

"A significant oil and gas discovery could improve Bahrain’s economic and fiscal strength by allowing the kingdom to boost its rate of hydrocarbon production (and hence gross domestic product) and/or to extend its current rate of production for a number of additional years," Moody’s said.

If the latest discovery of oil proves viable and leads to a large increase in Bahrain’s oil production, and associated fiscal revenue, it could therefore materially reduce the kingdom’s budget deficit and improve its balance of trade.

"Oil exports accounted for 55 per cent of total goods exports in 2017. When oil prices declined after mid-2014, the dollar value of Bahrain’s oil exports dropped significantly and the country’s current account swung from surpluses averaging 8 per cent of GDP in 2012-13, to deficits averaging 3.7 per cent of GDP in 2015-17," the analysts said.

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 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.

Given the above, it’s no wonder then the reported new discovery is treated as significant. Although the numbers were assessed by independent consultants, Shaikh Mohammad 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 bpd of oil and 10-bcm a year of gas can be expected according to, the Bahrain National Oil and Gas Authority (Noga).

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."

Halliburton is "evaluating reservoir potential, optimising completions and initiating long-term production", Shaikh Mohammed said.

The minister said the amount of oil that can be extracted from the Khaleej Al-Bahrain Basin is still being studied and commercial production could take about five years’ time.

The tight oil was discovered in the offshore Khaleej Al-Bahrain Basin, which spans some 2,000 sq km in shallow waters off the country’s western coast, close to a fully operational oilfield with ready to connect facilities, according to Halliburton, who added that this unique factor provides potential for significant cost optimisation. The field also contains an estimated 14 trillion cu ft of associated gas.

Meanwhile, a separate discovery of significant gas reserves in two accumulations below Bahrain’s main gas reservoir has been confirmed.

Extensive work has already been carried out to evaluate in-place volumes. The first well in the drilling programme is planned to produce in August, and over the next two years focus will be given to maximise production and commercial efficiency.

Shaikh Mohammed said: "DeGoyler and MacNaughton’s (DeMac) and Halliburton’s independent appraisals have confirmed Noga’s find of highly significant quantities of oil in place for Khaleej Al Bahrain, with tight oil amounting to at least 80 billion barrels, and deep gas reserves in the region of 10-20 trillion cubic feet."

"Oil in place of 80 billion barrels is based on a P50 resource estimate," said DeMac senior vice president Dr John Hornbrook. "The discovery breaks new ground for the Bahrain oil and gas industry using established technologies," he said.

Positive well test results have successfully demonstrated the productivity of the significant resource, according to Schlumberger, who performed the first test well drilling.

Bapco has already succeeded in flowing high quality oil from the wells during the testing and flow back phases. "Based on the core analysis carried out on several wells the formation could be classified at the edge of the conventional-unconventional type of plays," a Schlumberger spokesperson said.

Bapco chief exploration geologist in charge of the discovery, Yahya Alansari said: "The presence of a layer with moderate conventional reservoir properties on top of an organic-rich source rock creates a unique self-sourcing and trapping system, enhancing production and economic viability. The confirmation of this significant resource highlights the vast E&P potential and opportunities in Bahrain."

The resource is expected to provide significant long-term positive benefits to Bahrain’s economy – both directly and indirectly through downstream activities in related industries.

The next stage of development will focus on ensuring robust frameworks, data and terms are in place to facilitate further activities and commercial opportunities with international partners.

Meanwhile, Bahrain’s national oil company Bapco has commissioned a new 350,000 barrels per day (bpd) pipeline (AB-4 pipeline) between Saudi Arabia and Bahrain.

The 112-km, 24-30-inch diameter pipeline, which replaces the existing 230,000 bpd pipeline, runs between Saudi Aramco’s Abqaiq Plant, the company’s biggest oil processing and crude stabilisation facility,to Quarriyah and then offshore to Al-Jazayir beach and finally to Sitra refinery in Bahrain. The pipeline consists of three segments -- a 42-km onshore Saudi segment, 28-km Bahrain onshore segment, and a 42-km offshore segment.

Bapco said the key project milestone was achieved on October 3 by placing ‘oil in’ the new AB Pipeline. This followed successful and safe execution of mechanical completion and pre-commissioning activities.

The project was executed by an integrated team of contractors, led by Saudi Aramco and Bapco. It is Bapco’s largest capital project successfully delivered in recent years. A symbolic ceremony attended by senior members of Bapco leadership was held to commemorate this achievement at the Bapco Refinery.

Further work will continue over the coming weeks in stabilising the flow of crude oil along with completing associated commissioning activities.

Aramco and Bapco will shift the full supply of crude oil to the new pipeline in the months ahead.

The new pipeline is equipped with the latest technologies to ensure safety, environmental protection and hydrocarbon supply reliability for the next decades. On the other hand, the existing 73 years old pipeline system which has been supplying Bapco with crude oil since 1945 will retire safely.

"The commissioning of AB-4 pipeline is another chapter in the special relationship between Saudi Aramco and Bapco in several aspects including the energy sector that has flourished for more than 73 years and beyond" said Abdullah M. Mansour, acting executive head of Pipelines Distribution and Terminals at Saudi Aramco.

On the refinery side, Bahrain-based Downtown Group, a leading provider of engineering and infrastructure services, has announced the completion of the site preparation work for the successful implementation of the Package A of the Bapco Modernisation Programme (BMP).

The multi-billion-dollar engineering, procurement, construction and commissioning (EPCC) contract for BMP was awarded by Bahrain government to a consortium led by TechnipFMC.

The project is located on Bahrain’s eastern coast and entails the expansion of the capacity of the existing Sitra oil refinery from 267,000 barrels per day (bpd) up to 360,000 bpd, improve energy efficiency, valorisation of the heavy part of the crude oil barrel (bottom of the barrel), enhancing products slate and meeting environmental compliance.

The site preparation work was completed on schedule and as per highest standards of global security and safety, said a statement from Downtown.

The BMP will be executed on lump sum turnkey basis and includes the following main units: residue hydrocracking unit, hydrocracker unit, hydro desulphurisation unit, crude distillation unit, vacuum distillation unit, saturated gas plant, hydrogen production unit, hydrogen recovery unit, sulphur recovery unit, tail gas treatment unit, sour water stripper unit, amine recovery unit, bulk acid gas removal unit, sulphur solidification unit and sulphur handling facilities. Utilities and offsites are also part of the scope.

The mega project serves as a key national strategic priority in fostering the sustainable growth and modernisation drive of the kingdom, it added.

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