Linking up: Creating a transport network to service the hydrocarbons sector

Smiles and handshakes both abounded at Khalifa Bin Salman Port as ministers and officials celebrated the launch of the new ship Bahrain Vision at a ceremony in late November 2011.

The new liquefied natural gas (LNG) and multi-gas specialised carrier is a leviathan. Her deadweight tonnage is 12,570 tonnes, and her importance to the sector is a sign of a new paradigm for the industry.

LNG CENTRE: “The vessel is a maritime landmark in the transportation of LNG in the region.

Bahrain Vision gives a physical yardstick to view our own vision for LNG and the creation of an LNG centre in the Kingdom of Bahrain,” Abdul Hussain bin Ali Mirza, the minister of energy, told the dignitaries who had assembled to observe the launch.

The new ship is owned by Skaugen Gulf Petchem Carriers (SGPC), which was set up in December 2010 for the purpose of facilitating marine transportation of a range of petrochemical gases, including LNG, ethylene, propylene and butadiene, along routes from the Middle East to China and other Asian countries. SGPC is a joint venture (JV) between National Oil & Gas Authority Holding (nogaholding, 35%), Oslo-based I M Skaugen (35%) and Bahrain’s Capital Management House (30%).

NEW TERMINAL: The Kingdom is also planning a new $300m-800m LNG import terminal, which will give Bahrain the option to secure foreign sources of gas. While the country is currently self-sufficient in terms of natural gas, as the economy – particularly the industrial sector – continues to grow, this may not always be true in the future. “The industrial sector is heavily dependent on gas, particularly for power generation. There are a number of small to medium-sized businesses currently on the waiting list for NOGA approval. NOGA is keen to ensure continuous gas supply through the importation of LNG by building a LNG terminal in the near future,” Sheikh Mohamed bin Khalifa Al Khalifa, the general manager at Bahrain National Gas Company, told OBG.

The LNG project is going to be structured as a joint venture that covers the construction of the terminal, its operations and maintenance, as well as the development of a larger supply chain, Abduljabbar Abdulkarim, the general manager for major engineering projects at Bahrain Petroleum Company (BAPCO), explained to OBG.

A number of firms have submitted offers in response to the tender, including I M Skaugen and Royal Dutch Shell, BP and British Gas. BAPCO was advised by UK firm GCA when it came to the technical evaluation of the bids.

“Now the recommendations are with NOGA and have gone to the cabinet for approval,” Abdulkarim told OBG. “We have already explored the pipeline option with our neighbours Iran and Qatar and we are still open to this in the future. The LNG terminal should be seen as a strategic alternative and fallback.”

TRANSHIPMENT: The primary reason for the new terminal is to ensure a regular supply of natural gas for the Kingdom’s energy security. With finite natural resources of its own, the Kingdom is adapting to a changing energy landscape and is seeking to use its geographical position in the middle of the Gulf to develop as a centre for the transport of LPG and other petroleum products.

According to public comments by Mirza in late 2011, the country is currently looking at creating several new firms focused on the liquefied gas and petroleum sector and associated logistics services over the next few years. Plans for an independent terminal for the storage of LPG and other petroleum products in addition to the LNG terminal are also being studied. One idea, under consideration by NOGA, would be to attract oil storage tank farm companies to lease land from the new terminal.

However, the potential for the Kingdom to develop as a key petroleum products trans-shipment hub for the GCC is still unclear. There is the BAPCO refinery at Sitra, which exports up to 92% of its products given the relatively small size of the domestic market, and there are plans for a $5bn-7bn modernisation programme that will help to better develop high-quality, low-sulphur products.

A new independent oil terminal is also in the works, which would expand capacity and provide space for more oil storage, supplementing the existing Bahrain Petroleum Terminal. Finally, the refinery master plan calls for an overhaul of the entire wharfage facilities, located 5 km from Sitra, which would support the development of a new range of products.

CHALLENGES: While these are ambitious plans, the Kingdom nevertheless will have its competitors. “I think it is still hard to say,” Michael Leijonberg, the managing director at Gulf Agency Company, told OBG. “In terms of a trans-shipment centre alone, excluding oil and gas products, Jebel Ali in Dubai is the main competitor in the region. Bahrain has the new Khalifa Bin Salman Port, which has a capacity for 1.2m twenty-foot equivalent units for container traffic and has developed several logistics zones. BAPCO has plans to expand the refinery and boost its capacity up to 450,000 barrels per day of oil, but for the oil and gas sector alone to develop a separate petroleum products hub, this is still in its very early days at the moment.”

Developing an offshore logistics hub appears more feasible, however. “Here, you can talk about a hub,” Leijonberg said. “There is obviously a boost in exploration activity onshore and offshore at the moment, and the Arab Shipbuilding Repair Yard (ASRY) has a long and good track record.”

ASRY, which was the first major ship repair facility in the Gulf, has a dry dock, two floating docks and four large crude carrier repair berths. Bahrain Ship Repairing and Engineering Company also has its own facilities with two 80-metre shipways and a floating dock to handle vessels up to 120 metres in length near Mina Salman Port. The Kingdom also has the advantage of being centrally located in the Gulf, and firms can use it as a base to target the larger Saudi Arabian oil services market.

SERVICE OPPORTUNITIES: The current high level of investment in upstream oil and gas exploration both onshore and offshore has started to trickle down the supply chain. The big news for oilfield service firms was the creation of Tatweer Petroleum, a JV between nogaholding, the US-based Occidental and Abu Dhabi’s Mubadala Development Company. Tatweer has sought to outsource much of its oilfield services needs to other firms.

Firms like US-based Schlumberger were awarded five oilfield service tenders in 2010, covering drilling, well logging and drilling fluids. Oman-based MB Petroleum was contracted by Tatweer in the same year to provide two service rigs for its 2010 work programme. Another Omani firm, Special Technical Services (STS), won a three-year contract in January 2011 to provide mechanical, electrical and instrumentation services for Tatweer’s facilities.

ENHANCED OIL RECOVERY: Given that much of the onshore developments in both the Bahrain Field and the Khuff gas reservoir use enhanced oil recovery (EOR) techniques aimed at boosting production and extending the life of the fields, EOR specialists like Schlumberger and STS are likely to see an increase in their workload in the near future.

This was one of the principle reasons behind the decision made by Singapore-based MTQ, which provides equipment repair to oilfield service firms, to build a 40,000-sq-metre plant in the Bahrain Industrial Investment Park in 2010.

Moreover, BAPCO is also seeking oilfield service firms to upgrade its facilities. In early January 2012 UK-based Cape Middle East was awarded an $18m, five-year surface preparation and coating services contract by BAPCO for its storage tanks.

In addition, Occidental’s new 30-year deep-gas onshore exploration contract is expected to produce a steady supply of work, particularly if a large discovery is ultimately made.

Finally there is the ongoing offshore exploration activities of Occidental, which has drilled one well in each of its three blocks and those of the Petroleum Authority of Thailand Exploration & Production, which is planning to go ahead with plans to drill one well in its single block.

Although much work has already come in the short term from exploration activity, talk of developing an oilfield services centre is still some way off and will depend greatly on the commercial volumes of any new discoveries in the deep-gas prospects or offshore. But Bahrain remains an attractive destination for a number of Gulf operations. “The idea of an oilfield services hub has potential,” says Leijonberg. “And setting up and running a business in terms of ease of access and speed of visas and documentation make Bahrain a very suitable base of operations.” Continued interest from investors seems assured, and the Kingdom looks likely to continue to be a centre for Gulf operations for some time to come.