Transition period: Investments in upstream and downstream projects aim to secure long-term energy security

The Dar An-Naft, or “House of Oil”, is a museum in Awali that tells the story of how the Kingdom’s discovery of oil in 1932 transformed an economy based on pearl trading to one of hydrocarbons, blazing a trail that the rest of the Gulf states subsequently followed.

The Kingdom’s hydrocarbons heritage may have deep roots, but the upstream era is far from being consigned to the history books. Indeed, the energy sector in Bahrain is undergoing a transition from a period when oil and gas were easy to extract to one where greater technical expertise is required to boost production from mature fields. Although finite, both oil and gas will continue to play major roles in terms of the country’s economy and energy security needs as the Kingdom continues moving forward.

NEW DIRECTIONS: To streamline decision making in the sector, eight years ago the country overhauled its energy management structure, creating the National Oil & Gas Authority (NOGA) to oversee its investment plans. Some $20bn is being invested in the sector over the next 20 years. The bulk of the investment ($15bn) has been funnelled into upstream exploration programmes for oil and gas. In addition, significant investment will be spent on extensive modernisation and upgrades to the country’s refinery at Sitra.

The most important oil and gas upstream project is taking place at the country’s oldest and largest oilfield, the Bahrain Field. Tatweer Petroleum is the main development company and is looking to increase current production levels (January-February 2012) from 45,000 barrels of oil per day (bpd) to 100,000 bpd by 2017-18. Tatweer is a joint venture between nogaholding (51%), US-based Occidental (29.25%) and Abu Dhabi’s Mubadala Development Company (19.75%). The aim is to boost production through the use of methods like enhanced oil recovery (EOR).

“Starting from December 2011 we have installed a number of pilots with a view to water and steam flooding of the existing wells,” John Bolling, the manager of integrated field development at Tatweer, told OBG. “The first half of 2010 was very much focused on setting up Tatweer, and we have now moved ahead with the technical side of the project to give us a sense of how much will need to be done to increase production in the short to medium term. We have already updated existing infrastructure such as automated systems for the wellheads and associated facilities.”

DIFFERENT TECHNIQUES: The redevelopment of the Bahrain Field closely follows the techniques used by Occidental in the Mukhaizna field in Oman, which is also an EOR project. “Steam flooding will require a lot of power so we have three 220-KV substations and will have a separate 90-MW power grid, which will be powered by the Al Dur power plant,” Bolling told OBG.

Some of the oil from the Bahrain Field will be heavy crude oil, which is denser and more difficult to produce than lighter crude, much of which has already been extracted from the field. Out of the 100,000 bpd produced, up to 30,000-40,000 bpd will be heavy oil. Tatweer has already carried out a mini-pilot project looking at the challenges involved in extracting the heavy oil. The non-associated gas field redevelopment project also seeks to raise non-associated gas production capacity from 42m to 62m cu metres per day.

Exploration activity has also extended offshore, with the Kingdom having signed exploration and production sharing agreements with Occidental and the Petroleum Authority of Thailand Exploration & Production (PTTEP). Both companies have carried out seismic studies and drilled one well in each of their blocks – Occidental was awarded three blocks, while PTTEP was granted a single block.

GAS EXPLORATION: Net revenue from oil exports accounted for 87.3% of total government income in 2011, but gas exploration and production is also seen as vitally important to the country’s future energy security. All of the Kingdom’s current power stations use natural gas as fuel and heavy industry companies like Aluminium Bahrain, commonly known as Alba, are reliant on a steady supply of gas. “The approximate total consumption of fuel gas in Bahrain has reached 1.5bn cu ft per day. Of this, the electricity and power sector requires 33%, Alba consumes 27%, Bahrain Petroleum Company (BAPCO) 9%, Gulf Petrochemical Industries Company 8%, while 18% is re-injected in the field and other users utilise the remaining 5%. Feed gas for the growth of the industrial sector is the backbone for expansion, especially for major corporations,” Sheikh Mohamed bin Khalifa Al Khalifa, the general manager at Bahrain National Gas Company, told OBG.

BOOSTING PRODUCTION: As with oil, the government has sought to boost production from the onshore Khuff gas reservoir near Awali. Tatweer, as per its current contractual commitments under the terms of the development and production sharing agreement, plans to drill 18 new wells between 2015 and 2018 as well as implement a multi-year compression project due to start at some point in 2016.

To date, Tatweer has modified and upgraded the existing facilities at Khuff with the latest technology. It has also reduced pressure at wellheads to help increase production output.

Another significant gas upstream project is Occidental’s deep-gas contract. The firm has a 30-year agreement to drill for gas in an accumulation first discovered by BAPCO. The challenge will be to drill for gas at depths of 6100 metres and bring it to the surface.

All of this upstream activity onshore and offshore has helped lead to a boom in activity for oilfield service firms further down in the supply chain for oil and gas. Houston-based Schlumberger won all five service contracts for Tatweer’s projects, and in 2010 Singapore-based MTQ built a 40,000-sq-metre plant in the Bahrain Industrial Investment Park to help serve this burgeoning industry.

REFINERY UPGRADE: While most of the focus has been upstream, there are significant future energy investments being made downstream as well.

The aim is to diversify the refined product range, adding higher-quality, low-sulphur fuels. BAPCO, the owner of the refinery, will seek a strategic partner for the modernisation plans, with the partner expected to take equity in the project. BAPCO has had recently success with joint venture (JV) partnerships.

Its JV with Finland’s Neste Oil, known as Bahrain Lube Base Oil Company, operates a 400,000-tonne-a-year Group III lube base oil plant located at the Sitra refinery. Its lubricant base oils are in demand in both the European and US markets.

A master plan for work on the refinery, which was drawn up by US-based Chevron Lummus Global, identified a goal of boosting existing capacity from 267,000 bpd to 450,000 bpd by 2018-19. As part of the modernisation, wharfage facilities, located 5 km from the existing refinery, will also be expanded. As of early 2012, a unit definition study was under way.

The front-end engineering and design (FEED) contract is due to be tendered in 2013 or early 2014, according to NOGA. An engineering, procurement and construction contract will be launched in 2014.

“We have gone through a viability study and risk analysis,” Ebrahim Abdulla Talib, the deputy chief executive refining and marketing at BAPCO, told OBG. “A project execution plan study is the next stage, which should be completed by mid-2012 and will ensure the level of investment required, which is likely to be $ 5bn7bn. Our three main objectives are to upgrade 18% of the fuel oil yield to premium products such as middle distillates; to ensure the new refinery is in line with the latest environmental compliance standards, which is most important to us; and finally we want to ensure the refinery is energy efficient, since the cost of energy continues to keep rising.”

A CRUCIAL PIPELINE: Crucial to the refinery’s future oil supply is the existing Arabia-Bahrain (AB) pipeline, which runs from Saudi Arabia. First built in 1945, the existing pipeline has long been due for an upgrade.

A new $305m, 76.2-cm-diameter pipeline running for 115 km will be able to transport up to 350,000 bpd of Arabian light crude. The FEED contract for the new pipeline is under way by Al Khobar-based Petrocon Arabia, part of Australia-based Worley Parsons.

According to information from NOGA, a tender for the construction of the pipeline, which is expected to take around three years to complete, is due to be launched by the fourth quarter of 2012.

Once completed, the new pipeline, along with a number of other upstream and downstream investment projects that have been initiated, will help secure Bahrain’s long-term energy future as it prepares to move forward in relation to its hydrocarbons sector.