Bahrain's oil and gas production to rise on back of major find and efforts to boost existing reserves

By utilising technology to maximise value from existing reserves and investing in exploration, Bahrain’s energy sector is working to maintain and even increase levels of oil and gas production. Efforts in this direction have been helped significantly by the recent discovery of a large-scale, unconventional oil and gas reserve, which could substantially boost output over the coming decade. Officials are also moving to upgrade oil refinery and hydrocarbons import infrastructure, as well as expand the use of renewables and energy efficiency initiatives in the utilities sector, in part to free up locally produced gas for industry.

Size & Performance

While Bahrain’s oil and gas industry has reduced in size over the past decade or more, partly as a result of economic diversification and the drop in global oil prices in 2014, it is still the largest sector of the economy, accounting for 18.4% of GDP at constant prices in 2017, compared to 24% in 2007 and 43.6% in 2000, according to data from the Bahrain Economic Development Board. Sector GDP in constant prices declined by 0.7% in 2017, down from negative growth of 0.1% the previous year.

Bahrain’s proven gas reserves stood at 5.5trn standard cu feet (scf) in 2017, according to the “BP Statistical Review of World Energy 2018.” While the agency did not include data on the kingdom’s oil reserves, it reportedly had proven stores of 124.6m barrels as of that year, divided across the onshore Bahrain Field and the offshore Abu Safa Field, which is shared with and operated by Saudi Arabia. However, neither set of figures included the new oil and gas discovery made in 2017 and announced in April 2018.

Structure & Oversight

The hydrocarbons sector is regulated by the National Oil and Gas Authority (NOGA), which was founded in 2005 and is chaired by Sheikh Mohammed bin Khalifa bin Ahmed Al Khalifa, the minister of oil. NOGA operates an investment and development arm known as nogaholding, which wholly owns Tatweer Petroleum and the Bahrain Petroleum Company (Bapco). Originally formed as a joint venture with two foreign firms but now wholly state-owned, Tatweer operates the Bahrain Field and is in charge of all the kingdom’s oil and gas exploration and production activities. Bapco manages industry infrastructure, including the kingdom’s oil refinery at Sitra, its storage facilities, and marine and marketing terminals. NOGA also holds a 75% share in the national gas processor Bahrain National Gas Company (Banagas) as well as stakes in several other industry actors.

Energy Policy Aims

Although future energy policy could shift following 2017’s major oil and gas discovery, the emphasis in recent years has been on maintaining production levels at existing reserves, exploring for new resources and bolstering energy import infrastructure, through measures such as the construction of an oil pipeline to bring crude from Saudi Arabia, as well as a new floating liquefied natural gas (LNG) terminal. The authorities have also been taking steps to rationalise domestic energy consumption, such as cutting fuel and electricity subsidies, encouraging energy efficiency and pushing for the development of renewables. While a full switchover to renewables remains a distant prospect, the government aims to free up locally produced natural gas – much of which is currently used for electricity generation – for more economically beneficial activities, such as petrochemicals production.

Production

Crude oil production from the Bahrain Field stood at 44,234 barrels per day (bpd) in 2017, according to the latest available figures from NOGA, with plans to produce a similar amount in 2018. While down on the 48,530 bpd and 51,000 bpd produced in 2016 and 2015, respectively, output has risen steadily since 2010, when 32,000 bpd were recorded. Bahrain’s share in production from the Abu Safa Field stood at 152,913 bpd in 2017, down from 153,512 bpd in 2016.

Gas output has more or less steadily increased over the last decade, from 11.2bn cu metres in 2007 to 15.1bn cu metres in 2017, according to BP. It is used for a variety of purposes. For example, some 31% of output in 2017 was used for power generation, while 29% was reinjected to support oil production.

The rises in hydrocarbons output point to the sector’s use of technology to maintain and increase production at the maturing Bahrain Field, which was discovered in 1932. A number of enhanced oil recovery projects have been implemented since the establishment of Tatweer in 2009, and work to boost output from the field continues. Yahya Mohammed Al Ansari, general manager of exploration and development at Tatweer, told OBG that work is under way on pilot projects to use steam injection to produce heavy oil from the field, and was also evaluating using carbon dioxide to increase oil recovery from some reservoirs.

Landmark Find

The kingdom’s efforts to bolster production received a substantial boost from a major new hydrocarbons discovery in September 2017 in the Khaleej Al Bahrain basin, estimated to contain probable reserves of 81bn barrels of oil and 14trn scf of associated gas. The find, which was made public the following April, dwarves the kingdom’s previous estimated reserves. Despite being an unconventional play and largely located offshore, local oil and gas officials say production is unlikely to prove excessively challenging (see analysis).

Additionally, Tatweer is working on other exploration projects, notably including a regional 2D seismic survey of all of Bahrain’s onshore and offshore territory, which is expected to take two to three months and finish in the first quarter of 2019. The data will be used to identify areas for further high-resolution, 3D seismic surveys. In 2018 the authorities also signed joint study agreements with international oil companies, including Eni, to assess the potential of some of its offshore blocs. “There is very large conventional potential in some of the offshore blocs, especially in some of the northern areas,” Al Ansari told OBG.

Foreign Investment

Efforts by the authorities to seek both oil industry partners and financial backers for the development of the kingdom’s major new oil and gas find, as well as to involve oilfield service firms more directly in the sector’s development, could see foreign investment accelerate over the coming years. “We are expecting more hydrocarbons investment in 2019 than we saw in 2018, largely driven by the new oil discovery,” Hichem Bouhlel, general manager of US-headquartered oilfield services firm Schlumberger, told OBG. This will be a turnaround for the energy sector, which saw a reduction in inflows post-2014 due to the low-oil price environment, a situation that was exacerbated by the withdrawal of two key players in early 2016 – US oil firm Occidental Petroleum and Abu Dhabi’s sovereign investment vehicle Mubadala Investment Company – from their equity participations in Tatweer. Following the move, output at the Bahrain Field fell significantly in 2016 and 2017.

Other foreign investors in the sector include Kuwait’s Boubyan Petrochemical Company and Chevron, which each hold a 12.5% stake in Banagas; and Saudi Arabia’s state-owned petrochemical firms, which each hold a stake in the petrochemicals company Gulf Petrochemical Industries Company (GPIC).

Oil & Gas Value Chains

In addition to the significant potential promised by the recent developments in exploration, and Tatweer’s efforts to boost production at the Bahrain Field, the future of the energy industry is set to benefit from upgrades to key infrastructure, particularly a $4.2bn expansion of Bapco’s Sitra refinery. Founded in 1936, the refinery at Sitra is the oldest in the Gulf region. It has a nameplate capacity of 267,000 bpd, and in 2017 throughput stood at 271,318 bpd, up from 266,713 in 2016. That year it exported 252,009 bpd of refined products, almost 12% more than in 2016. Under work carried out by a consortium consisting of South Korea’s Samsung Engineering, UK-based TechnipFMC and Spain’s Técnicas Reunidas, due for completion in 2022, the refinery’s capacity is set to expand to 360,000 bpd, while also boosting the plant’s energy efficiency and enabling it to refine heavier crude fractions. The facility will be fed crude feedstock by a new pipeline being built between Bahrain and Saudi Arabia.

Numerous other elements of the kingdom’s oil and gas infrastructure are also being expanded or upgraded. In 2014, with associated gas production from the Bahrain Field of around 650m scf per day (scfd) outstripping Banagas’ processing capacity of approximately 300m scfd, the authorities decided to build a third, 350m-scfd gas plant. In January 2016 Banagas awarded a $360m turnkey contract to Japanese company JGC for its construction, followed in October that year by a $98.7m contract to its subsidiary JGC Gulf International for additional gas storage facilities near the Sitra refinery.

Both projects were near completion as of late July 2018, with production expected to begin in the fourth quarter, although this had yet to be announced as of January 2019. The plant will extract heavy hydrocarbons from the associated gas, producing around 3300 bpd of propane, 3000 bpd of butane and 5700 bpd of naphtha, with the residual gas to be piped back to Tatweer for reinjection into the Bahrain Field order to maintain reservoir pressure. The new storage facilities at Sitra can hold up to 100,000 barrels of butane and 200,000 barrels of propane. Naphtha produced at the facility will be shipped to Bapco for storage and eventual sale.

In the petrochemicals segment, in 2017 the primary operator GPIC, which is owned by the Bahraini government through NOGA; Saudi Arabia’s petrochemicals major Saudi Basic Industries Corporation; and Kuwait’s Petrochemical Industries Company signed an $8.8m contract with JGC Gulf International for the construction of a urea resin production facility. At present, GPIC has a production capacity of 1.7m tonnes of urea, and 1.2m tonnes per year each of ammonia and methanol. The firm produced 1.6m tonnes of petrochemicals in 2017, using 45.4bn scf of gas feedstock, of which 1.21m tonnes was exported.

Imports

A portion of the feedstock for the Sitra refinery comes from Saudi Arabia. Bahrain imported 219,668 bpd of crude from its neighbour in 2016, up from 209,513 bpd the previous year, as oil production fell slightly and refinery throughput rose. With the aim of securing adequate supply for the Sitra expansion ahead of its completion in 2022, in November 2018 Bahrain and Saudi Arabia launched a new 118-km oil pipeline – including a 41-km offshore section – between the Sitra refinery and Aramco’s Abqaiq oil field. Built at a cost of $330m, the pipeline will have a 350,000-bpd capacity, double that of the existing line which, given that it is mostly located above ground and travels through increasingly built-up areas, will eventually be decommissioned.

In order to secure gas supply, the kingdom is also building an offshore, $670m LNG terminal. Due to be completed in early 2019, the facility will be operated by a consortium consisting of NOGA; Canadian firm Teekay; the Gulf Investment Corporation (GIC), an investment fund whose ownership is divided equally between members of the GCC council; and Samsung Engineering. The consortium plans to initially source LNG on international spot markets, before concluding longer-term supply contracts after several years. “The terminal will allow for more secure energy supplies, though with the new gas find there is a question mark over how much and for how long LNG imports are needed,” Mike Cunningham, CEO of the Bahrain-based Al Dur Power and Water Company, told OBG.

On the electricity front, Bahrain is connected to the GCC regional power grid, effectively providing it with the ability to import electricity from neighbouring Saudi Arabia. While no trading system is in place and imports via the link were just 3 GWh in 2017, according to data from Bahrain’s Electricity and Water Authority (EWA), the system means that back-up power is available in the case of an emergency, such as the unexpected shutdown of a power plant. “Saudi Arabia generally has the capacity to cover any emergency shortfall in Bahrain, although margins are a bit tighter in summer,” Cunningham told OBG.

Renewable Energy

Under targets set by the National Renewable Energy Action Plan, approved in early 2017, the government aims for renewables to account for 5% of the kingdom’s total electricity capacity by 2025 – equivalent to about 250 MW – rising to 10% a decade after that. Around 50 MW of the 2025 total is expected to come from power generated by wind, 20 MW from waste-to-energy and the rest from solar. To help develop capacity and promote energy efficiency, the authorities partnered with the UN Development Programme to establish a new policy-making body called the Sustainable Energy Unit (SEU) in 2014. Dr Abdul Hussain Mirza, minister of electricity and water, told OBG that the combined total of actual and planned renewable energy systems in the kingdom was about 131 MW. This means that 50% of the 2025 target has already been achieved, leaving seven more years for the other 50%.

Indeed, Bahrain has a number of projects in place to help reach its renewables goals, many of them solar-powered. For example, since 2014 Bapco, NOGA and US firm PetroSolar have operated a 5-MW solar plant to supply electricity to the University of Bahrain and the Awali township, a residential community for Bapco employees, while in 2016 Tatweer inaugurated a 1-MW solar plant that it plans to expand to 3 MW. The facility is primarily used to power Tatweer’s headquarters and the excess supports oil field operations. The firm is also tendering for a second, 3-MW plant that is scheduled to come into operation by the end of 2019.

The EWA, for its part, is in the process of building a pilot mixed renewables plant in Al Dur, located in the southern region. The BD6.5m ($17.2bn) facility will have a solar capacity of 3 MW and a wind capacity of 2 MW and is expected to come on-line in 2019.

Larger-scale infrastructure is also in the pipeline. In March 2018 a public request-for-concept tender was issued for a 100-MW solar plant to be built as an independent power project (IPP) on a 2m-sq-metre landfill site in Askar, on the south-east coast. A total of 13 companies were selected out of 26 bidders. As of late 2018 the authorities were working on a request for proposals for the actual project, which should be awarded in the early stages of 2019.

Availability of Land

The repurposing of the site underscores one of the primary challenges to developing solar capacity in Bahrain, namely a shortage of space for infrastructure. “Solar takes up a lot of land, and Bahrain is not a big country. It lacks large amounts of open space, given the existence of oil- and gas-related infrastructure throughout much of the kingdom,” Cunningham told OBG. One of the ways in which the authorities are planning to tackle this is by using rooftops to generate solar power, starting with the conversion of 500 government buildings. Officials are in the process of surveying 120 buildings, which they plan to group into between two and four clusters, each of which will be tendered as solar IPP projects under build-own-operate contracts. A solar feed-in tariff will then be set based on the tender applications and applied to subsequent sub-utility-scale projects. Dr Mirza told OBG that solar facilities built across all 500 government building rooftops would have a combined capacity of 50 MW.

The authorities are also working to encourage companies and individuals to generate their own electricity, also largely via rooftop solar. To this end, a net metering framework was implemented at the beginning of 2018, under which customers can export excess power generated to the EWA grid. Customers are paid for excess production with EWA credits, which – in contrast to some other such frameworks – do not expire and can be transferred between properties owned by the same person or institution. “Customers able to deploy reasonably large systems – more than 0.5 MW – can expect fairly substantial savings,” Arshad Abdullah, managing director at Intergreen Technologies, a green energy provider, told OBG. “In 2019 they will be buying power at BD0.029 ($0.08) per KW, possibly with the addition of a 5% value-added tax. Barring complex installation requirements, they can generate their own power at around BD0.020 ($0.05).” Abdullah estimated there would be an approximate payback period of around 10 years for commercial and industrial customers when maintenance costs are included.

Re-Using Waste

Other renewables technologies are also currently in development. The country’s first waste-to-energy plant, built by Bahrain-based firm Oak Group Holdings – which will also own and operate the facility – is due to commence commercial operations in the first quarter of 2020. The plant will generate up to 10 MWh and will be distributed as per the net metering policy recently implemented by EWA.

Simon Bromyard, projects director at Oak Group, told OBG the plant could act as a showcase for other such projects. “Wherever wastewater treatment plants can provide refuse-derived fuel with a calorific value, it is possible to generate energy,” he said. The project will also address Bahrain’s pledge to restore and protect its mangroves and wetland areas.

Utilities Policy

Major recent changes in utilities policy have included the development of IPPs and electricity price hikes for some customers. Another key element has been the establishment of energy-efficiency policies, spearheaded by the SEU. In late 2016 the unit finalised a 22-point National Energy Efficiency Action Plan, which was endorsed by the Cabinet the following January and was being implemented as of January 2019. Aspects of the plan include drawing up a green building code that will stipulate energy-efficiency and renewables-based generation requirements for new buildings, and possibly for buildings undergoing renovation as well, such as mandating that roof space be designed to accommodate solar panels. This will be followed by a rating scheme called the Green Building Labelling Program to act as a recognition tool for developers’ sustainability efforts.

Regulations are also being formulated for district cooling. “The district cooling market is growing, but slowly. New regulations will organise the sector, reduce uncertainty for providers, offer protection for end-consumers and improve the energy efficiency of connected properties,” Dr Mirza told OBG.

Tariffs

Energy consumption has traditionally been subsidised by the authorities. However, a shift away from this model occurred in 2012, when gas prices were raised by 50% for industrial consumers, a move that was later extended to other segments. In early 2016, against a backdrop of low oil prices, retail fuel prices were increased for the first time in 33 years and have risen several times since. For example, 95-octane fuel increased from BD0.010 ($0.03) per litre in 2016 to BD0.020 ($0.05) per litre in January 2018.

In March 2016 electricity rates were also increased for expatriates, all commercial establishments and second properties belonging to Bahraini citizens. Further rises for expatriates, businesses and Bahrainis with more than one account took place in 2017 and 2018 and, as of early 2019, more were planned for later in the year. Again, Bahrainis’ first homes were unaffected, although, according to local media reports, in mid-2018 some Bahraini citizens saw their bills spike as EWA estimates for usage increased substantially. A smart-metering initiative is currently being rolled out to put an end to estimated bills.

Supply & Demand

In February 2018 Dr Mirza said that overall demand for electricity in the kingdom was growing at an average rate of 6% each year. Under the electricity and water master plan, the roadmap for the development of electricity and water infrastructure, peak demand is expected to rise to 6500 MW by 2030.

According to the EWA’s latest annual report, total installed electricity generation capacity stood at 3921 MW in 2017. This was spread across five power plants, three of which are gas plants and two that are dual-fuel facilities with the ability to use both natural gas and fuel oil. Electricity production stood at 18,007 GWh in 2017, up from 17,068 the previous year and 14,760 in 2013, while natural gas and fuel oil consumption for electricity generation stood at 5613m cu metres and 934 cu metres, respectively.

The kingdom’s generation capacity is expected to reach 5421 MW once the EWA finishes the second phase of its Al Dur 2 Independent Water and Power Producer (IWPP) project. The facility is expected to have an initial generation capacity of 800 MW in 2020, rising to 1500 MW in 2022.

Once it comes on-line, the kingdom’s desalination capacity will rise to 220m gallons per day. In total, the EWA had 11 transmission projects under execution in 2017, worth a combined BD428.5m ($1.1bn).

Independent Power Producers

IPPs account for the bulk of electricity production in Bahrain, generating 15,920 GWh in 2017, compared to EWA-owned power plants’ 2019 GWh. The kingdom awarded its first IPP contract, for the Al Ezzel power plant, in 2004. The first 470-MW phase came on-line in 2006, followed by a second, 480-MW phase in 2007. The project is backed by French multinational Engie, the GIC and the Bahraini government’s Pension Fund Commission.

The 1240-MW Al Dur 1 IWPP project, which came on-line in 2012, was also carried out under a public-private partnership model. The project is owned by another consortium headed by Engie, and also involving the GIC, as well as two Gulf-based investment funds established by institutional investors. In 2006 the Bahraini government also privatised the Hidd power plant, which is now operated by a consortium comprising Malaysian IPP firm Malakoff, Engie and Japan’s Sumitomo Corporation. The plant has an estimated 1000 MW of electricity generation capacity and 90m gallons of desalination capacity per day.

For Al Dur 2, which was tendered on a build-own-operate basis, EWA received bids from Sumitomo and Saudi Arabian energy firm ACWA Power in June 2018. According to Cunningham, it is unlikely that another IPP tender will be held in the near future. “When Al Dur 1 launched there were plans for four plants in total, and that may still happen, but the need for a third plant is likely to be some way off given current demand growth,” he told OBG, noting that subsidy cuts were putting downwards pressure on consumption. “In 2017 peak electricity demand stood at 3.6 GW, and over 5 GW will be available once Al Dur 2 comes on-line, so it is hard to envisage the need for additional power in the near future unless EWA decides to close down any older plants,” he added.

Outlook

The kingdom’s new oil and gas discovery appears set to dramatically increase production over the coming decade, which is likely to shift energy policy away from its recent emphasis on bolstering energy imports. Technological innovation and an ongoing exploration programme could lead to even greater increases in output. However, the moves to rationalise energy consumption, coupled with further development of renewables and energy-efficiency initiatives, are set to increase the amount of hydrocarbons available to the industry and free up more for export, supporting national economic development.