Bahrain’s 80 billion barrel reboot

Updated 13 April 2018
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Bahrain’s 80 billion barrel reboot

  • Bahrain hopes to produce from the Khalij Al-Bahrain Basin, doubling its current output
  • The basin also contains an estimated 14 trillion cubic feet of gas

Bahrain’s discovery of around 80 billion barrels of shale oil in the offshore Khalij Al-Bahrain Basin has the potential to turbocharge the island-nation’s fragile economy despite near-term challenges, according to analysts interviewed by Arab News.


James Henderson, a senior research fellow at the UK’s Oxford Institute for Energy Studies, said: “Yes, it’s a potential game changer for Bahrain. That said, we are not going to see it turning into Saudi Arabia, producing 10 million barrels a day as the recovery rate in the Basin could be as low as 5 percent.”


The basin also contains an estimated 14 trillion cubic feet of gas, according to Bahrain’s National Oil and Gas Authority.


While officials declined to give a figure for anticipated production levels from the new field, local daily Al Ayam quoted Abdulrahman Bu Ali, head of parliament’s financial and economic committee, as saying output was expected to reach 200,000 barrels per day.


If things go according to plan, said Henderson, it would encourage foreign investment and allow Bahrain to develop a petrochemicals industry, as well as oil services.


And it could provide the government with much needed revenue to further diversify its economy, not to mention cutting its onerous budget deficit.


Henderson said it could take Bahrain anywhere between five and ten years to produce just 100,000 barrels a day.


But Toril Bosoni, a Paris-based analyst at the International Energy Agency, said: “If the Bahrainis can bring this new discovery to production and reach their goal of 200,000 barrels per day in about five years that would double what they produce today. So it’s definitely significant.”


However, Bosoni said “we need to know more about the technical and economic challenges, whether everything stacks up from a financial perspective, but they are digging more wells so additional information is on the way.”


A senior energy consultant in London, who spoke on the basis of anonymity due to client confidentiality, said Bahrain’s GDP per capita is low relative to the region. “There are restive communities, but additional oil revenue will help bring stability and prosperity,” he said.


At the end of last year, credit rating agency Fitch changed its outlook for Bahrain from stable to negative, claiming the government had yet to identify a clear medium-term strategy to tackle high deficits and a rapidly growing government debt ratio. Although Fitch expected the deficit to narrow to 10.2 percent of GDP by 2018, “this will be insufficient to stabilize the debt trajectory”, it said.


Oil and gas sales account for 60-70 percent of state revenues, according to geopolitical intelligence provider Stratfor. Plunging revenues stemming from the sharp fall in oil prices from 2014 have seen the government attempt to reign in spending and cut costs, by cutting subsidies on utilities and raising new taxes.


Bahrain currently produces about 50,000 barrels a day from one field and about 150,000 from another that is shared with Saudi Arabia.


Henderson said there were geological and technical issues when it comes to fracking and shale.


“We have seen from the US that we are not talking about one or two wells, you are fracking a lot of wells to crack the rock across a very large acreage.


“The tightness of the reservoirs means you have to go in more regularly than you would with a conventional well, so it will be more challenging than a conventional field,” he said. Offshore was potentially more difficult than onshore, moreover apart from the US, no other country in the world has the infrastructure in place to support a sizeable shale fracking industry, said Henderson.


He added: “The problem with shale is that it’s very heterogeneous. That means you can drill a well in one place, and move a kilometer away, and everything has changed. Often there are no analogies from one well to another. In the States, the guys are still constantly evolving their techniques, to optimize well-productivity.


A report in Forbes pointed out that the Bahrain field is located in shallow waters off the country’s west coast of the country, and since this is close to existing oilfield facilities it should reduce the cost of developing the find.


Schlumberger has drilled the first test well and Halliburton is to drill two more appraisal wells this year to evaluate the find, said Sheikh Mohammed bin Khalifa, Oil Minister of Bahrain at a press conference last week. He said the quantities of oil discovery may exceed 80 billion barrels with the area of discovery estimated at 2,000 square kilometers.


Yahya Al Ansari, chief exploration geologist at the Bahrain Petroleum Company (Bapco), told Forbes the find was “a layer with moderate conventional reservoir properties on top of an organic-rich source rock.”


According to the United States Geological Survey, the biggest shale resources in the world are in Russia. However, unlike the US, Russia doesn’t have a competitive services industry to provide the number of rigs that are needed, which sometimes run into hundreds.


Henderson said: “You need hundreds of rigs to keep drilling these wells as they ramp up very rapidly, but within a year, production is in rapid decline, and you have to drill others.


The amount of oil and gas that can be recovered from hard-to-reach pockets in shale rocks under the sea is uncertain, and development is potentially expensive, but with American help and expertise, there is everything to play for. Furthermore, future deals could prove transformational for Bahrain at a difficult time, interviewees told Arab News.

Decoder

Tight oil and gas

Tight oil and gas are produced from reservoir rocks with such low permeability that massive hydraulic fracturing is necessary to produce the well at economic rates.


WEEKLY ENERGY RECAP: China distracts from Strait of Hormuz

In this May 5, 2019 photo issued by Karatzas Images, showing the British oil tanker Stena Impero at unknown location, which is believed to have been captured by Iran. (AP)
Updated 15 min 33 sec ago
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WEEKLY ENERGY RECAP: China distracts from Strait of Hormuz

  • China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the US, while monthly indicators provided signs of some stabilization emerging

RIYADH: Crude oil prices deteriorated despite rising tensions in the Arabian Gulf toward the end of the week. Brent crude prices dropped to $62.47 and WTI dropped to $55.63 per barrel.
WTI recorded its biggest weekly decline in seven weeks, having fallen sharply earlier in the week on hopes that the situation in the Gulf would improve along with parallel worries about global demand. At the same time, a major storm hurt output in the Gulf of Mexico, where production was down by almost a fifth in its wake.
We saw a continuation of the theme of previous weeks where the oil price largely ignored events in and around the Strait of Hormuz, even after Iran seized two British-flagged oil tankers.
Instead, the market reacted to Iran’s potential nuclear deal with the US that would include permanent enhanced nuclear inspections in return for the lifting of sanctions.
China’s crude oil throughput rose to a record in June, up 7.7 percent from a year earlier, following the start-up of two large new refineries. Crude oil processing reached 13.07 million bpd, beating the previous record in April of 12.68 million bpd.
Despite strong oil demand from China, oil prices slipped after Beijing posted its slowest quarterly economic growth in at least 27 years, reinforcing concerns about demand in the world’s largest crude oil importer.
China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the US, while monthly indicators provided signs of some stabilization emerging.
The International Energy Agency pounced on that news and published a shaky oil demand outlook and reduced its 2019 oil demand forecast to 1.1 million bpd, down from its initial forecast of 1.5 million bpd, due to the slowing global economy and the US.-China trade war.
Yet the economic impact of the US-China trade argument is not an oil market-reflective. Surprisingly, some economists suggest that the trade dispute could spark a global recession, sending incremental oil demand lower. This has caused growing concern about supply and poor economic growth that has pushed oil prices lower, based purely on sentiment.
Arabian Gulf crude grades have further strengthened backed by demand uptick from North Asian refineries.
Norway’s crude oil production slipped to the lowest in three decades to 1.38 million bpd in April from 1.387 million bpd in March and 1.531 million bpd a year ago.

Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq