Bahrain’s new hydrocarbons find could replenish energy and fiscal reserves
Newly identified oil and gas deposits are expected to increase momentum in Bahrain’s energy sector and could have a wider economic impact by easing concerns over rising debt levels.
On April 1 Bahraini officials announced initial testing had identified a new hydrocarbons field off the country’s west coast, the first major find since oil was discovered in the country in 1932.
The field, in the Khaleej Al Bahrain basin, covers a 2000-sq-km area, and is estimated to hold resources of up to 80bn barrels of oil and up to 20trn cu feet of gas.
Unlike existing reserves, the oil deposits are defined as tight, meaning they are in a rock formation similar to shale, with the recoverable levels of the reserves yet to be determined.
These tight resources will thus be more costly than conventional deposits to extract, a factor that could weigh on investment, with international energy prices and the current level of capacity on global markets potentially being a factor for upstream development. These higher exploitation costs could mean the Bahraini government may have to consider offering more favourable terms to international partners in order to bring experienced energy majors on board.
Energy services company Haliburton has been contracted to conduct further test drilling to appraise the potential reservoir and better determine recoverable reserves.
Meanwhile, the onshore conventional gas deposits, although deeper, will be easier and less costly to extract, potentially allowing these reserves to be developed and commercialised more quickly, officials have said.
New deposits to help fuel energy sector growth
The find is expected to invigorate the energy sector following a production reduction in recent years, and also provide a boost to local industry.
Currently, oil and gas production accounts for less than 20% of Bahrain’s GDP, well below the 43.6% posted in 2000, a decline that is a result of lower upstream output and the expansion of a more diversified economy.
Prior to the recent find, Bahrain’s oil reserves were estimated to have fallen to around 125m barrels, while the country imports some 200,000 barrels per day of crude from Saudi Arabia to boost processing capacity.
Although it will take an estimated five years or more to bring the new oil deposits on-line, the investment and associated development phases will see stronger capital inflows, while pre-production work will create employment and supply-side opportunities for domestic firms and service providers.
Furthermore, the onshore gas finds should also boost industrial capacity, particularly in the aluminium and petrochemical segments, according to industry figures, with production expected to begin by the end of this year.
While Bahrain is currently building a liquefied natural gas import terminal – expected to come on-line next year – to meet increasing domestic demand, the new gas discovery could improve gas self-sufficiency and even present the potential for gas exports in the future.
The new deposits will also give added impetus to the wider economy, which expanded by 3.9% last year, according to the Bahrain Economic Development Board, the fastest rate of any of the GCC member states.
Increased activity to contribute to greater fiscal stability
As oil revenues account for around 80% of the government budget, the decline in production has given rise to concerns over fiscal stability, with the IMF forecasting in early May that the kingdom’s debt will reach or surpass 100% of GDP in 2019.
According to ratings agency Moody’s, development of the resources held in the Khaleej Al Bahrain field could have a major impact on long-term economic prospects and debt levels, while helping to support the dinar, which is pegged to the dollar.
“Over time, if production from the new oil field were to substantially increase Bahrain’s oil production and exports, Bahrain’s external vulnerability – and with it, pressure on the currency peg – would decrease, supported by improvements in the current account and rebuilding of foreign exchange buffers,” Moody’s said in a report issued on April 18.
Despite the economic benefits of the find, considerable investment will be needed to develop the field to the point of production.
While future private sector partners are expected to meet some of the costs, state-backed enterprises may also have to make significant investments, potentially requiring further loans and adding to Bahrain’s short-term debt load.
To support the development of down-, middle- and upstream production capacity, the government has launched a new energy investment fund.
Unveiled on May 10 the Bahrain Energy Fund will look to attract $1bn in capital from domestic and international investors, with at least some of the funding to be used to develop the new oil and gas fields.