Bahrain: Tapping new energy sources

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Demand for energy is growing, suggesting the economy is gaining momentum and prompting the Kingdom to boost local production while putting in place plans to secure imported supplies to meet any shortfall.

Analysts forecast the Bahraini economy will pick up in 2012 and beyond, with ratings agency Standard & Poor’s predicting in January that GDP will expand by 3.5% this year, well up on the 2.2% posted in 2011, while 2013 will see growth of 4.1%. Standard Chartered Bank agreed with S&P’s report, saying GDP would increase by 3.5% this year, in part driven by the hydrocarbons sector.

However, for this growth to be sustained, new energy sources will have to be tapped, including natural gas, which has increasingly become the main energy source for utilities and industry.

The Kingdom’s proven gas reserves are modest, estimated at around 218bn cu metres, though work continues to identify and develop more fields. According to estimates by the Bahrain Petroleum Company (Bapco), Bahrain’s gas consumption will rise to above 57bn cu metres per day by the middle of the decade, beyond domestic production capacity.

Some estimates put the annual rate of demand increase at up to 6%, a result of the expansion of residential areas and strong industry growth. Currently, Bahrain produces around 48.1bn cu metres per day, which is sufficient to meet domestic requirements.

“We have initiatives to increase the Khuff gas production, capture the additional gas associated with our increased crude oil production, and develop a pre-Khuff reservoir,” Abdul Hussain bin Ali Mirza, the minister of energy, told OBG. “These initiatives are in addition to our plan to diversify the supply of gas and provide stability of gas supply by constructing a terminal to import liquefied natural gas (LNG). The early phases of this project are already proceeding with definition of the design and business structure.”

Among the schemes being developed to boost domestic gas production is a project to access reserves previously deemed too deep to be exploited. Bapco is working with the US-based Occidental Petroleum Corporation and the Abu Dhabi-owned investor Mubadala Development Company, using newly developed technology to tap the deep deposits.

In December, Ali Mirza told press the deep drilling project held promise. “We have good reason to believe that at a depth lower than the Khuff gas field, in the pre-Khuff stratum, there is an additional gas field,” he said. “This field could be operational within three to four years and may provide a quantum shift in the availability of gas in Bahrain.”

While looking to maximise domestic production, Bahrain is also planning to import gas to power its economy. At the heart of the plan is a LNG import terminal, to be built to the east of the Khalifa Bin Salman Port and scheduled to be operational by 2014. The proposed terminal was first mooted in 2008, in response to a growing demand for energy, both to fuel power stations and to fire the expanding industrial base.

The terminal, with a price tag of some $1bn, will have the capacity to handle up to 11.3m cu metres per day, though this could be doubled should demand require. While the terminal will allow Bahrain to import all the LNG it needs for its own economy, the facility can also load and transfer gas cargoes to and from other destinations.

The Oil and Gas Holding Company, known as nogaholding, the business and investment arm of the National Oil and Gas Authority, has been given a mandate to proceed with the formation of an entity that will be responsible for LNG supply and the development, financing, operation, maintenance and management of a LNG import and regasification terminal.

Bapco has been assigned to this project as technical consultant to nogaholding, which is considering a joint venture with a strategic partner that has core specialisation in the LNG business and with comprehensive experience in the entire LNG value chain. The partner shall be selected through a competitive bidding process, which is currently in progress. It is expected that the terminal shall be commissioned by 2016.

Bahrain may have benefitted by holding off on the terminal until now. Prior to the global financial crisis in 2008, construction costs were at a premium, especially in the Gulf region where the building boom had pushed prices for materials and labour to near record levels. Now much of the region’s construction capacity is underutilised while materials costs have eased.

Even with the new terminal in place, however, Bahrain will still have to lock in a firm source of gas, though it still has at least two years to achieve this. If the Kingdom can develop new gas reserves in its own waters, roll out the planned import terminal to schedule and secure overseas supplies, it should be able to both meet its own gas needs and fuel continued economic growth for decades to come.

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