While extracting oil and natural gas increasingly requires more complicated techniques and sophisticated technology, hydrocarbons remain a key part of the Bahraini economy. Indeed, the kingdom’s investment agency, the Bahrain Economic Development Board (EDB), recently reported that the oil sector accounted for approximately 22% of GDP in 2012 as well as some 75% of government revenue. Oil production is forecast to rise by well over 100% from current production levels to reach 100,000 barrels per day (bpd) by 2020.

Oil was discovered in the kingdom in 1932 and Bahrain became the first state in the Gulf region to successfully drill and commercialise production. Oil exports quickly became the country’s primary economic driver. In addition, the local hydrocarbons sector facilitated the entry of multinational corporations into Bahrain and substantially benefitted the kingdom’s broader economic development. Although the country is working to diversify the economy away from its reliance on hydrocarbons, the EDB reported that Bahrain’s government still plans to invest a total of approximately $15bn in the oil and gas industry over the coming 30 years.

RESERVES: The entirety of Bahrain’s onshore oil reserves can be found in the Bahrain Field, which is also referred to as the Awali Field. Located in central Bahrain, production at the oilfield peaked at more than 75,000 bpd in the 1970s, according to figures from the EDB. The Bahrain Petroleum Company (BAPCO) reports that production has since decreased to somewhere between 42,000 bpd and 43,000 bpd. With the use of enhanced oil recovery (EOR) techniques, the field could potentially provide as much as 60,000 bpd by 2016, according to calculations from the EDB.

While Bahrain also has oil reserves located offshore, these have yet to be exploited due to the difficulty of doing so profitably. Offshore drilling still has a future in the kingdom, but it is likely to be via unconventional recovery methods and will require overcoming technical hurdles.

Although it is not located on the island of Bahrain itself, the kingdom also benefits from the Abu Safa Field, which is offshore in Saudi Arabian waters. The oilfield is fully operated by the Saudi Arabian Oil Company (Saudi Aramco) and produces around 300,000 bpd, according to data provided by BAPCO. Bahrain maintains sovereign rights to 50% of the field’s production, and BAPCO sells the oil on behalf of the Bahraini government.

Most of Bahrain’s reserves of natural gas are located onshore in the Bahrain Field. The kingdom consumes the entirety of the gas it produces and will likely see a gas shortfall in the early 2020s, according to estimates from BAPCO. If efforts to exploit deep gas reserves profitably are realised, the country should be able to extend its reliance on local natural gas supplies by several more years.

SECURING SUPPLIES: However, the trend towards importing gas is already evident in the GCC region. Kuwait is experiencing gas shortages, for example, and Saudi Arabia will likely become a net importer in the near future. The Bahraini government has recognised the importance of securing a stable supply as local reserves start to run low and it has already announced plans to build a liquefied natural gas (LNG) import terminal to meet some of this demand.

The kingdom’s National Oil & Gas Authority (NOGA) recently reported that nearly 70m barrels of crude oil were produced in both the Bahrain and Abu Safa Fields in 2011. About 15.5m barrels were extracted from the Bahrain Field, with the remaining 54m or so barrels produced from Abu Safa. While production at the Abu Safa Field has tapered off slightly in recent years, output at the Bahrain Field increased by almost 24% between 2007 and 2011. In addition to its local extraction efforts, the kingdom also imported nearly 80m barrels of crude in 2011 – much of which comes from Saudi Arabia via pipeline. This figure is down, however, from 2007, when the country imported over 83m barrels.

ON THE UP: More than 15.6bn cu metres of gas were produced in Bahrain in 2011, according to NOGA figures. This represents a production increase of over 8% compared to 2007, when the kingdom extracted around 14.3bn cu metres of gas. Non-associated gas accounted for the vast majority of production in 2011, totalling nearly 12.7bn cu metres, while associated gas made up the remaining 2.97bn cu metres of extraction in 2011. Associated gas production rose by around 5% between 2007 and 2011, while non-associated gas production increased by nearly 10% over the same period.

According to NOGA, the Electricity and Water Authority (EWA) consumed the largest share (37%) of natural gas in Bahrain in 2011. Aluminium Bahrain (Alba), a major local aluminium smelter, was the next largest consumer of natural gas in 2011, accounting for around 24% of the total. A further 15% of gas was re-injected, while BAPCO and the locally based Gulf Petrochemicals Industries Company (GPIC) were the next largest consumers, accounting for some 9% and 8% of the total, respectively.

BODIES IN CHARGE: A range of organisations and companies are involved in Bahrain’s oil and gas sector. NOGA was established in 2005 and is tasked with the supervision, organisation and development of the sector, in addition to related industries. Prior to the creation of NOGA, supervision of the hydrocarbons sector was undertaken by a number of bodies, such as the Supreme Oil Council, the Ministry of Oil and the National Gas Committee. NOGA is chaired by Bahrain’s minister of finance, who is also the minister in charge of oil and gas affairs.

NOGA’s subsidiary, nogaholding, was established in 2007 by Royal Decree No. 77 and functions as NOGA’s investment and development arm. In addition to taking part in all new investment projects, the firm is in charge of overseeing the kingdom’s energy companies and administrating the government’s share in eight firms: BAPCO, Bahrain National Gas Company (Banagas), GPIC, Bahrain Aviation Fuelling Company (BAFCO), Bahrain National Gas Expansion Company (BNGEC), Bahrain Lube Base Oil Company (BLBOC), Tatweer Petroleum (Tatweer) and Skaugen Gulf Petchem Carriers (SGPC).

BAPCO and BNGEC are both entirely owned by nogaholding, while the other six companies are joint ventures (JVs) with the private sector. The subsidiary of NOGA owns 75% of Banagas, 33.3% of GPIC, 60% of BAFCO, 55% of BLBOC, 51% of Tatweer and 35% of SGPC, according to NOGA figures.

In operation for nearly 85 years, BAPCO was set up in 1929 and has long played a key role in the kingdom’s energy sector. The firm was in charge of the exploration and production of oil from the Bahrain Field until late 2009, when Tatweer took over this responsibility. BAPCO still owns and manages the country’s oil refinery, known as the Bahrain Refinery. Located in Sitra and built in 1936, the refinery is the oldest in the Gulf region and maintains a total production capacity of around 267,000 bpd, according to figures from BAPCO. The refinery not only processes crude oil extracted from the Bahrain Field, but also oil that is pumped through the Arabia-Bahrain (AB) pipeline, which stretches from the Abqaiq Field in Saudi Arabia to Bahrain. About 10% of the refinery’s products are consumed locally, with the remaining 90% exported.

BY THE BARREL: BAPCO also manages over 170 storage tanks with a combined capacity of more than 14m barrels, according to company data. Non-associated gas extraction and distribution as well as the marketing of Abu Safa-produced crude are among the firm’s additional responsibilities.

According to the company’s most recent annual report, total sales revenues reached $10.22bn in 2011, exceeding expected revenues by almost 30%. BAPCO achieved gross refining margins during the same year of about $7.50 per barrel, and sold crude from the Abu Safa Field at an average price of $106 per barrel, representing an increase of nearly 40% when compared to the average in 2010. BAPCO sold 95.3m barrels of refined petroleum products in 2011, 82.7m of which were exported. The MENA region accounted for close to half of exports in 2011, followed by Africa, East Asia and Europe. Diesel and jet fuel represented about 55% of BAPCO’s 2011 sales. Fuel oil, primarily exported to the Middle East bunker market, made up 21% of sales. This was followed by sales of naphtha, most of which is shipped to petrochemicals manufacturers in Asia.

EXTRACTION: While officially inaugurated in early 2010, Tatweer took on responsibility for developing oil production at the Bahrain Field in December 2009. A JV between nogaholding, the California-headquartered Occidental Petroleum Company (Oxy) and Abu Dhabi’s Mubadala Development Company, Tatweer aims to increase production from the Bahrain Field to 100,000 bpd, according to nogaholding.

Extraction efforts seem to be headed in the right direction; in its most recent annual report Tatweer noted that it had drilled and begun production at 165 new oil wells in 2011, compared to only 25 new wells the previous year. Tatweer’s total investments for 2011 amounted to some $792m and its contractual commitments surpassed $1.4bn.

In addition, average production for oil and condensate at the Bahrain Field rose by around a third between 2010 and 2011, from 31,900 bpd in 2010 to 42,500 bpd the following year. Average black oil production increased even more rapidly over the two-year period, growing from 27,300 bpd in 2010 to some 38,000 bpd a year later.

FOR TENDER: Tatweer’s production efforts are being supported by Schlumberger, a US-based oilfield services company that has had a commercial presence in Bahrain since the 1930s. The firm operates the power grid in the field, as well as pumps, surface optimisation and the network modelling facility.

Schlumberger was awarded all five of the oilfield service tenders floated by Tatweer in 2010, covering wireline logging, drilling fluids, well intervention assistance, cementing and drilling. The company has facilitated Tatweer’s efforts to increase production by using acid stimulation on current wells as well as debottlenecking techniques.

GASSING UP: Banagas, another key company in the country’s energy sector, was set up in the late 1970s and is tasked with capturing and processing the associated gas from oil drilling at the Bahrain Field. Originally known as the Associated Gas Project, the initiative was later incorporated as Banagas.

The Bahraini government owns 75% of the company through nogaholding, and the remaining 25% is split equally between Chevron Bahrain ( previously known as Caltex Bahrain) and the Boubyan Petrochemical Company, a Kuwaiti shareholding firm. At an investment cost of $100m, according to Banagas’s figures, the company built a processing plant to recover butane, naphtha and propane, in addition to four gas compressor facilities and a storage area east of the capital of Manama known as Sitra.

Without Banagas’s processing operations, an average volume of 8.5m cu metres per day (cmd) of gas would have to be flared or vented in the field, according to the firm. The development and production-sharing agreement signed between NOGA and Tatweer in April 2009 stipulates that no gas should be vented or flared in the Bahrain Field without prior approval from NOGA. Banagas thus plays a critical role, in helping Tatweer to fulfil this obligation.

Banagas sent out its first shipment of processed associated gas – a 5000-tonne load of butane – in 1980. The company later added two compressor stations and upgraded its processing capacity from 4.81m to 7.93m cmd, according to figures from the company. The project was launched in 1988 and commissioned in late 1990.

Another expansion initiative involving the construction of an additional compressor station was begun in cooperation with BAPCO in 2003. This project focused on processing extra quantities of propane and butane-rich off-gas from the refinery in addition to associated gas. Several years later the project was converted into a new firm, known as BNGEC. BAPCO recently reported that butane accounts for about 50% of Banagas’s current production, with propane making up the remaining 50%.

MONEY IN THE BANK: Although Bahrain’s oil and gas industry is already well developed, substantial investments are being made to further increase production. The government alone plans to spend roughly $15bn on the energy sector over the next 30 years, according to an early 2013 report from the EDB. Further funding will come from outside the kingdom through the GCC development programme for Bahrain. The Ministry of Finance recently reported that the programme will provide Bahrain with $1bn each year for 10 years and will be funded equally by Saudi Arabia, the UAE, Qatar and Kuwait. All of the funding is linked to specific projects, some of which will be in the energy sector.

TARGETS: Some of the most significant investments are being made by BAPCO, through a scheme known as the BAPCO Modernisation Programme (BMP). The BMP is essentially the next phase of BAPCO’s Strategic Investment Programme (SIP), which involved $1.2bn worth of investments and stretched across a period of 10 years, according to data provided by the company. SIP-funded ventures have included the construction of a low-sulphur diesel plant that was completed in 2007, as well as several projects focused on environmental concerns.

The BMP is BAPCO’s largest investment scheme and concentrates on three primary objectives. The first target aims to revise the refinery’s configuration, which will improve BAPCO’s gross margins, helping the company to stay competitive under a range of potential market scenarios. The BMP is also concerned with reducing the negative impact of its operations on the environment. Indeed, BAPCO plans to ensure that its entire refinery will operate in compliance with all relevant environmental regulations, and, at times, it has even designed for tighter legislation expected in the future. The BMP’s third target focuses on increasing the energy efficiency of its refinery operations. When the BMP is completed, the refinery should have a production capacity of 360,000 bpd – an increase of about 35% when compared to its current capacity of 267,000 bpd, according to BAPCO figures.

PEN TO PAPER: BAPCO has signed a technical services agreement with Chevron to use its Chevron Project Development and Execution Process (CPDEP) throughout the implementation of the BMP. The CPDEP, which has helped Chevron improve project implementation in terms of both cost and timeliness, has five separate phases. These focus on conducting a feasibility study; carrying out the engineering design; completing front-end engineering; conducting the engineering, procurement and construction (EPC) of the project; and finally ensuring the successful launch of operations. The BMP is currently in the second phase of the CPDEP, and BAPCO expects work on the engineering design packages for process units and pre-front-end engineering design (FEED) for revamps, off-sites and utilities to start sometime in the middle of 2013. The FEED study should then begin in 2014. BAPCO estimates that the entire BMP scheme should be finished in 2020, with the first projects expected to begin coming on-line during 2017.

WASTE NOT: One key BAPCO project is the construction of a wastewater treatment plant (WWTP). Currently in the pre-commissioning phase, the facility should become operational in April 2013. South Korean-headquartered GS E&C carried out the EPC phase of the project and will manage the plant for the first six months of operations. When completed, the facility will operate at a production capacity of 170,340 litres per minute, according to figures from BAPCO. Investment in the project totals $120m, with the EPC contract worth around $68m.

The new WWTP will make BAPCO’s wastewater operations compliant with Bahraini government environmental regulations. At present, the Bahrain Refinery uses primary treatment to pull out oil, grease and solids from wastewater. The company’s nearly finished WWTP will enable secondary treatment by using a membrane bioreactor (MBR), which will treat spent caustic, nitrogen and dissolved organics. The new WWTP will be the largest application of MBR technology in the world, according to BAPCO.

ADDED POWER: For many years the company had been generating power in one of its plants with five steam-turbo generators (STG), which had a combined total power generating capacity of 21 MW. Installed between 1946 and 1958, these units had surpassed their prime operating period and needed to be replaced. Following recommendations outlined in a feasibility study, BAPCO decided to replace these five STG units with two condensing/extraction steam turbines, each with an electricity generation capacity of 15 MW. The two new generators were commissioned in February 2013. According to recent BAPCO figures, the project cost a total of $106m.

A new pipeline connecting BAPCO’s refinery with Saudi Arabia is also being integrated with the BMP scheme. The AB Pipeline, which stretches around 69 km in length, was built in the 1940s and needs to be upgraded due to problems with reliable crude transfer within operational safeguards. Capable of pumping around 230,000 bpd of crude, the current pipeline will be replaced with a new one designed to handle as much as 400,000 bpd of oil, according to the company. A memorandum of understanding for a crude supply agreement was signed recently between BAPCO and Saudi Aramco to ensure that crude quantity, as needed, would be made available through the new pipeline in line with the development plans for BMP. The new pipeline will also have a more advanced leak detection system.

While the AB Pipeline connects Saudi Arabia’s Abqaiq Field with BAPCO’s refinery in Sitra by passing through the Dhahran Pump Station in Saudi Arabia, the new pipeline will go via Qurayyah in Saudi Arabia instead, using an existing fuel pipeline that runs between Abqaiq and Qurayyah. BAPCO has reported that the routes for the planned pipeline have been found and that approximately 90% of the engineering design has been completed. The new pipeline will be 76.2 cm in diameter and will stretch to around 115 km in length – roughly 40 km of which will be in Saudi Arabia, another 40 km will be offshore and the remaining 35 km will be located in Bahrain. BAPCO plans to float the project’s EPC tender in July or August of 2013, and the pipeline should be commissioned during the second quarter of 2016.

EYE ON THE PRIZE: BAPCO is not the only firm in Bahrain’s energy sector with significant investment plans. Banagas is also embarking on several projects that focus on enhancing and optimising the utilisation of the kingdom’s gas resources. For example, the firm awarded Japan’s JGC Gulf International an EPC contract to build a new compressor station in September 2011. Scheduled to come on-line by August 2013, the new station will eliminate the flaring of gas during other compressor station outages and operate with a total throughput of 1.7m cmd of associated gas, according to Banagas data. Transmission and gas-gathering lines will be included in the project and the station’s compressor turbine will be fuelled by residue gases (methane and ethane).

TAKING STEPS: The FEED study for a renovation project of Banagas’s Central Gas Plant (CGP) has also been completed, and it has awarded an EPC contract for the project. According to figures recently provided by Banagas, the project aims to enable the CGP to process 8.5m cmd of associated gas and 0.5 cmd of refinery gas. Other projects being pursued by the company involve building a new control room for its processing trains and refurbishing its nine gas turbine control systems, which will be completed within the next several years.

The implementation of Banagas’s investment plans appears well timed, as Tatweer has recently confirmed that the supply of associated gas should expand over the next four years. Non-associated gas production could also increase in the near future if exploration efforts prove fruitful. Oxy was awarded a seven-year contract to explore gas deposits in the kingdom at depths of up to 6100 metres, according to press reports. With exploration work already under way, Oxy aims to drill three wells over the first four years of its contract. If natural gas is found, Oxy and the Bahraini government will then develop a production-sharing agreement for extraction.

SOURCES: While Oxy works to find new reserves, the government is taking steps to boost the kingdom’s supply of natural gas in an effort to meet its goal of procuring at least 28.3m cmd of gas on top of current production. Some measures being pursued include buying gas from neighbouring Qatar.

Central to the government’s efforts is the planned construction of an import terminal for LNG. NOGA began studying the potential of such a project in 2008, and a tender to build the terminal was floated in 2010. With the bidding shortlisted to two companies, the tender should be awarded shortly. The terminal will use a floating storage and regasification unit and once construction begins, the project will likely take about two years to complete, according to BAPCO estimates.

DOWNSTREAM: While the upstream business remains a greater economic driver, the downstream side of the sector also plays an important role. In addition to operations at the Bahrain Refinery, the kingdom recently expanded its downstream portfolio with the commissioning of a lube base oil plant. The BLBOC was set up in 2009 to construct a lube base oil plant as well as the associated export facilities for the Bahrain Refinery. Neste Oil Corporation (Neste Oil), a refining and marketing firm headquartered in Finland, has a 45% stake in the BLBOC, while the remaining 55% is owned jointly by nogaholding and BAPCO, according to NOGA.

Operations at the lube base oil plant began in October 2012. BAPCO maintains and operates the facility, while Neste Oil carries out marketing. BLBOC is responsible for operating and managing the Neste Oil-BAPCO-nogaholding JV. According to recent data provided by Neste Oil, the new plant operates with a production capacity of 400,000 tonnes per year and currently has enough feedstock to fill capacity. The facility produces Group III lubricant base oils, which are higher-quality products and in demand in the EU. As a result, the plant’s export sales predominantly go to member countries of the bloc.

By and large, the downstream market is quite competitive in the GCC region. While refining activities in the US and EU have remained relatively static, the Gulf has experienced an increase in refining capacity – a trend that is expected to continue going forward. In order to stay competitive, companies must be up-to-date on changing requirements that determine which impurities, such as benzene or other carcinogenic substances, must be extracted from downstream products. Competition for base oil production, however, is more indirect due to the differences in the quality of products. Group II lubricant base oils are produced in Saudi Arabia, for example, meaning that their operations are not in direct competition with Bahrain’s new lube base oil plant.

SPARKS FLYING: As the kingdom’s energy sector develops further with additions such as the new BLBOC facility, demand for electricity has risen. According to the EWA, peak electricity demand has nearly doubled over the past decade, rising from about 1540 MW in 2003 to 2967 MW in 2012. EWA data also indicates, however, that electricity demand has slowed to some degree in recent years. Indeed, demand for 2012 increased by around 2.5% when compared to the previous year. By way of contrast, electricity demand jumped by more than 6% between the years 2003 and 2004.

The country is also well prepared to meet its power needs for the foreseeable future. Current generation capacity is just over 4000 MW, according to the Al Dur Power and Water Company (DPWC), which owns the Al Dur Power and Water Plant in Bahrain. Despite this surplus capacity, tendering for a new power project may need to begin near the end of 2013 depending on the pace of economic growth – a key indicator of future power demand.

POWERING UP: Currently, there are five power plants in operation in the kingdom. While the Riffa Power Station and the Sitra Power and Water Station are both owned by the government, the Al Dur Power and Water Plant, the Al Ezzel Power Plant, and the Al Hidd Power and Water Plant are privately owned.

Becoming operational in early 2012, the Al Dur facility is the kingdom’s newest power plant. Construction on the Al Dur independent water and power project (IWPP) began in 2008, and although the facility operates on gas-powered turbines, it is also capable of running on diesel.

According to figures recently provided by the DPWC, the new IWPP supplies 1234 MW of power, making it the largest power producer in the country. The facility also provides 218m litres per day of drinking water through a reverse osmosis desalination process. The DPWC is owned by France’s GDF Suez (45%), the Kuwait-headquartered Gulf Investment Corporation (25%) and several Bahraini organisations (30%). The IWPP is operated by Al Ezzel Operation & Maintenance (AEOM) – a wholly owned subsidiary of GDF Suez’s International Power, which was recently rebranded as GDF Suez Energy International (GDF Suez EI).

With a generation capacity of 1000 MW, the Hidd IWPP is the next-largest power producer in Bahrain. The gas-fired facility is operating on a 20-year agreement with the EWA and maintains a 409m-litre water production capacity. According to figures recently provided by IWPP’s owner and operator, Hidd Power Company (HPC), the facility supplies around 30% of the kingdom’s power consumption and some 61% of its yearly water needs. The IWPP was built over three phases, with the third phase – which focused on adding water capacity of 272.8m litres per day and auxiliary boilers – completed in 2009. The first phase of the project was commissioned in 1999.

CHANGING SIDES: Originally owned by the government, the Hidd IWPP was transferred to the private sector in 2006. Today, the HPC has three shareholders: GDF Suez EI; Malaysia’s Malakoff International, a subsidiary of Malakoff Corporation; and Japan’s Sumitomo Corporation. In May 2012 GDF Suez EI sold a 40% stake of HPC to Malakoff to comply with local regulatory requirements. The sale of the stake took place because GDF Suez EI’s holdings in the kingdom’s power sector had exceeded the regulatory limit of installed generation capacity when the firm acquired International Power in 2011. According to GDF Suez EI and Malakoff, 40% of the HPC is now owned by Malakoff, with the remaining 60% held equally by GDF Suez EI and Sumitomo.

The Al Ezzel independent power project (IPP), completed in 2007, is the third-largest power producer in the kingdom. With a 950-MW generation capacity, the facility is run by AEOM. In terms of generation capacity, the kingdom’s government-owned plants are the smallest of the five power facilities in operation. The Riffa power project provides a generation capacity of 700 MW and the Sitra power and water project maintains a 125-MW power capacity in addition to 113.6m litres per day of water, according to figures from the HPC.

CUTTING BACK: Although Bahrain’s current power generation capacity far exceeds peak demand, steps are being taken to reduce domestic electricity use. The government is working to encourage reduced power and water consumption through a public awareness campaign, and a proposed power-saving scheme was also recently announced. If approved, the first step of the programme would involve distributing a substantial number of light-emitting diodes as well as compact fluorescent light bulbs, both of which use less electricity than standard bulbs. The new bulbs would be given out at no cost. In the second phase of the scheme, a ban would be placed on the importation of traditional light bulbs. Although focused solely on power use associated with lighting, government officials have reported that the programme would significantly reduce consumption in Bahrain, which would consequently lower domestic demand for gas. “It is important for both policymakers and private citizens to understand that we can optimise energy output by focusing on proper conservation methods vis-à-vis further increasing energy capacity,” Andy Biffen, HPC’s executive managing director, told OBG.

The kingdom is not pursuing its power reduction aims at the expense of general business development, however. Indeed, in terms of the ease of procuring power for commercial purposes, the kingdom’s electricity system is ranked well above the average for the MENA region. The “Doing Business 2013” report for Bahrain, a publication issued by the International Finance Corporation and the World Bank, ranked the kingdom 48th out of a total of 185 countries on the ease of obtaining electricity. According to the report, procuring power in the kingdom is a five-step process that takes 90 days to complete. Notably, the cost of obtaining electricity has dropped from more than 63% of income per capita in 2012 to around 56% the following year.

MEETING OF THE MINDS: Bahrain is also host to one of the largest energy sector conferences in the region. Launched in the late 1970s, the Middle East Oil and Gas Show and Conference (MEOS) is organised by the Society of Petroleum Engineers (SPE), a non-profit professional organisation officially set up in the 1950s. The 18th MEOS event was held in mid-March 2013 at the Bahrain International Exhibition and Convention Centre. According to estimates by the SPE’s Middle East division, the event attracted a total of around 2300 exhibitors, helping to raise the kingdom’s profile as an important centre for the hydrocarbons industry in the region.

OUTLOOK: Bahrain’s energy sector has a long history of successfully extracting oil and gas. Now, measures are also under way to increase hydrocarbons production. While the sector looks likely to continue to play a central role in Bahrain’s economy, the industry still faces a number of challenges. Foremost among them is the kingdom’s decreasing oil and gas reserves. There is still a good reserve base for both oil and gas at the Bahrain Field, but developing profitable methods of recovery is becoming increasingly difficult. Despite this challenge, Tatweer is implementing EOR techniques to boost production, and the positive results achieved by this so far are expected to continue. Indeed, domestic oil production is forecast to reach 100,000 bpd by 2020, according to the EDB.

Regarding the power generation industry, Bahrain faces the near-term challenge of correctly predicting when a new power project is needed. If the project is carried out too early, money will be wasted on unneeded capacity. But if the project is initiated too late, the system will risk blackouts. As power demand growth is connected with overall economic growth, the country will likely need to begin the process of building a new power project relatively soon as the EDB expects real GDP to jump from a predicted 3.9% in 2012 to over 6% in 2013.

The shortage of skilled Bahraini labour presents another challenge for the sector. Many firms, however, have found a way to maintain a high percentage of Bahrainis in their workforce. Schlumberger, for example, recently reported that it had increased the number of nationals in its workforce from 30 in 2011 to 150 in 2013, which represents more than 50% of its local labour force.

BAPCO has also achieved a high level of “Bahrainisation”. According to figures recently provided by the firm, about 82% of its workforce is Bahraini, including all of the members of its management committee. In addition, BAPCO has set up several scholarship programmes that focus on encouraging students to study engineering, among other aims. The company is also on advisory committees at a number of educational institutes in the kingdom, allowing it to influence the curriculum to better align what is taught in the kingdom’s classrooms with the needs of the hydrocarbons industry.

The successful development of skilled Bahraini workforces in companies such as Schlumberger and BAPCO is reflective of the overall positive trajectory of the kingdom’s energy sector. While Bahrain’s oil reserves are relatively small in comparison with other GCC countries, the kingdom has still built up a strong energy sector that continues to offer substantial potential. The industry should be further strengthened by a range of current or planned investments, including BLBOC’s recently completed lube base oil plant, natural gas exploration efforts by Oxy, the 1234-MW Al Dur power plant, upgrades to Banagas’s facilities and the planned pipeline from Saudi Arabia to Bahrain. In addition, BAPCO will likely become more competitive due to the implementation of refinery upgrades as part of its BMP scheme.