Bahrain, known as the birthplace of the Arabian Peninsula’s oil industry, is navigating the challenges and opportunities of the energy transition. While focusing on renewables production, energy efficiency and sustainability, the kingdom is also leveraging its remaining hydrocarbons resources. The country has made promising hydrocarbons discoveries that indicate the potential for further expansion in the sector. The industry is receiving a boost from downstream developments, including the modernisation of the Sitra refinery, located south of the capital Manama.
Bahrain’s utilities segment is driving demand for new infrastructure and investment due in part to renewable energy and efficiency strategies. The government is restructuring its oil and gas holding company, Bapco Energies. This endeavour entails the potential spin-off of significant assets in transport, logistics and infrastructure in the coming years.
Oversight
The Ministry of Oil and Environment (MoOE) fulfils the role of the oil and gas sector’s primary regulatory and oversight body. In September 2021 the MoOE’s remit was expanded when it absorbed the National Oil and Gas Authority (NOGA), which had previously been the sector’s key regulation, oversight and industry development body. NOGA also provided the overarching structure for a wide portfolio of the oil and gas entities operating in the kingdom.
As part of the restructuring, NOGA’s functions were divided among the MoOE, which assumes full control over the budgetary rights and obligations; the Higher Committee for Energy and Natural Resources, which acts as the supervisory body and establishes strategic objectives; and nogaholding, which oversaw all subsidiaries and operated companies previously under NOGA. In May 2023 nogaholding rebranded to Bapco Energies to emphasise its commitment to sustainable energy solutions and diversification.
Structure
Within its portfolio, Bapco Energies oversees several entities such as the Bahrain Petroleum Company (Bapco), the Bahrain Natural Gas Company (Banagas), the Bahrain Aviation Fuelling Company (BAFCO), the Bahrain National Gas Expansion Company (Tawseah), the Bahrain Lube Base Oil Company (BLBOC), Bahrain Liquefied Natural Gas (BLNG), Bahrain Gasoline Blending (BGB), the BAC Jet Fuel (BJFCO), the Gulf Petrochemicals Industries Company (GPIC), the Arab Shipbuilding and Repair Yard Bahrain (ASRY) and Tatweer Petroleum, which is responsible for upstream operations. Bapco Energies has a 100% stake in Bapco, Tawseah and Tatweer. Additionally, it owns a 75% stake in Banagas, with Chevron and Kuwait’s Boubyan Bank holding shares. Bapco Energies also has stakes of 60% in BAFCO and 50% in BJFCO. GPIC follows a three-way equal share ownership structure between Bapco Energies, Saudi Arabia’s SABIC and Kuwait’s Petrochemical Industries Company.
Bapco Energies holds a 72.5% stake in BBLOC, with the remaining 27.5% shares held by Bapco. Bapco Energies owns 30% of BLNG, with the remaining shares divided among Canada’s energy transport company Teekay (30%), Kuwait’s Gulf Investment Corporation (24%) and South Korea’s Samsung C&T (16%). BGB’s ownership structure consists of Bapco (42.5%), Bapco Energies (42.5%) and the UK’s Greenergy (15%). ASRY is a collaborative venture among seven Arab countries, with Bahrain possessing the largest share, at nearly 37%. The UAE, Saudi Arabia, Kuwait, Iraq, Libya and Qatar hold minority positions in the project.
Bapco operates a refinery on Sitra Island, which plays a crucial role in the country’s energy sector. The refinery has the capacity to process a significant amount of crude oil, with approximately one-sixth of its production capacity dedicated to domestically sourced crude oil. The remaining inputs for the refinery are supplied from Saudi Arabia’s Abqaiq plant through a 115-km pipeline. The refinery’s primary focus is on export, with approximately 95% of its output directed to both domestic and international markets. Liquefied petroleum gas, naptha, gasoline, kerosene, aviation fuel, fuel oil, asphalt and low-sulfur diesel are among the products exported.
Other government entities that play a key role in the sector include: the Ministry of Labour, which regulates health and safety for employees in the industry sector; the Ministry of Industry and Commerce, which issues licences for all industrial operations in the kingdom, including the oil and gas sector; and the Supreme Council for the Environment (SCE), which works on developing environmental best practices across all industries operating in the kingdom. While Bahrain is not a member of the Organisation of the Petroleum Exporting Countries (OPEC), it holds membership within the OPEC+ group, signifying its importance in collaborative efforts with oil-producing countries.
Expansion
Sitra Island has been the primary site for the Bapco Modernisation Programme (BMP) which is slated for completion in the second half of 2023. This initiative aims to enhance the refinery’s capacity from 270,000 barrels per day (bpd) to 400,000 bpd, with a nameplate capacity of 380,000 bpd. In December 2019 Bapco undertook a restructuring by establishing Bapco Tazweed and separating its petrol station operations. Initially comprising 16 service stations, the company expanded its network by adding three more stations within a year. By 2020 Bapco Tazweed had captured a 36% share of the domestic market.
In terms of gas processing, Banagas and Tawseah operate facilities that underwent an expansion in 2019. The jointly operated Bahrain Gas Plant boasts a nameplate capacity of 350m standard cu feet per day. Additionally, Bahrain LNG oversees a terminal that has a capacity of 800m standard cu feet per day, which includes a 173,000-cu-metre floating storage unit, a nitrogen production facility with an output of 1100 tonnes per day and on-jetty re-gasification capabilities. BGB operates a facility with a capacity of 850,000 tonnes per year. Moreover, BAC supplies jet fuel to Bahrain International Airport from its aviation fuel farm, which has a capacity of 30,000 cu metres. This facility, which was completed in April 2021, enhances the airport’s fuel supply capabilities.
Oil & Gas Reserves
Bahrain holds a significant historical position in the petroleum industry, as the kingdom was the first location in the Arabian Peninsula to commence crude oil production in 1932. This milestone took place at the Bahrain Field, also known as the Awali field, situated at the centre of the kingdom’s main island. Tatweer Petroleum currently operates the field, which encompasses 16 oil reservoirs and four non-associated dry-gas reservoirs. The latter are located in the Khuff and pre-Khuff formations, at depths exceeding 9000 feet, while the former are found at more shallow depths, starting with tarry oil at Aruma, which is approximately 1000 feet deep.
The offshore Abu Safah oil field is the largest operational hydrocarbons reservoir in the kingdom. It spans Bahrain’s and Saudi Arabia’s maritime zones, containing an estimated 6.2bn barrels of oil. Saudi Aramco manages the field and ensures that revenue derived from it is distributed between the two countries. The oil extracted from the Abu Safah field is transported to Sitra through the Abqaiq pipeline, facilitating processing and further downstream operations.
A new shale oilfield Khaleej Al Bahrain was discovered in 2018. According to the MoOE, the field could contain up to 80bn barrels of oil and 20trn cu feet of gas. In 2022 Bapco Energies confirmed additional gas discoveries in the underlying layers of the Bahrain Field. The reserves are estimated to contain approximately 10-20trn cu feet of deep gas (see analysis).
As of 2022 Bahrain had approximately 124.6m barrels of proven oil reserves, according to the US International Trade Administration. These reserves, excluding the recently announced discoveries, form the foundation of Bahrain’s hydrocarbons resources. According to data recorded by the Central Bank of Bahrain from January 2023, the sector experienced a substantial boost in exports in 2022, increasing from $9.8bn in 2021 to $15.1bn. These figures highlight the significant economic contribution of the oil and gas industry to Bahrain, demonstrating its role as a key driver of export revenue and overall economic growth.
According to the Ministry of Finance and National Economy, the oil sector’s nominal GDP witnessed a growth of 33.7% in 2022, primarily driven by rising oil prices. Notably, Brent crude experienced an average price increase from $71 per barrel in 2021 to approximately $100 per barrel in 2022.
Utilities Structure & Oversight
The Ministry of Electricity and Water Affairs (MEWA) serves as the primary government entity responsible for the power and water segments. Acting as the kingdom’s only off-taker, the Electricity and Water Authority (EWA) is entrusted with the role of ensuring a sustainable, reliable and high-quality supply of power and water. Given the limited availability of natural water resources, Bahrain relies heavily on desalination as the primary method for water production. The extraction of groundwater is strictly regulated, with permissions granted solely for strategic reserve purposes since the enactment of a decree in 2016. Utility plants in the country typically operate as combined facilities, generating both electricity and desalinated water. The predominant feedstock utilised in these facilities is natural gas, with Bahrain leveraging its own reserves to meet this requirement.
EWA’s Electricity Transmission Directorate (ETD) is responsible for the maintenance and operation of the power grid. In addition to its core duties, the ETD also focuses on optimising power production from the government-owned Riffa Power Station. In its role, ETD coordinates the integration of power generated by independent water and power producers (IWPPs) in the kingdom. IWPPs typically operate under long-term power purchase agreements spanning 20-25 years. Furthermore, ETD oversees the management of power supply from regional interconnectors.
Similarly, Water Transmission Directorate (WTD) operates and maintains the kingdom’s water transmission network while also monitoring output from IWPPs to ensure that they are acting in compliance with established quality standards. Moreover, the WTD oversees the operations of the government-owned Ras Abu Jarjur, which is a reverse osmosis (RO) water desalination plant that produces a daily output of 16m gallons of water using groundwater sources. The WTD sources water from two other government-owned entities, the Mobile RO Company and Hawar Station and four private water suppliers: Hidd Power Company, Al Dur Power and Water Company, Haya Power and Desalination Company and Aluminium Bahrain (Alba).
Power Stations
Alongside the Riffa Power Station, as of 2021 the kingdom operated five other IWPPs and independent power producers (IPPs): Al Dur, Al Dur 2, Al Ezzel, Al Hidd and Sitra. Al Dur and Al Dur 2 are located in southern Bahrain, with Al Dur commissioned in 2012 and Al Dur 2 in 2021. The former has a capacity of 1234 MW and produces 49m gallons of water. Al Dur 2 has a capacity of 1500 MW and produces 50m gallons of water, utilising combined cycle gas turbine (CCGT) technology for power generation and seawater RO for water production. France’s ENGIE holds a 45% stake in Al Dur and Al Ezzel and a 30% stake in Al Hidd. The other significant investor in Al Dur and Al Ezzel is GIC. Al Dur 2 is managed by Saudi Arabia’s ACWA Power, with minority stakeholders including Japan’s Mitsui & Co and Bahrain’s Almoayyed Contracting Group. EWA received bids for a third phase expansion of Al Dur in September 2022 for a facility with a capacity of 1500-1800 MW and 50m gallons of water of seawater via RO.
Al Ezzel, the first IPP undertaken by the kingdom in 2007, has a capacity of 950 MW and utilises CCGT technology. Al Hidd is a dual-fuel gas turbine plant with a capacity of 272 MW, offering the flexibility to switch to fuel oil in case of gas shortages. Engie, Malaysia’s power company Malakoff Corporation Berhad and Japan’s investment firm Sumitomo are stakeholders in Al Hidd. The plant also has a water production capacity of 30m gallons of water, employing a multi-stage flash process. Sitra, however, was decommissioned in February 2021 after 40 years of service, and EWA announced an auction for the power station site in February 2023.
Plans & Projects
The SCE plays a crucial role in developing, monitoring and implementing the environmental sustainability strategy. This task has gained importance because of the country’s increasing focus on the energy transition, sustainability and emissions reduction. “Carbon neutrality and sustainability are significant drivers of economic development in the country,” Carlos Alcazar, executive managing director of Hidd Power Company, told OBG.
Two key strategic programmes in this regard are the kingdom’s National Renewable Energy Action Plan (NREAP) and the National Energy Efficiency Action Plan (NEEAP). These plans, formulated by the Sustainable Energy Unit (SEU), were officially approved by the government in January 2017. The SEU, which was established in 2014, collaborates with various government agencies and ministries, including the MEWA, as well as the UN Development Programme.
The NREAP and the NEEAP align with the objectives stated in Bahrain’s Economic Vision 2030, the kingdom’s long-term strategic development plan. These energy plans also reflect the country’s commitments under various international agreements, including the Paris Agreement, the UN Sustainable Development Goals, Arab Renewable Energy Strategy 2010-30 and the COP26 UN Conference on Climate Change held in Glasgow in November 2021. The kingdom has pledged that it would achieve net-zero emissions by 2060.
The NREAP has set ambitious targets for renewable energy integration into the electricity segment. By 2025 the plan aims for renewable energy to contribute 5% of the peak electricity capacity, with a further goal of 10% by 2035. The primary focus lies on solar power, while wind and biogas from waste are also slated to increase their shares in the energy mix. These targets represent a major shift in the kingdom’s total energy supply. According to the International Renewable Energy Agency, in 2019 total energy supply comprised 91% gas and 9% oil, with renewable energy accounting for less than 0.05% – 327 terajoules out of a total of 668,223 terajoules. The targets set by the NREAP for renewable energy integration mark a significant transformation in the energy landscape.
Progress
Despite the challenges posed by the Covid-19 pandemic, Bahrain has made notable progress in advancing its renewable energy goals. Through a combination of large-scale and distributed solar projects, the kingdom has made significant strides towards achieving the 2025 target outlined within the NREAP (see analysis). Bahrain – and Bapco Energies in particular – is exploring the implementation of carbon capture, utilisation and storage (CCUS) technologies to reduce the kingdom’s carbon footprint.
The NEEAP encompasses 22 initiatives that aim to promote energy efficiency across various sectors. The key objective of the plan is to reduce average final energy consumption by 6% by 2025. This amounts to approximately 5800 GWh of energy savings, resulting in annual production cost reduction of BD82m ($217.5m) and elimination of 3.4m tonnes of greenhouse gas emissions. The plan adopts a sectoral approach, with a particular emphasis on improving energy efficiency in the building and construction sector. Under the NEEAP, directives are in place for residential and commercial buildings, as well as government facilities, to undertake green building initiatives. Measures such as district cooling, refurbished street lighting, minimum performance standards and labelling campaigns all are integral components of the plan.
“The drive towards energy efficiency is impacting government policies in Bahrain, although more needs to be done to raise awareness of such initiatives,” Ian Roos, CEO of Pavilion Renewables, told OBG. “Similarly, the local business community would benefit from having greater financial support and incentives to invest in improving insulation systems, utilising more sustainable construction materials and adopting advanced technology and equipment.”
Substantial progress has been achieved. The Sustainable Energy Authority (SEA), which replaced the SEU in 2019, reported in March 2021 that 70% of the 2025 targets had already been achieved. All government lighting had been changed to LED, and a water resources council had been established.
Structural Changes
As of May 2023 Bahrain was carrying out a comprehensive restructuring of the energy sector, including the dissolution of NOGA. As part of the restructuring, the operating companies were transferred to Bapco Energies in 2021.
“Bapco Energies is currently undergoing a transformation from an oil and gas holding company to an integrated energy company, with the focus being on the entirety of the sector’s value chain,” Mohamed Al Shehab, vice president of corporate finance and investor relations at Bapco Energies, told OBG.
The strategic initiatives undertaken by Bapco Energies are in line with Bahrain’s National Energy Strategy, which is scheduled to launch in the second half of 2023. The scheme, which was developed in collaboration with Boston Consulting Group, focuses on optimising the country’s energy mix, implementing decarbonisation plans and advancing renewable energy development. The goal is to reach Bahrain’s net-zero target by 2060, ensuring sustainable and resilient energy.
In addition to the plan, Bapco Energies is developing a new operating strategy. The objective of this strategy is to optimise operational efficiencies, reduce costs and increase value creation. The company intends to make changes in its portfolio by divesting certain assets, and streamlining functions within the group and its operating companies. These actions aim to focus on core functions within the organisation.
Upstream Performance
In recent years, the Bahrain Field has seen a series of notable advancements, ranging from production-enhancing initiatives to the discovery of new deep gas reserves. Subsequently, an exploration campaign, debottlenecking efforts and enhanced oil recovery programmes were launched following the establishment of Tatweer Petroleum in 2009. The most recent phase is the Bahrain Field Oil and Gas Development and Expansion Programme, which is scheduled to continue until 2024. The programme halted and reversed the declining production of the field. Tatweer Petroleum drilled 1510 new wells during the 2010-21 period. The company produced 43,200 bpd of oil and condensate, along with 1.7bn cu feet per day of non-associated gas from the Bahrain Field in 2020, according to Bapco Energies’s 2021 annual report.
In 2021 Tatweer Petroleum announced that it planned to drill 900 new oil wells within the next five years. In August of that year Bapco Energies announced the securing of an additional $200m for the Bahrain Field Oil and Gas Expansion and Development Programme. This funding came as an extension to a previous $1.4bn Islamic financing facility. Furthermore, in May 2022 the facility was further expanded by an additional $600m, resulting in a substantial financial reserve to fuel future operations in the field.
In November 2022 the authorities announced the discovery of two additional gas deposits in the Al Jawf and Al Joubah layers. These deposits are situated beneath the Al Onaiza and Al Khuf reservoirs, which are already being utilised for gas extraction. While the exact size of these deposits remained unknown as of May 2023, estimates suggest a range of 20-30trn cu feet. Further exploration efforts are under way to assess additional layers beneath Al Jawf (see analysis).
Abu Safah remains a profitable crude oil source, and Saudi Aramco has continued its expansion and development of the field. According to the Saudi energy giant, Bahrain’s share of oil output from the field averaged 150,000 bpd in 2021, while the entire field produced approximately 300,000 bpd. In October 2022 an engineering, procurement and construction tender was issued for the next phase of the field’s expansion. This tender includes the construction of an electric distribution platform, two production deck modules and work on the Berri oil field along Saudi Arabia’s eastern coast.
The Khaleej Al Bahrain field has been undergoing extensive technical evaluation since it was discovered in 2018. At that time, Bapco Energies and Bapco engaged US-based oil field service company Halliburton to drill two appraisal wells in the field, which presented technical challenges and potential development costs. The previous decade witnessed limited activity due to low oil prices. However, increases in oil prices since 2021 have led to renewed interest in such projects. Given the challenging technical nature of the offshore shale oil field, it may be necessary to establish new fiscal incentives to enhance its appeal to international investors. There is a possibility that there will be further updates in this regard, as officials within the Bahraini government have indicated their intention to develop a modified fiscal regime for the partners that have been involved in the development of the oil field.
Downstream Performance
The BMP, valued at $7bn, has continued its progress despite delays caused by the pandemic. The MoOE reported that as of May 2022 the program was 80-85% complete. The refinery, expected to be fully operational by late 2023, is capable of processing the targeted 400,000 bpd. The revised focus of the upgrade is on middle distillates, encompassing products like diesel and jet fuel. The shift aims to align with market demand and optimise output. The refinery will be able to handle heavier crudes, a crucial aspect for addressing shale oil output, especially if the Khaleej Al Bahrain field becomes operational. The BMP is expected to increase efficiency at the refinery by some 40%, according to Bapco Energies officials.
Utilities Performance
According to the figures that were released by the EWA for 2021, the total electricity generated by the power stations reached 18,582 GWh that year, indicating a 5.5% increase compared to the 2020 total of 17,620 GWh. EWA contributed 400 GWh, while IPPs and IWPPs generated 18,047 GWh. An additional 135 GWh was imported through the Alba and GCC interconnectors. The minimum load in 2020 increased by 2.6% to 881 MWs and the maximum load grew by 2.4%, reaching 3751 MWs. In February 2021 the Sitra Power and Water Station, which had been in operation for 40 years, was closed, and the site was subsequently put up for auction.
In 2021 the average water production increased by 1.1% to reach 168.8m gallons of water, with all water being sourced through desalination. Groundwater usage was completely phased out, marking a shift compared to 12.4% in 2011. Among the water suppliers, Hidd Power was the leading provider, supplying 29.5bn imperial gallons in 2021 and holding a 47.9% market share, followed by Al Dur independent water and power plant with 16.9bn imperial gallons.
Outlook
With the kingdom’s progressive energy transition plans gaining momentum, and the ongoing restructuring of Bapco Energies, a significant transformation of the sector is under way. Notably, Bapco Energies’s evolution into a vertically integrated energy company is expected to result in enhanced operational efficiencies and the expanded involvement of external investors and partners in critical services such as transport, warehousing, logistics and administration. Moreover, the company is likely to actively seek prospects overseas, investing in start-ups and research and development initiatives, while collaborating with established entities that have specialised expertise.
Investment in alternative energy sources is also set to expand. Bahrain is monitoring advancements by market pioneers in the hydrogen industry, taking a prudent approach before making significant commitments in this potentially transformative segment. Furthermore, the kingdom remains committed to prioritising projects that enhance operational efficiencies, emphasising the significance of the BMP and the development of upstream fields as integral components of its strategy.
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