Download Counry Brief: Bahrain

JALLEH: COUNTRY BRIEF—BAHRAIN: [2008] I.E.L.R. 181
Country Brief
Bahrain
AMELIA JALLEH*
Bahrain; Electricity generation; Natural gas;
Offshore exploration; Oil and gas industry; Oil and
gas production; Refining; Regulatory bodies
Summary
The Kingdom of Bahrain is an archipelago of 36
islands located off the eastern coast of Saudi Arabia,
with an area of 727 sq km. It has a population of
approximately 710,000, of which an estimated 235,000
are non-nationals (foreigners are estimated to comprise
44 per cent of the workforce).
Pursuant to its Constitution, Bahrain is a fully
sovereign, independent Islamic Arab State with a
hereditary constitutional monarchy. King Hamad bin
Isa al-Khalifa is the Head of State, and its nominal
representative. Executive authority vests in the King
together with the Council of Ministers, and judicial
rulings are issued in his name. However, as the result of
democratic reforms in the late 1990s and the early part
of this decade, Bahrain now has a bicameral parliament
composed of a lower house of elected representatives
and an upper house of appointed legislators. The next
elections are scheduled to occur in 2010.
The religion of the State is Islam, with Islamic
Shariah law described in the Constitution as a principal
source for legislation and an estimated 81.2 per cent of
the population being Muslim.
Energy economy summary
Crude oil
Bahrain was the first Gulf State to discover oil and,
as a result, headed economic development in the
region for most of last century. However, when
concerns emerged in the late 1960s regarding the
ability of Bahrain’s mature oil field to sustain output,
Bahrain embarked on an economic diversification
program—the first country in the region to do so—with
a focus on industry, banking and financial services.
However, the extraordinary economic development of other countries in the region (particularly the
* BA LLM (Hons) (Flinders University of South Australia),
Senior Associate—Baker & McKenzie, Bahrain
United Arab Emirates and Qatar) has in recent years
challenged Bahrain’s role as the core business centre of
the Middle East, resulting in Bahrain overhauling its
economy and refocusing on the hydrocarbons sector.
All of Bahrain’s proven oil reserves of some 125
million barrels are contained within the Awali field,
located onshore in the middle of the country’s largest
island. The Awali field had peak crude oil production
in the 1970s of more than 75,000 barrels per day,
but is now in decline. Nonetheless, although analysts
predicted that this field would be depleted by 1997,
production has been stabilised at approximately 35,000
barrels per day.
In addition to production within its territory,
Bahrain shares with Saudi Arabia 300,000 barrels per
day of oil production from the offshore Abu Saafa
field.1 This field is now Bahrain’s primary source of oil.
Experts contend that Bahrain urgently needs additional energy reserves in order to sustain its industrial
expansion. In an effort to increase production, and
in line with the recent overhaul of Bahrain’s hydrocarbon sector, the Bahraini government is pursuing a
two-pronged approach, as follows:
• Awali field development—The state-owned Bahrain
Petroleum Co (‘‘Bapco’’), which is responsible
for the exploration, production, refining, marketing and distribution of Bahrain’s oil for both
the domestic and international markets, recently
announced plans to double output from the Awali
field to 70,000 barrels per day. New technology is
1 This figure is counted in Saudi oil production figures, but
net output and revenues are shared equally between the two
countries.
[2008] I.E.L.R. ISSUE 5  SWEET & MAXWELL LIMITED [AND CONTRIBUTORS]
182 JALLEH: COUNTRY BRIEF—BAHRAIN: [2008] I.E.L.R.
to be utilised to facilitate the exploitation of previously non-viable reserves. AP Moller Maersk,
ExxonMobil Corp and Occidental Corp are understood to be interested in this development, with a
tender expected to be awarded by the end of 2008.
• Offshore exploration—In March 2001, the International Court of Justice determined a maritime boundary dispute between Bahrain and
Qatar in respect of ownership of islands located
between the two countries, ultimately awarding
sovereignty over the Hawar Islands to Bahrain.
Determination of that dispute has allowed Bahrain
to offer concessions located off its south-east coast.
Bahrain is presently licensing a total of four
offshore exploration blocks which circle its coast,
covering the previously untapped potential oil
reserves offshore and including the south-east area
previously in dispute. Occidental Petroleum and
PTT Exploration won contracts to explore offshore
in late 2007, and exploratory work is presently
under way.
However, perhaps more important to Bahrain than
crude production is its refining industry. Bahrain,
unlike other Gulf States, exports refined petroleum
products rather than crude oil and has a refining
capacity which far exceeds its domestic production
(at some 260,000 barrels per day). As a result, Bahrain
imports approximately 225,000 barrels per day of Arab
Light crude oil from Saudi Arabia by means of a sub
sea pipeline linking the two countries. This crude is
refined at the Bapco-owned Sitra facility and exported,
mainly by tanker, predominantly to India and other
Asian markets.
In 2007, Bahrain produced an estimated 49,000
barrels per day of total oil liquids, of which 35,000
barrels per day was crude oil, 11,000 barrels per day
natural gas liquids, and 3,000 barrels per day refinery
gain. In 2007, Bahrain consumed an estimated 35,000
barrels per day of oil.
wells and it has introduced plans for new natural gas
production incrementally over the next several years
(including improving natural gas recovery rates from
existing fields).
However, domestic demand coupled with the
recent development explosion is expected to result
in Bahrain becoming a net natural gas importer
in coming years. Accordingly, Bahrain is pursuing
natural gas supply arrangements with other countries
in the region, particularly Iran and Qatar.
LNG
While there are a number of significant LNG projects
in the region, the author is not aware of any planned
for Bahrain.
Electricity
Bahrain’s electric power consumption is growing at an
annual rate of approximately 5 per cent per annum
as the result of population growth. Accordingly, the
Bahraini government is pursuing a number of avenues
to increase the country’s electricity generation capacity,
including the following:
• a move towards the privatisation of electricity
and water production, with Al Ezzal licenced to
construct an independent power plant;
• the sale of the Hidd power plant to a consortium
of British, Japanese and Belgian companies;
• the recent expansion of the Hidd power project
to add another 630 MW of gas fired capacity; and
• efforts to improve Bahrain’s transmission and
distribution infrastructure with the award in
March 2000 of contracts for upgrade work to
several foreign firms including Alstom, ABB, Fuji
Electric and Marubeni.
Key regulatory components
Natural gas
According to recent estimates, Bahrain’s proven
natural gas reserves stand at 3.25 trillion cubic feet,
much of which is associated gas from the Awali oilfield.
In 2006, the country produced 390 billion cubic feet
of natural gas, all of which was consumed locally
in power plants, enhanced oil recovery projects and
heavy industry. The largest consumer of natural gas
in Bahrain is Aluminium Bahrain (‘‘Alba’’)—operator
of one of the biggest aluminium smelters in the world
and of a large natural gas-fired power plant.
Bahrain National Gas Co (‘‘Banagas’’) is responsible for gas production and processing in Bahrain,
operating a gas liquefaction plant that utilises gas
piped directly from the country’s oilfield. That plant
produces approximately 3,000 bbls/d of propane, 2,700
bbls/d of butane and 4,500 bbls/d of naphtha.
The Bahraini government owns 75 per cent of
Banagas, with the remaining 25 per cent split equally
between the Arab Petroleum Investment Corp and
Caltex Bahrain.
In an effort to meet Bahrain’s rising domestic and
industrial demand, in 2006 Bapco approved plans for
a significant investment in 10 new onshore natural gas
The Bahraini Constitution provides that all natural
wealth and resources are State property—the State is
required to safeguard them and exploit them properly.
In 2005, as the result of the recent overhaul of
Bahrain’s economy and its hydrocarbon sector in particular, the Government created the National Oil and
Gas Authority (‘‘NOGA’’).NOGA consolidates control
of Bahrain’s oil and natural gas resources within one
body, rather than through three government departments as previously. NOGA’s aim is to preserve those
resources, and to determine options for their optimum
development.
NOGA is authorised by Royal Decree to, amongst
other actions:
• propose and implement the general policy on
oil and gas;
• oversee the companies and corporations operating in, and associated with, the oil and gas
industry;
• consider strategic options available to meet
Bahrain’s oil and gas requirements;
• establish contacts within and outside Bahrain in
order to develop its oil and gas resources and meet
Bahrain’s oil and gas requirements; and
[2008] I.E.L.R. ISSUE 5  SWEET & MAXWELL LIMITED [AND CONTRIBUTORS]
JALLEH: COUNTRY BRIEF—BAHRAIN: [2008] I.E.L.R. 183
• establish and approve the establishment of, and
the overseeing of companies operating in, the oil
and natural gas industry.
In addition to the creation of NOGA, in August
2007 a holding company was established under
NOGA’s supervision with the aim of consolidating the
country’s interests in Bapco, Banagas and other energy
companies with State shareholdings. That holding
company is authorised to establish new enterprises
to participate in projects within and outside Bahrain.
now one of the region’s most diversified economies.
However, although revenues from oil and natural gas
presently comprise only 13.1 per cent of GDP (as
compared with, for example, the financial services
sector which comprises 24.2 per cent of GDP (2006
estimate)), Bahrain’s economy continues to rely on
hydrocarbons, with oil revenue making up almost 75
per cent of government income.
In addition, as Bahrain’s budgets are calculated
using much higher estimates of oil prices than other
countries in the region, Bahrain remains especially
vulnerable to oil price fluctuations.
Challenges
As the result of early fears regarding the depletion of
its oil and natural gas reserves, Bahrain was the first
country in the Gulf to liberalise its economy and is
[2008] I.E.L.R. ISSUE 5  SWEET & MAXWELL LIMITED [AND CONTRIBUTORS]