Bahrain Discovers New Crudes As Gas Plans Take Shape
Bahrain will hike oil production after discovering two new crudes. It is continuing to implement plans to upgrade its Sitra refinery and build a larger pipeline from Saudi Arabia, which feeds it with crude. Plans to tackle a forthcoming gas shortage are taking shape, and the contract to build an LNG terminal will be awarded sometime soon, writes Melanie Lovatt from Manama.
The discovery of two new crudes, dubbed Rubble Light (23° API) and Rubble Heavy (13° API), could add some 30,000 b/d to current production levels, Bahraini Minister of Energy and Chairman of the National Oil and Gas Authority (NOGA) 'Abdul al-Hussain bin 'Ali Mirza told MEES in an exclusive interview.
At present Occidental-led Tatweer Petroleum is producing in excess of 45,000 b/d of 30° API crude, which is up from 40,000 b/d a year ago and from the 33,000 b/d level seen in 2010 when the company began its $15bn drive to hike production capacity. Production is expected to increase steadily until the 100,000 b/d target is reached by the end of the decade. The target includes the Rubble crudes produced by Tatweer from the onshore Bahrain field.
Tatweer Drilling Push
Since its inception in late 2009, Tatweer (owned by Nogaholding and the UAE’s Mubadala in addition to Occidental) has drilled 238 development wells, with rates stepping up sharply from previous norms – only 800 were drilled from 1932 through to 2010. By 2020 some 3,600 new wells will be drilled in the Awali field with the aim of hiking gas production in addition to crude output, with some of these reaching new depths of 12,000-15,000 ft. Bahrain currently produces 1.5bn cfd of gas and Tatweer’s current plans call for doubling this later in the decade, said Dr Mirza. However, some gas needs to be reinjected to maintain reservoir pressure.
It is envisaged that the increased gas contribution from Tatweer will tide Bahrain over until the proposed LNG import terminal is completed towards the end of 2014 and new gas sources are found on and offshore, said Dr Mirza, noting that NOGA is “executing a multi-pronged strategy” to ensure the country is well supplied with the energy it needs for development.
Tatweer expects to find commercially viable amounts of gas in the deep pre-Khuff formations and there are
hopes that a final investment decision (FID) can be made by the end of 2014 (MEES, 10 October 2011). To date four wells have been drilled.
Regardless of the quantities of gas ultimately discovered and produced from the deep gas reservoir, Dr Mirza stresses that the LNG terminal is needed. The purpose of LNG imports would be to smooth peak demand periods and allow industries to grow prior to full development of the Tatweer reservoir. However, the prospect of a production boost from exploiting unconventional gas reserves could drive Manama to adopt a floating storage regasification unit (FSRU) rather than a land-based facility, explained Dr Mirza, noting that he hopes the results of the tender will be announced soon.
Bahrain shortlisted Shell and Norwegian LNG company I M Skaugen in the tender for the import of 400-800mn cfd for 15 years starting in 2014. The Shell offer provides free infrastructure but ties Bahrain to purchases that are priced at or near oil parity (MEES, 15 August 2011). If Bahrain takes the FSRU route, the project could be implemented by the end of 2013 or early 2014, while a land-based unit would take longer to set up.
Bahrain had been hoping to secure supplies from a number of sources, but talks with Iran broke down last year. Importing Qatari LNG had also been considered, but the moratorium on further North Field development is expected to remain in place until at least 2014 (MEES, 12 December 2011). Due to its proximity, Qatar would be the supplier of choice and the most logical delivery method would be via pipeline. Bahrain is only 30km from Qatar’s Dukhan field which is connected to the Qatari pipeline system. A pipeline project is still on the cards and would be considered even if an FSRU is in place when the moratorium is lifted, said Dr Mirza. “We have had discussions with Russia and other interested parties, and at the end of the day the chosen supplier of LNG will be the country or entity who can deliver the gas consistently, reliably and economically,” he explained.
By the time that planned expansions at domestic companies Aluminium Bahrain (ALBA) and Gulf Petrochemical Industries Company (GPIC) are implemented, which would hike the gas consumption of these two companies, Dr Mirza expects that both the LNG import terminal would be fully operational and that gas would have been struck in the deep gas reservoir. In order to fuel Bahrain’s development it is inevitable that imports will be needed in the near future. Given that LNG will arrive at international prices it is “important that our industrial customers and the population at large are aware of the situation at a very early stage,” he said. He explained that small step-wise price changes are the preferable way to implement increases, rather than “a huge price increase shock.” Recent events in Nigeria are an example of what a one-time increase can do to a society that is unprepared, he said. Price hikes in Nigeria triggered country-wide strikes.
On 1 January this year, Bahrain carried out its plan to implement the first of its price increases, after discussing the change at length with interested parties. Levels were put up by $0.75/mn BTU to $2.25-$2.50/mn BTU depending on the customer. While the increase is substantial “we must not lose sight of the fact that the original price was low according to all benchmarks,” said Dr Mirza, pointing out that prevailing prices in Europe are six-seven times higher, and in Japan they are about 10-11 times higher. Only very recently have gas prices dropped in the US to the lowest level in several years, but they are still double those in Bahrain, he added.
Bapco To Seek Partner For Sitra Refinery Upgrade
Bahrain Petroleum Company’s (Bapco’s) board of directors approved in November last year the company’s plan to raise the capacity of the Sitra refinery to 450,000 b/d from the current 265,000 b/d (MEES, 19 December 2011). With a price tag of $6-8bn the refinery expansion is one of Bahrain’s most significant projects and the company will seek a partner to implement it, said Bapco Chief Executive Gordon Smith, also talking exclusively to MEES. The refinery, which is currently operating above its nameplate capacity at 272,000 b/d, comprises units dating from 1936 to present, so the company will replace inefficient facilities with updated and environmentally friendly technologies. Of the refinery’s production, 18% is fuel oil and Bapco plans to exit this business and target middle distillate production such as kerosene and diesel, said Mr Smith. This necessitates installing a coker. Production will include ultra low sulfur diesel which could be sold to European as well as MENA and Asian markets. Gasoline production volumes and specifications remain under consideration.
Bapco has carried out studies on the refinery and is about to conduct a “peer review” by a group of experts who will scrutinize it from technical and financial perspectives. This is expected to be completed in March and until then Bapco only has an approximate idea of the investment needed, said Dr Mirza. Given that the cost is expected to be over $5bn, financing plans will involve seeking project financing from international and regional banks, including Islamic institutions and Bapco will establish its funding strategy this year, said Dr Mirza. While the Eurozone banking crisis needs to be considered, “there are many active export credit agencies (ECAs) from Japan, South Korea and other parts of the world that are potential pools of funding,” he added.
The expansion of the refinery will open up new opportunities for vertical integration and Dr Mirza hopes that a few years from now Bahrain will be able to develop a petrochemical complex. In its current configuration the refinery is somewhat small to allow substantial downstream development. Nevertheless, the successful start-up of the Lube Base Oil Plant at Sitra (MEES, 17 October 2011) is one step in Bapco’s drive to diversify its products portfolio with the aim of capturing value and increasing profitability, said Dr Mirza, stressing that Bahrain’s quest to maximize value from its natural resources will continue.
Bahrain-Saudi Crude Pipeline Project Moving Ahead
Work on the 114km Bahrain-Saudi crude pipeline project is expected to start in mid to late 2013 said Mr Smith, noting that Bapco is currently working on the front end engineering and design (FEED). Estimated to cost $350mn, the project will cater for the forthcoming hike in the Sitra refinery’s output and will see throughput increase to 350,000 b/d from the current pipeline’s 230,000 b/d level. The decision to replace the existing pipeline was based on environmental, health and safety concerns, because it is nearly 70 years old and urbanization in both countries means that it is now in close proximity to homes and businesses, explained Dr Mirza. The pipeline’s route is being changed and it will link Bahrain and Saudi Arabia via the south west (crossing Tatweer concessions) rather than the current northwest location.
Meanwhile, in addition to Tatweer’s enhanced oil recovery operations taking place onshore, Bapco is drilling offshore in the hope of increasing reserves. The exploratory wells will be finished by the end of the year and then data from this phase of exploration and wells drilled in the past will be examined and a plan will be put in place. “That will take another two years,” predicts Mr Smith. Bapco started drilling in December last year in Block 4 which is southwest of Bahrain, and while experts are examining the results, rigs have been moved to the southeast and the company is currently drilling horizons at about 8,000 ft. The campaign will continue through the year with Occidental (not Tatweer) exploring three blocks and Thailand’s PTTE another.
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