The composition of Bahrain’s GDP compared to the five other GCC member countries, shows that while the energy sector remains the single largest contributor to national production, at just under a quarter of GDP, Bahrain is leading the way on economic diversification. An IMF discussion paper on economic diversification in GCC countries, published in December 2014, showed that according to the latest available data for the six member states, the mining and utilities sector contributed almost 50% to real GDP in Qatar, and more than 40% in Kuwait, Oman and Saudi Arabia, while it constituted approximately 30% in the UAE.

Energy Mix

In 2014 oil and gas constituted a higher proportion of GDP, at 24.1%, than it did in 2009, when Central Informatics Organisation data shows hydrocarbons production represented 19.3% of the total. The oil and gas sector’s contribution to fiscal revenues also increased year-on-year over that time, from 83% in 2009 to 88% in 2013, according to the “Economic Indicators” report from the Central Bank of Bahrain (CBB). In 2009 total government revenues were BD1.7bn ($4.5bn), of which oil and gas contributed BD1.42bn ($3.7bn), but by 2013 oil and gas was generating BD2.65bn ($7bn) in revenues from a total of BD2.9bn ($7.6bn).

However, Bahrain’s Ministry of Finance has had to reduce its forecasts for the contribution of oil and gas in budget projections for the 2015/16 fiscal year in the wake of falling oil prices. According to the US Energy Information Administration, the average price for Brent Crude was $108.56 in 2013, but by August 2015 its estimate for the year’s average price for Brent crude had fallen to $54.40.

Deutsche Bank estimates Bahrain’s fiscal break-even oil price at $118 a barrel, the highest within the GCC. Ministry of Finance figures cited by Bahrain’s Economic Development Board (EDB) show it anticipates oil and gas revenues of BD1.7bn ($4.5bn) in 2015, which would account for 81% of total revenues of BD2.1bn ($5.5bn). In 2016 the ministry estimates oil revenues of BD1.76bn ($4.6bn), equivalent to 81.5% of anticipated total revenues of BD2.16bn ($5.7bn).

However, despite the slump brought about by the drop in oil prices, Bahrain’s energy sector is pressing ahead with plans to boost oil output, improve the capacity of its refinery and meet rising demand for power by improving electricity distribution.

Onshore & Offshore

The two sources of Bahrain’s oil revenues are the onshore Bahrain (or Awali) field and the offshore Abu Safa field. The Bahrain field was the first to begin production in the Gulf. Crude oil was discovered in 1931 and the country was exporting just three years later. Recently the field’s production has become increasingly modest. Figures from the Joint Organisations Data Initiative for the Bahrain field show average oil production of 49,300 barrels per day (bpd) in 2014 and an average of 50,500 bpd in the first six months of 2015.

In 1963 the Abu Safa field was discovered in the waters between Bahrain and Saudi Arabia and began producing oil in 1966. A production-sharing agreement signed in 1972 gives Saudi Arabia control of operations while Bahrain receives 50% of the revenue, an arrangement wherein Bahrain does not incur any production costs. The output from this field is much more significant and was the single biggest source of government revenues in 2014. Figures cited by the CBB show that of the 73.88m barrels of crude produced in 2014, 17.8m came from the Bahrain field, while 56.08m was from Abu Safa. Technical issues in 2012 caused production to fall from 53.9m barrels in 2011 to 46.7m barrels in 2012, before recovering to 54.6m barrels in 2013. As a result, the oil and gas sector in Bahrain experienced a drop of 8.5% in 2012 before achieving 15.3% growth in 2013, according to EDB data. Compounding the loss from the country’s key revenue source, the drop in production from Abu Safa came in 2012, when the average price of Brent crude was at $111.67 a barrel.

The latest EDB data, published in July 2015, show that maintenance challenges at Abu Safa in the last quarter of 2014 and the first quarter of 2015 again weighed on output. In 2014 overall growth for the oil and gas sector was 3%, with respective growth rates of 4.1%, 9.3% and 4.7% in the first three quarters, compared to the same quarters in 2013, followed by consecutive year-on-year drops of 5.9% and 5.6% in the last quarter of 2014 and the first quarter of 2015. The report said that in the first quarter of 2015 Abu Safa produced an average of 136,935 bpd, short of its 150,000-bpd capacity, but that the Bahrain field was producing steadily, with 48,282 bpd in the first quarter of 2015, roughly even with the previous quarter and with the same quarter in 2014. The EDB budget projected an average output of 47,000 bpd in 2015 and 46,000 bpd in 2016 from the Bahrain field.

Special Relationship

The 1972 Abu Safa production-sharing agreement means that Bahrain’s success relies on strong ties with Saudi Arabia. Indeed, Saudi Arabia has made considerable investments in the Eastern Province that have benefitted Bahrain’s energy sector. In 2004 state-owned oil firm Saudi Aramco opened the Qatif processing facility to serve both the Qatif and Abu Safa fields. The facility produces, processes and transports 500,000 bpd of blended Arabian Light crude oil from the Qatif field and 300,000 bpd of Arabian Medium crude oil from Abu Safa.

To serve the facility, the oil giant built three new gas-oil separation plants (GOSPs) and five new offshore platforms. It also upgraded 10 offshore platforms, created 34 drilling islands and laid more than 1000 km of pipelines. The Abu Safa part of the project included a new 42-inch trunk line to the central Qatif production facility, 29 new offshore wells and 61 workovers of existing wells. The mega-project used 130,000 cu metres of concrete and 57,000 tonnes of structural steel and equipment, according to Hydrocarbons Technology, an industry news outfit. The Qatif facility became the first to produce Arabian Light crude oil by blending Arabian Extra Light and Arabian Medium crude oil.

Another large Saudi Aramco plant, Abqaiq, is the main feeder for Bahrain’s Sitra refinery, which is served via a 54-km subsea pipeline constructed in 1945. Abqaiq, which is Saudi Aramco’s largest oil processing facility and the world’s biggest crude oil stabilisation plant, receives sour crude oil from GOSPs and processes it into sweet crude oil. The plant also sends its products to Ras Tanura and Jubail on Saudi Arabia’s east coast and to Yanbu on the Red Sea. Abqaiq has a capacity of 7m bpd. According to The Oil and Gas Journal, 70% of Saudi Aramco’s crude oil is processed at the plant.

Modest Consumption

By GCC standards, Bahrain has a very low consumption of oil. Its annual per capita consumption was 12.36 barrels compared to 48.39 in Kuwait, 38.81 in Qatar and 37.77 in Saudi Arabia, according to Eni’s “World Oil and Gas Review 2014”. By way of comparison, per capita consumption in North America was 22.23 barrels and in the wider Middle East it was 13.13 barrels. The report estimates that Bahrain consumes 45,000 bpd, which means that at current production levels the country would be self-sufficient in terms of capacity simply by relying on the 48,282 bpd output from the Bahrain field.

Gas Production

Gas production is confined to the Bahrain field, where output has climbed steadily in recent years. Figures cited by the CBB show production in 2014 at 728.4bn cu feet, up 7.2% from 679.5bn cu feet in 2013. This was the second highest percentage increase in the GCC, behind Saudi Arabia’s 8.2%. The “BP Statistical Review of World Energy 2015” shows that Bahrain’s gas reserves reached 6.4trn cu feet in 2014, equivalent to 0.1% of the world’s total natural gas reserves.

Government Control

Energy production is overseen by the Ministry of Energy, and the government either wholly owns or has a controlling interest in the key companies in the sector. In a Cabinet reshuffle in December 2014, Abdul Hussain bin Ali Mirza, a politician with extensive experience in the sector, became minister of energy.

As part of the role, Mirza chairs the board of directors of the National Oil and Gas Authority (NOGA) and is also chairman of the some of the firms responsible for oil and gas industry investments, oil exploration, the production of refined lubricants and the shipping of petrochemicals products. NOGA was established in 2005 by royal decree and plays a political role by implementing policy, but also acts in a regulatory capacity by setting industry standards. The minister of energy is also chairman of nogaholding, the company established by royal decree in 2007 to handle the state energy sector’s investment portfolio. Since its creation, nogaholding has demonstrated a business-focused approach to developing the industry.

The government owns 100% of Bahrain Petroleum Company (BAPCO), which has primary rights over exploration and production, refining and sale of the country’s crude oil, petroleum products and natural gas. Through nogaholding, the government owns 75% of Bahrain National Gas Company ( Banagas), which processes associated gas from the Bahrain field for export and supplies gas to Aluminium Bahrain, BAPCO’s refinery and Riffa Power Station. These stations rely mainly on high-pressure (and non-associated) Khuff gas, though their dependence on Banagas’s low-pressure residue gas is minor compared to its reliance on high-pressure Khuff gas. The Bahrain Aviation Fuelling Company, which supplies fuel to the country’s airport, is 60% owned by nogaholding, which also has a 55% stake in Bahrain Lube Base Oil Company, which makes and markets industrial lubricants. The state also owns 51% of Tatweer Petroleum (including through nogaholding’s 20% share), which was established in 2009 to operate the Bahrain field and given the target of doubling output within five years using enhanced oil recovery (EOR) techniques. The state holding company also has a 35% stake in Skaugen Gulf, a shipping company specialising in hydrocarbons, as well as a 33.3% share of the equity of Gulf Petrochemical Industries Company. The net result of this degree of state ownership and intervention is that the government creates energy policy and sets targets, but also plays a major role in implementing those policies and delivering results.

Improving Infrastructure

The minister of energy has insisted that plans to improve the kingdom’s energy infrastructure will go ahead despite the sharp fall in global oil prices experienced since the summer of 2014. At the 10th Arab Energy Conference, held in Abu Dhabi in December 2014, Mirza told Reuters that the fall in oil prices would not hinder the development of a new liquefied natural gas (LNG) import terminal, an upgrade of the pipeline between Bahrain and Saudi Arabia, and an expansion of BAPCO’s Sitra Refinery. Mirza anticipated the new floating LNG terminal would be completed in the second half of 2017. In December 2015 Banagas and nogaholding signed a $685m contract with a consortium held by Canada’s Teekay LNG Partners, South Korea’s Samsung and the Gulf Investment Cooperation. The LNG terminal will be owned and operated by Bahrain LNG, a new joint venture owned 30% by nogaholding and 70% by the consortium. GS Engineering & Construction was selected as the engineering, procurement and construction contractor, while Teekay will supply the “floating storage unit” vessel through a 20-year time charter.

At the same conference, Mirza told delegates that work on the new oil pipeline between Bahrain and Saudi Arabia would start in the second half of 2015. The pipeline, which will supply the Sitra Refinery, should grow the infrastructure’s daily capacity to 350,000 bpd, a sharp rise when compared to the current capacity of 220,000 bpd. In January 2015, BAPCO and Saudi Aramco held joint meetings in Dubai and Bahrain to invite bidders for the project, revealing that of its 115-km length, 42 km is sub-sea and the rest onshore. “The project replaces the current ageing crude oil pipeline between Saudi Arabia and Bahrain with a new 30-inch-diameter pipeline,” Abdul Jabbar Abdul Karim, BAPCO’s general manager of major engineering projects, said in a statement. “It will also cater to future increases in crude oil demand post implementation of the BAPCO Modernisation Programme.”

Refinery Upgrade

The results of an initial front-end engineering design (FEED) report on the expansion of the refinery at Sitra are due in late 2015. The FEED contract was awarded to Technip Italy in September 2014. The company did not give the value of the contract, but said that it was between €50m and €100m. Technip Italy has been asked to carry out four main work packages that are designed to turn “bottom of the barrel” components into high-value products. The company said part of its remit was to ensure the new elements of the refinery would work seamlessly with the existing processes being maintained.

The modernisation is designed to expand Sitra’s processing capacity from 267,000 bpd to 360,000 bpd, enabling it to take full advantage of the 350,000-bpd capacity of a new oil pipeline from Saudi Arabia. NOGA indicated it expects the refinery modernisation to take six years to complete. BAPCO, which operates in Sitra, has said the modernised refinery would include five units, consisting of a residue hydrocracker, a vacuum gas oil hydrocracker, a diesel hydrocracker, a sulphur recovery unit and a delayed coker. It says it anticipates the EPC to commence in 2016, with the fully modernised refinery coming on-stream in 2020.

Tatweer Petroleum

In 2009 Tatweer Petroleum was formed to ensure that production in the Bahrain field was optimised. By that year, production at the 80-year-old field had waned, with much of the oil that could potentially be extracted remaining in the ground. Tatweer is a joint venture between US firm Occidental Petroleum Corporation (Oxy), Abu Dhabi-based Mubadala Development Company and nogaholding. In the first phase of operation, Tatweer boosted production by drilling more wells and saw daily yields increase from 27,500 bpd to 40,700 bpd between 2009 and 2011. According to the CBB, in 2011 the Bahrain field produced a total of 15.5m barrels, and by 2014 this had risen to 17.8m. In January 2015 Andrew Kershaw, an Oxy veteran with extensive experience in Bahrain and the region, was appointed as Tatweer’s new CEO. He explained the challenge in a company statement: “The ‘easily recoverable oil’ has already been produced, but about 85% of the original oil-in-place is still unrecovered. This remaining ‘difficult-to-recover oil’ will need to be coaxed from the ground with the help of the latest technology in the form of EOR processes.”

The company is running eight EOR pilot projects, six of which utilise water flooding, while the remaining two use steam flooding. It is also making plans to conduct chemical and water alternating gas tests and is considering carbon dioxide and enriched gas flooding. According to Tatweer, oil in the Aruma formation has the consistency of rubber, and it can take two to four weeks of steam injection to reduce its viscosity to levels that enable it to be recovered. In the Mauddud formation, light oil is trapped under a spongy rock cap, and Tatweer is using steam flood distillation to vaporise and subsequently recondense the oil once it has been squeezed out of the steam. In addition to the scientific and engineering issues associated with EOR processes, there is also a cost factor which, with Brent crude hovering at $50 a barrel, start to quickly become prohibitive. Tatweer must consider the cost-benefit and profit margins as it applies costly advanced approaches to recovering oil.

Ratings Reduced

The challenges facing Bahrain amid falling crude oil prices led to credit rating cuts by both Standard and Poor’s (S&P) and Fitch in 2015. Assuming an average Brent crude price of $55 a barrel for the year, in February 2015 S&P issued a negative outlook for Bahrain, leaving its rating one level above junk status. S&P noted Bahrain received 65% of its fiscal revenue from crude oil receipts in 2014 and that wages and salaries constituted some 42% of government expenditure, while subsidies represented 30%. “These increasingly burdensome social expenditures underpin Bahrain’s pronounced vulnerability to oil prices,” S&P said in a statement. In June 2015 Fitch downgraded Bahrain’s issuer default rating (IDR) from BBB to BBB-, and its long-term local currency IDR from BBB+ to BBB. Fitch cited anticipated growth in government debt and said it took into account the positive impact on the non-oil sectors. It also noted that while gross oil exports are over 50% of current external receipts, Bahrain’s oil imports from Saudi Arabia for refining and export mean net oil exports are 25% of the total.


The fall in oil prices has had a big impact on financial projections and overall economic forecasts of major oil-producing nations like Bahrain. However, its continued investment in innovative petroleum and oil recovery mechanisms, coupled with collaborative efforts with GCC neighbours, should support the sector through these difficult times. “Exploration and production extraction rates continue to improve due to new technology,” Majeed Shafea, former country chairman of Chevron Bahrain, told OBG. “Bahrain is really on the forefront of using new methods in enhanced oil recovery.” Among the more promising projects in the works are brand new developments such as the LNG import terminal, the new pipeline to Saudi Arabia and the expansion of the Sitra refinery.