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Making the most of what you've got: over reliance on a small number of fields is a predicament that afflicts many oil producers. However, the problem is particularly acute in Bahrain, where the Awali field accounts for the country's entire oil production. Yet with Awali's output in a steady decline, the government is eager to diversify its interests in the oil and gas sector. (Oil).

As it is not among the Gulf's main oil producers, Bahrain is often overlooked in discussions of the oil and gas sector in the Middle East. The country is perhaps best known as a financial centre but it does rely heavily on oil for revenue. Economic growth of 4.1% in 2001 was fuelled by high oil prices, both directly and indirectly, as the financial sector received a fillip from higher income elsewhere in the region, complementing higher domestic oil revenues.

Despite its limited size, Bahrain's Awali field is well known in the region because it became the Gulf's first oil field in the early 1930s. With proven reserves of 125m barrels, production on the field peaked at just over 75,000 barrels a day (b/d) in the 1970s, but it has since fallen to under 35,000 b/d.

Around 140,000 b/d of crude oil is also produced in the Abu Safah field in the Bahrain-Saudi Arabia maritime borderlands. The Saudis operate the field and although production was originally split equally between the two countries, Saudi Arabia agreed to allocate all production to Bahrain in the mid-1990s in order to help the Bahrain economy.

The introduction of democratic reforms by King Hamad bin Isa Al Khalifa has been accompanied by economic reforms and the restructuring of state owned companies. In June 2002, Bahrain Petroleum Company (Bapco) merged with upstream parastatal Bahrain National Oil Company (Banoco), although the new entity has retained the Bapco name. The merger followed three years of increasingly close cooperation between the two companies in an effort to cut costs and improve coordination between the state's refining and marketing interests. Bapco is now able to operate throughout the sector from exploration through to refining and distribution.

Efforts to improve oil production received a boost in March 2001 when the International Court of Justice (ICJ) in The Hague awarded sovereignty over the Hawar Islands and Qitat Jarada Island to Bahrain rather than Qatar. The maritime boundary dispute between the two countries had long held up oil exploration in the area and had affected relations between the two for 60 years, almost leading to war in 1986. The government of Bahrain acted quickly to encourage exploration around the islands which are located in a proven petroleum basin, near the giant Saudi Ghawar onshore oil field, the Qatari North Gas field and Bahrain's own Awali field. US major ChevronTexaco and Petronas Carigali Bahrain, a local subsidiary of Malaysian company Petronas, were awarded exploration rights in November 2001.

The main area of state investment in Bahrain's oil industry is the Sitra refinery. Bapco is investing almost $1bn to improve both the refining capacity, from its current level of 248,900 b/d, and the range of petroleum products processed at the plant. Petroma of Saudi Arabia won a contract to build a brand new 500,000 refinery in Bahrain but the project has stalled over the past year or so.

Last August, the Supreme Oil Council agreed to build a new $60m pipeline to supply the Sitra plant with Saudi Arabian oil. Around 200,000 b/d of crude oil is already imported from Saudi Arabia for refining at Sitra and it is expected that Saudi oil will provide most of the additional feedstock once the plant has been expanded.

In the same month, Bapco announced that it plans to set up a joint venture (JV) with foreign companies to develop a new petrochemical complex at a cost of $1bn. A naphtha cracker unit will be constructed to enable the production of polyethylene and polypropylene. The project has already been approved by Prime Minister Sheikh Khalifa bin Salman Al Khalifa and the Supreme Oil Council, and the feasibility study is expected to be completed very soon. Oil Minister Sheikh Isa bin Ali Al Khalifa said that it was hoped that the plant would provide job opportunities for local people.

The power sector offers other opportunities for growth to the hydrocarbon sector. All of the 300 billion cubic feet (bcf) of associated gas that is produced on Awali is consumed by the Bahrain National Gas Company (Banagas) for power generation. However, rapid population growth is driving demand for power and current generating capacity of one gigawatt (GW) will not be sufficient in the long run.

With a lack of other domestic gas fields with which to supply the country's thermal power plants, the government has agreed to allow the company to buy gas from the North Field Enhanced Gas Utilization Project in Qatar, once production from that scheme is brought on stream in the next few weeks. Much of the gas will be used to supply the Hidd plant--the largest in Bahrain--which is currently undergoing an overhaul.

Another area of growth is natural gas liquids. A year ago Banagas and US firm Dynegy Global Liquids set up a Bahrain based joint venture to invest in natural gas liquids projects.

With new exploration work, interests in the Abu Safah field and a growing refining sector, Bahrain by no means has all its eggs in one basket. However, the government is undoubtedly right to encourage diversification and also the strengthening of links between the oil and gas sector and the rest of the economy. Economic liberalisation will necessitate the creation of thousands of new jobs for the citizens of Bahrain. The raft of new initiatives indicates that the hydrocarbon sector is capable of absorbing its fair share.
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Comment:Making the most of what you've got: over reliance on a small number of fields is a predicament that afflicts many oil producers.
Author:Ford, Neil
Publication:The Middle East
Geographic Code:7BAHR
Date:Feb 1, 2003
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