Bahrain reboots oil and gas to reduce debt and CO2

Bahrain News Agency

• Government rebrands oil and gas holding company as Bapco Energies
• Boosted efficiencies aim to reduce large public debt
• Reorganisation to focus on transition to lower carbon future

Bahrain is taking steps to address economic challenges by relaunching its oil and gas holding company as Bapco Energies, with a focus on greater efficiencies and a low-carbon future.

The island kingdom’s sovereign rating is one of only two sub-investment grade ratings in the Gulf – with challenges ranging from ageing domestic oil fields to the overall trajectory of the energy transition, and from the government’s need to tackle longstanding public debts to dependency on refined oil export revenues.

At the end of last month the government relaunched the country’s previous oil and gas holding company, Nogaholding, under the new brand name, Bapco Energies.  

It is part of a major reorganisation of the kingdom’s energy sector, which aims to create an integrated energy company out of the diverse entities now under Bapco Energies’ umbrella.

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These include the giant Bahrain Petroleum Company (Bapco) refinery; exploration and production company Tatweer Petroleum; Bahrain’s main natural gas company, Banagas; petroleum retail outlet Tazweed and aviation fuel outfit Bafco. 

This makes Bapco Energies – and Nogaholding before it – responsible for around 70-80 percent of the Bahraini government’s entire revenue stream.

Bahrain is the Gulf region’s oldest oil producer. Its onshore Bahrain Field dates back to 1932 and is still in production. 

Today, most of the kingdom’s oil comes from the offshore Abu Safah field, which Bahrain shares with Saudi Arabia. 

This produces around 300,000 barrels per day (bpd), half of which goes to Bahrain. 

The Bahrain Field, which is operated by Tatweer Petroleum, added another 42,600 bpd in 2021, according to company statistics.

Multiple asset recovery projects are under way to keep the ageing wells producing.

The destination for all this crude is the giant Bapco refinery at Sitra, which has been undergoing a $7 billion revamp known as the Bapco Modernisation Programme (BMP). 

The BMP also boosts the refinery’s ability to process heavier crudes, such as those extracted from shale oil, while improving the refinery’s overall performance in terms of emissions reduction and sustainability.

That shale oil capability might be increasingly useful, as back in 2018, Bahrain announced a major shale oil discovery – the offshore Khalej Al-Bahrain field. 

Containing an estimated 80 billion barrels of oil and 20 trillion cubic feet (tcf) of gas, the latter dwarfs Bahrain’s current proven gas reserves of around 3 tcf.

New discoveries of gas reservoirs

That gas comes from the onshore Bahrain Field and it was there too, in November 2022, that two new gas discoveries were also announced. 

These are the Al-Jawf and Al-Joubah gas reservoirs, which lie beneath the producing Al-Khuf and Al-Onaiza fields.

Evaluation of these new discoveries is ongoing, as is evaluation of Khalej Al-Bahrain. The latter is a particularly complex formation and the likely cost of extraction is a particular headache. 

The authorities have announced few further details about the find since 2018.

But in May 2022 Bahraini oil minister Sheikh Mohammed bin Khalifa Al Khalifa told S&P Global that as oil prices had recovered, post-Covid, the field had a “much better chance” of being developed than it had in 2020, when prices had tumbled.  

Nonetheless, that price volatility has been particularly troublesome for Bahrain. 

While hydrocarbons account for only around 18 percent of the kingdom’s GDP, they account for around 75 percent of all government revenue. 

Reuters

Bahrain has been struggling with high public debts for some years now.

The government’s debt-to-GDP ratio is forecast to hit 124 percent in 2024, while the general government budget deficit is set to be 4.1 percent of GDP in 2023 – up from 3.6 percent in 2022 – according to Fitch.

Moves to reorganise the state’s role in the energy sector therefore come within a context of overstretch.

While these changes have been under way for some time, they accelerated in 2021 when the previous oil and gas holding entity, Noga, was abolished and its functions taken over by the oil ministry. 

Bapco Energies is now the result, with the emphasis on the core business of energy.

The government has announced a three-year transitional period, with the existing assets to be redistributed into seven businesses – three of them new.  

“The Bahraini authorities want to ensure they aren’t running large budget deficits,” James Swanston, Middle East analyst for Capital Economics, told AGBI.

“Reorganising, boosting efficiencies and transparency while eliminating bureaucracy is therefore definitely a major side of this reorganisation.”

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The reorganisation also enables a refocusing on the energy transition.

The three new entities to be created focus on trading and investing in new technologies, renewables, carbon capture and storage. 

Fitch director Nilay Akyildiz pointed to Bahrain’s high dependency on exports of refined oil products.

“They want to go to a low-carbon future to adapt to the needs of climate change,” Akyildiz said. 

“So pulling all the energy producing companies under one umbrella gives better control and helps compliance with a new energy strategy, to diversify energy sources.

“The consolidation of the energy-producing companies will help to transform the company from a fossil fuels-based company into an energy company, promoting the energy mix.”