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Bahrain Announces Huge Offshore Shale Oil Discovery

13.04.2018 / Energyboardroom

The small island kingdom of Bahrain has announced the discovery of a massive reserve of offshore oil. The discovery, announced by Bahrain’s National Oil and Gas Authority, marks the largest oil discovery in Bahrain since 1932. The offshore reserves of 80 billion barrels lie in the Khalij al-Bahrain basin, off the west coast of the island. The newly discovered reserve is by some estimates equal in quantity to the entirety of Russia’s reserves and may lead to a significant boost to Bahrain’s economy, which is almost entirely dependent on crude oil production.  

“While Bahrain’s oil production has, along with its economy, slowed down considerably in recent years, the new discovery may allow the Gulf state to become a major oil producer once again.”

Bahrain is the smallest oil producer in the Persian Gulf drawing out 45,000 barrels per day (BPD) from their onshore Bahrain Field. Additional oil from the Abu Safah oil field, which Bahrain shares with Saudi Arabia, increases the country’s daily oil production to a total of around 200,000 barrels. However this figure could be doubled as officials hope to be able to extract a further 200,000 barrels per day from the newly discovered 770 square mile oil field. Thus, while Bahrain’s oil production has, along with its economy, slowed down considerably in recent years, the new discovery may allow the Gulf state to become a major oil producer once again.

Bahrain started producing oil in 1931, becoming the first oil producing country in the Persian Gulf. Geologists working for Standard Oil of California (SOCAL), which subsequently became Chevron, noticed promising geological formations in nearby Saudi Arabia in the mid-1930s, leading to the drilling of the country’s first commercial well just a few years later in 1938. Saudi Arabia now stands as the region’s largest oil power, currently producing around 10 million barrels per day, significantly overshadowing that of Bahrain. However, Bahrain’s new discovery may give rise to a significant increase in the country’s oil production output.

Nevertheless, the discovery may not have as dramatic an effect as first impressions might indicate. Only a small proportion of the total 80 billion barrels may be recoverable. Furthermore, the process of recovering and developing the newly discovered oil will likely be costly and technically challenging. Analysis by Schlumberger suggests the field’s complex geology may lead to the find being classified as on the borderline between conventional and unconventional. However the fact that the newly discovered field is located in shallow waters, close to pre-existing oil field facilities, may act to mitigate the costly process of recovery and development.

Along with the discovery of 80 billion barrels of oil, surveyors have announced the discovery of 14 trillion cubic feet of natural gas. Currently Bahrain consumes all of the gas that it produces locally. The deep gas find could precipitate Bahrain developing its natural gas export industry to become a significant natural gas exporter within the Persian Gulf and around the world. This discovery corresponds well with the building and development of a liquefied natural gas terminal which is expected to be completed by 2019. However further appraisal is necessary to determine the extent to which Bahrain’s gas find is commercially viable.

“Due to the technically challenging nature of the discovery, international oil companies (IOCs) may be offered especially generous conditions, particularly in comparison to terms of contract that have been offered to IOC partners in the past.”

While US-based companies Halliburton, Schlumberger and De Golyer and McNaughton worked closely with the country’s National Oil and Gas Authority in making and evaluating the discovery; the Kingdom of Bahrain will likely seek to approach international investors and partners with technical expertise in moving towards recovering and developing the new find. Due to the technically challenging nature of the discovery, international oil companies (IOCs) may be offered especially generous conditions, particularly in comparison to terms of contract that have been offered to IOC partners in the past.

Overall, while Bahrain’s recent discovery seems to offer the potential for the transformation of the country’s energy sector, the total recoverability and cost of development may limit the extent to which its ambitions are realized. Nevertheless, it will be at least five years before oil is recovered from thenew field. As such, whilst this discovery may provide a much needed boost to Bahrain’s economy, the future of the kingdom’s energy sector and the extent to which this new find will provide this momentum, is uncertain.

Writer: Louis Goss

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