Bahrain's Minister of Oil Mohamed Bin Khalifa Al-Khalifa spoke exclusively about the Gulf country's refining strategy that will be a cornerstone of supporting Bahrain's Vision 2030.
Bahrain was the first country in the Gulf region to find oil in 1932 and the state run oil firm, Bahrain Petroleum Company (BAPCO), has operated the Bahrain Sitra Refinery since the 1930s that has exported products across the world for the last 80 years.
"What we have in Bahrain is a number of good projects which have been engineered and designed well. The largest one for us is the Bahrain refinery that has operated since the mid-1930s. At the time it was the largest refinery East of Suez," said Al-Khalifa.
Mohamed Bin Khalifa Al-Khalifa took over as Bahrain's Oil Minister in June last year. He previously was the CEO of Nogaholding, which is the business and investment arm of the country's National Oil & Gas Authority (NOGA).
"We are still proceeding with a lot of the projects we had started over the past 5-6 years. Some are under construction and others are still in the bidding stage. The priority is going to be the Bahrain refinery upgrade. We have continued to expand the refinery over the years but the newest expansion is the largest yet. "
The expansion and upgrade of the Bahrain refinery would boost capacity by around 40 per cent from the current 267,000 barrels per day (bpd) to 360,000 bpd. Bidding for the expansion of Bahrain's refinery was extended to the end of 2016 after an initial deadline for contractors had been set for early October 2016.
"We are about to receive bids. It has taken us quite a while to design it, select technologies etc. We awarded Technip to do the FEED work and that was completed in May 2016 and we are hoping to get good bids before the end of 2016," said Al-Khalifa during an interview at ADIPEC.
In addition to the expansion of the refineries processing capacity, the project will also see BAPCO establish new petrochemical production units at the site. Bahrain also plans to build a 70 km pipeline to connect the refinery to the Ras Tanura refinery in Saudi Arabia.
"We have an existing pipeline to Saudi Arabia already that has been in place for 70 years. So the new pipeline is a direct replacement and it doubles the capacity of the pipeline. This is under way and we have signed EPC contracts with a contractor onshore in Saudi Arabia and a contract offshore with an Abu-Dhabi based offshore pipeline company. An onshore contractor in Bahrain should be awarded very quickly," added Al-Khalifa.
Bahrain's Oil Minister did emphasise that despite the low oil price it is a good time for Bahrain's oil sector in terms of embarking on new projects.
"We are lucky coming into the market on the downside as it is a good time to deploy investment. It is a time to buy as contractors are hungry for business, as are suppliers so we can get the best deal," Al-Khalifa explained.
Despite the upside on getting projects off the ground with the lower oil price, the new environment is a challenge for government finances and deficits said the Oil Minister.
"A 50-60 per cent drop in oil price meant a significant decline in government revenues. All around the Gulf region oil is the main contributor to government finances."
The other main challenge is the growth in gas demand. Although Bahrain is a small island it is still a big consumer of gas.
According to Al-Khalifa, Bahrain consumes half a trillion cubic feet a year because of the aluminium smelters, power and water demand that keeps growing due to consumer demand from households and businesses.
"We want to incentivise greater use of efficient gas turbines. We don't currently have a programme in place but it would be good to encourage capital investment in gas efficiency. One of the things that we need to look at in the region is to replace old power stations, which could significantly save usage of gas. This could be the single largest saver of gas consumption," noted Al-Khalifa.
Despite the low oil price Bahrain's refinery margins were fantastic in 2015, according to the Oil Minister.
"We already have a refinery that did well in 2015. Refinery margins in Bahrain have been the best for quite some time. This is thanks to the hydro-cracker and hydro-treater that has been producing ultra-low sulphur diesel for a while."
Bahrain's Low Sulphur Diesel Production (LSDP) complex and Ultra-Low Sulphur Diesel (ULSD) hydrotreater has helped BAPCO to increase its profitability by producing more valuable distillate products.
The new Bahrain refinery expansion project will include upgrading the quality of products and increasing the production of middle distillates such as diesel and kerosene, while reducing fuel oil output.
"We still have fuel oil in our refineries but the new technologies will go into creating deeper conversions and thereby getting rid of fuel oil and naphtha."
He explained that the high sulphur fuel oil market will be extremely challenged going forward and it will be a very undesirable product to have in a refinery as the price is going to fall with the recent decision by the International Maritime Organisation to set an implementation date for the 0.5 per cent global sulphur cap for 2020.
"That is why our refinery expansion is so important. We are installing a residue-hydrocracker that is a deep conversion hydrocracker that converts fuel oil into diesel. There are huge margins to be made," Al-Khalifa commented.
He added: "The other product we want to convert is naphtha, which sometimes trends above crude oil. After the refinery expansion, we are looking at building a petrochemical plant – specifically an aromatics plant. We are talking to KPC about this."
New innovative technologies will be the key for Bahrain's future energy growth. The country's main oil field, the Bahrain field, is a complex field and will require new methods to produce further oil.
"It still has significant oil in place with the majority of its oil still unproduced. I feel it is the right target for new technologies as it has more than 15 stacks of layered oil. The shallow area has heavy oil and then you have the medium oil. We have a chunk of heavy oil on the top of the field and this is the target for steam. We did several pilots and they have given us good results but steam injection is challenged by the current oil price and whether we can produce it below the current price is a big question. We need the right trigger to resume this."
The oil minister added: "We do a lot of gas injection into our oil fields and this has given us more associated gas than we had planned for. This is why we have kick started a gas plant expansion, which is under construction and was signed in early 2016. The company is called Banagas."
A final area that Bahrain is looking at is to build an LNG terminal and regasification facility to meet domestic energy demand.
Al-Khalifa discussed a potential gas route between the GCC states.
"We already have a successful electricity grid between the Gulf states and this has worked very well. Could we look at a gas grid? The suggestion is that as 50 per cent of the grid is already there with the Dolphin gas project, so why not connect the gas pipelines to the remaining three Gulf states? It does not mean we only source gas from Qatar but all the Gulf states could potentially contribute. Hopefully this sees the light of day soon. This would give us a robust gas supply to not only Bahrain but the whole GCC," he stated.
Al-Khalifa concluded: "We do have a number of new projects coming up but we do have to time a lot of them. The biggest project for me right now is the Bahrain refinery expansion project.
This interview appeared in the March issue of Pipeline Magazine