Given the massive negative hit taken by Saudi Arabia’s economy as a result of Crown Prince Mohammed bin Salman’s oil price war, aimed at destroying the U.S. shale oil industry yet again (given how well it worked last time, of course), Saudi’s ability to help its tiny neighbour, Bahrain, has been dramatically reduced. The irony here is that Bahrain’s economy had not recovered from the deleterious effects of the first oil price war launched by the Saudis against the U.S. in 2014 before it was hit again by the second. Even before the full reckoning of the costs of MbS’s latest folly is made on Bahrain’s economy, its gross domestic product contracted by 1.4 per cent in the fourth quarter of last year, and it now has a fiscal breakeven Brent oil price of at least US$91.80 per barrel (pb), according to IMF figures. One potential positive outcome for Bahrain, however, is that it may gain more independence from Saudi Arabia as a result of it having to push ahead unilaterally in developing its newly-found oil and gas reserves.
To the casual observer it might appear that Bahrain has in the past been indolent in pushing ahead with developing its oil and gas sector but this is in large part a consequence of the delicate political balance between it and Saudi Arabia. At the most basic level, whilst the clear majority of Bahrainis are Shia Muslims, the ruling Khalifa royal family (and many of the senior figures elsewhere in the country) is Sunni, as is Saudi Arabia. This religious-political discrepancy has been a source of friction over the years, reaching a peak in the Arab Spring’s Bahrain uprising of 2011. At that point, in order to ensure its continuation, Bahrain’s ruling House of Khalifa called in military support from Saudi Arabia to help quell the protests. So close is the relationship with Saudi Arabia that Bahrain was one of the very few countries that voiced support for Saudi Arabia after MbS ordered the torture, murder, and dismemberment of journalist Jamal Khashoggi in the Saudi consulate in Istanbul, according to the CIA, among others.
Economically as well, Saudi Arabia may have been responsible for various degrees of financial destruction on Bahrain with its two previous oil price wars but it has also provided some compensation for it in the past. In 2018, for example, just two years after the end of the first oil price war, Saudi Arabia was pivotal in organising a US$10 billion rescue package for Bahrain, funded by Saudi and the U.S.’s other allies in the region – Kuwait and the UAE. This formed an integral part of Bahrain’s new fiscal programme that aimed to eliminate its budget deficit by 2022. Although the US$10 billion was not sufficient to cover all of Bahrain’s funding at that point, it was useful in allowing Bahrain to continue to tap the international markets if required, signalling backstop support from the three countries. Related: Will Sodium Batteries Replace Lithium-Ion?
Similarly, Bahrain’s hydrocarbons industry has in large part been inextricably linked to that of Saudi’s for some considerable time. Bahrain’s two core revenue streams from oil are its onshore Awali site (domestically operated) and the offshore Abu Safah site, which is operated jointly with Saudi and the revenues from which are split between the two countries. Currently, Bahrain generates output of less than 200,000 barrels per day (bpd), of which around 150,000 bpd comes from the shared Abu Safah field. Moreover, its total current documented onshore oil reserves of 125 million barrels – according to the U.S. Energy Information Administration (EIA) - in the Awali oil field will last less than seven years at the current rate of production.
However, given Saudi Arabia’s own strained finances and Bahrain’s worsening debt profile, Oil Minister Mohammed bin Khalifa Al-Khalifa announced last week that Bahrain is going to roll-out a virtual (in the first instance) road-show to tempt international oil and finance companies into the development of the massive new find announced in 2018 but relatively undeveloped since then. The 2,000 square kilometre tight oil and deep gas resources in the Khalij Al Bahrain basin, off Bahrain’s west coast, remains by far the biggest oil and gas find in the Kingdom since 1932, estimated to contain at least 80 billion barrels of tight oil and up to 20 trillion cubic feet of gas. Given the EIA estimate that the average recovery factor for tight oil deposits ranges from three per cent to six per cent of the initial oil in place, and using the lower the figure, Bahrain’s new oil find could yield up to 2.4 billion barrels of recoverable oil reserves. This equates to around 20 times more than the Kingdom’s current onshore proved reserves and would allow it to double its current total crude oil production for the next three decades.
From a virtually standing start right now to the onset of significant flows from the reservoir the process is estimated to take around five years at minimum but as interim exploratory drilling results emerge over that period (the U.S.’s Halliburton is involved in this respect), Bahrain is banking on being able to tap into the international debt markets for short-term capital. “At the same time, it might look to follow the Oman model and sell-off some of its state assets, at least in part, beginning with stakes in pipelines or plants, and then looking at more upstream assets as the oil price continues to recover,” a legal source in Abu Dhabi told OilPrice.com last week. “The government may well look to sell a share in its LNG [liquefied natural gas] facility that was completed earlier this year,” he underlined. Developed under a public-private partnership, the Bahrain LNG import terminal is located offshore approximately four kilometres east of the onshore receiving facility at the Khalifa Bin Salman Port, with an initial capacity of 800 million standard cubic feet per day.
By Simon Watkins for Oilprice.com
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