Bahrain might be the smallest petroleum producer in the Gulf but its strategic production and refining relationship with Saudi Arabia means that the hydrocarbon sector remains critical to the wider economy, according to oil minister, Dr. Abdul-Hussain bin Ali Mirza.
At the moment, Bahrain’s petroleum output is a mere 40,000 barrels per day, quite small in comparison to Saudi’s 10 mm bpd or even the UAE’s 2.5 mm bpd. However, the production figure is more like 190,000 bpd when taken into account that Bahrain gets an additional 150,000 bpd from the Abu Safa oil field, an off shore field that it shares with Saudi Arabia, Mirza explained.
According to Mirza, oil constitutes more than 80 percent of the government’s revenues in Bahrain and contributes around 24 percent to GDP at current prices. By comparison, the financial sector contributes around 25 percent of GDP.
“In terms of government revenues, oil and gas are still the major source of revenue. Most of the roads, the houses, the infrastructure and the schools are funded from the revenue from oil and gas,” Mirza said
And production is only part of the story. Bahrain also refines 230,000 barrels of oil per, again due to its strategic relationship with Saudi Arabia. The refining relationship goes back to the 1930s. Oil was discovered in Bahrain in 1932, six years before it was found in Saudi Arabia in 1938. When Saudi oil was discovered, the only place to refine it was in Bahrain.
“We don’t process [oil] for the Saudis, we buy it at international markets prices and we process it into finished products like gasoline, kerosene, diesel and we sell it in the international market. The relationship between Bahrain and Saudi Arabia in the oil sector goes way back and is very strong…over the last 60 or 70 years not one day has oil stopped being pumped from Saudi Arabia to Bahrain, so it shows the strength of this relationship, politically, economically, socially,” said Dr. Mirza.
Mirza said that a new $5-6 billion refinery master plan is underway, which should increase output by 52 percent.
“We have agreed with Saudi Aramco that we will increase the capacity of the pipeline and expand our refining capacity. And since Saudi Arabia is very close with Bahrain it gives us leverage that we can have continuous supply of crude for our refinery,” he said.
The country is also planning to begin production of Liquefied Natural Gas facilities. There are nine bids on the table from international oil companies and Bahrain expects to award contracts before the end of the year, according to Mirza.
“LNG gives us additional gas for the developments happening in Bahrain and those developments are very huge. We expect for example that there will be new investments in Bahrain, like the expansion of Gulf Petrochemical Industries, a JV between Bahrain and Saudi Arabia and we want to double that. We want to move forward with the refinery master plan, so we need gas for that. Alba, the aluminum smelter, they need to expand so they will need gas as well. And our electricity demands are increasing in Bahrain because the population is growing so there’s lots of development going on,” added Mirza.
The close relationship between Bahrain and Saudi Arabia came into focus internationally as Saudi troops intervened in the unrest that followed pro-democracy protests in its smaller neighbour.