Measured against the oil riches of Saudi Arabia and the massive gas reserves of Qatar, Bahrain has little cause for cheer. Despite being the first country in the region to discover oil, in 1932, it has tiny resources compared with the extensive oil and gas fields of its neighbours.
Yet this has not hindered growth. Bahrain’s early acceptance that it would not be able to rely on its oil and gas reserves to power its economy has led to a programme of economic diversification.
Concerns about falling supplies from the country’s only oil field, which was then known as the Al-Awali field but has since been renamed the Bahrain field, first emerged in the late 1960s. Manama reacted by embar-king on a programme of industrial and financial development.
A series of industrial schemes, including aluminium production, an iron-ore processing facility and an ammonia-methanol plant, were among the first to be set up. Since the 1980s, the financial services industry has also expanded dramatically.
While the country has coped well with the threat from Dubai and Qatar as rival financial services hubs in recent years, the development of its industrial sector has been more modest.
Much of the industrial development in the country stems from one of its oldest ventures, Aluminium Bahrain (Alba).
The government granted approval in 1968 for Alba to set up with a smelter producing 56,000 tonnes a year (t/y) of aluminium. Within just three years, the company had a production capacity of 120,000 t/y. Since then, Alba’s plant has undergone five separate upgrades and now has output capacity of about 880,000 t/y, making it the second-largest smelter in the Middle East.
The firm, which is 77 per cent owned by the Bahraini government, is now considering adding a sixth production train to its site at Sitra, to the south of Manama. If this goes ahead, it will boost aluminium capacity to more than 1 million t/y.
Alba’s expansion has been a boon for companies in associated downstream industries. Ahmed Saleh al-Noaimi, chief executive officer of Alba, says the company now directly employs more than 3,000 people and its activities sustain hundreds of additional jobs in related industries. Analysts estimate it contributes about 12 per cent of Bahrain’s gross domestic product (GDP).
“We have worked hard to build up our market share and also help the local economy, and we hope to continue doing that in the future,” says Al-Noaimi.
Downstream companies feeding off Alba’s activities include Bahrain Atomisers Inter-national, Bahrain Aluminium Extrusion Company (Balexco), Midal Cables, and Gulf Aluminium Rolling Mill Company (Garmco). The latter, which is 38 per cent owned by the Bahraini government, produces 165,000 t/y of aluminium products, including 35,000 t/y of aluminium foil.
Other projects are also due to go ahead in the Hidd area. Contracts for an estimated $1.4bn integrated steel plant with a capacity of 1.5 million t/y, planned by Kuwaiti company Foulath, are due to be awarded in the third quarter of 2009. A 90,000-t/y cold-rolled stainless steel mill is also being planned at Hidd.
Bahrainis eager to encourage more industrial companies to set up. As part of the Vision 2030 economic masterplan, launched in October 2008, the government aims to strengthen GDP growth in the non-oil sector by promoting manufacturing, logistics and other businesses focused on export markets.
Several special investment zones, including Bahrain International Investment Park, Bahrain Investment Wharf and Bahrain Logistics Zone, have been set up close to the new Khalifa bin Salman Port at Hidd, in an effort to attract industry, manufacturing, transport and logistics companies.
To date, 84 companies have taken space in the investment park, filling 60 per cent of the site and employing 8,400 people, with nearly $1bn in investment.
But despite the progress towards economic diversification, oil revenues still account for about 75 per cent of government revenues and low oil prices can still have a major impact on the economy.
“We have good hopes for this deep gas drilling, but it will take some time before we know what is there”
Abdul Hussain Ali Mirza, Oil & Gas Minister
While a spate of developments in heavy industry means the country is continuing to diversify, finding sufficient gas to power the next wave of facilities is becoming a critical issue for Manama, due to its meagre natural resources.
Plans to expand Alba’s facility and the fertiliser complex of Manama-based Gulf Petrochemical Industries Company (GPIC) have stalled because of a lack of energy and feedstocks.
Officials estimate that Bahrain’s natural gas reserves will fall to about 75 billion cubic metres by 2011, from 84 billion cubic metres, making exploration or new import deals essential.
In May 2008, the potential shortage led Oil & Gas Minister Abdul Hussain Ali Mirza to suggest the creation of a GCC-wide gas pipeline network, which would allow member states to pool gas supplies for industrial users and power generation.
Mirza says he still thinks this is a good idea for the long term, but acknowledges it is unlikely to materialise any time soon.
“We are looking at all of our options,” he says. “We think the gas grid is a strong idea, but we also have other schemes we are looking at.”
While negotiations with Qatar and Iran to import gas directly via sub-sea pipelines have been mooted as a more feasible short-term alternative, such deals appear some way off.
Talks with Iran about possible imports have stalled and Qatar’s reluctance to lift its moratorium on any new gas projects in its giant North field means a deal with Doha is unlikely to be struck until 2013-14 at the earliest.
In the interim, Bahrain hopes it can successfully exploit its own resources and find further gas reserves.
“We are still in active negotiations with a number of countries for the import of gas but we also have high hopes for developing our own gas resources,” says Mirza.
Manama is confident a new wave of explor-ation has the potential to boost its domestic gas production, which currently stands at 1.2 billion cubic feet a day (cf/d), to more than 2 billion cf/d.
The US’ Occidental Petroleum and Canadian Natural Resources submitted bids for a new onshore deep gas exploration round in June 2009 and an award is expected to be made before the end of the year.
“We have good hopes for this deep gas drilling, but it will take some time before we know what is there in the ground,” says Mirza.
Other initiatives are in place to arrest the country’s dwindling production rates. Bahrain’s government-run National Oil & Gas Authority (Noga) has signed a memorandum of understanding with the UK/Dutch Shell Group to look at the feasibility of further gas initiatives.
The memorandum covers a review of how Bahrain can meet its increasing demand for gas, including the possibility of importing supplies by pipeline or shipping it in as liquefied natural gas. A joint steering group is due to be formed, with representatives from both Noga and Shell.
Manama signed a similar memorandum of understanding with the US’ Hess Corporation in October 2008, covering the establishment of a liquefied natural gas import terminal in the kingdom. Mirza says an initial study will assess the best configuration and location for the terminal.
If the terminal does prove to be commercially viable, Mirza says, Bahrain will consider creating a joint venture of Hess and the state-run Bahrain Petroleum Company (Bapco) to own and operate the facility.
“Our expansion will depend on a number of factors including the gas supplies in the -country”
Ahmed Saleh al-Noaimi, CEO, Alba
While Bahrain’s domestic gas reserves may be limited, its oil resources are even more modest, but progress is also being made in developing these.
In January, Bahrain awarded an oil field contract to Occidental to more than double production from the Bahrain oil field. Noga estimates that domestic demand for oil will increase by at least 3 per cent a year over the next few years, reaching 45,000 b/d by 2011. However, this comes in the wake of a gradual decline in crude output to 33,000 b/d, from highs of about 70,000 b/d in the 1970s.
The country certainly needs to find new sources of energy, whether from imports or from the discovery of further oil and gas reserves of its own. For companies such as Alba, the delay in being able to access further gas supplies is already threatening to hinder their ability to expand.
Al-Noaimi says securing new gas supplies is critical for its long-term plan to increase output from the smelter.
“The import of gas and power is something we are looking at as part of our review,” he says. “We have good demand for our products, but expansion will depend on a number of factors including the gas supplies in the -country.”
Despite the difficulties, there is good potential to further develop Bahrain’s industrial and energy sectors. The oil minister is acutely aware, however, that much of its success will hinge on the country’s ability to deliver the power needed for new initiatives.
“We know about the importance of having sufficient energy supplies in this country,” says Mirza. “That is nothing new. Now we have to push forward to try to achieve our goal of making that a reality.