Bahrain’s refinery expansion, LNG terminal sees big spending

Bahrain plans to spend US$6 billion on oil and gas projects this year to meet increasing local demand and to boost government revenues. The three main projects that the country is pressing onwards with includes an LNG import terminal, expansion of Sitra refinery and an oil pipeline with Saudi Arabia. It also includes Bahrain National Gas Expansion Company’s third gas plant and an aromatics facility joint venture between Bapco and Kuwait’s Petrochemical Industries Corporation.

Sitra expansion

The expansion of the capacity of the existing Sitra oil refinery from 267,000 bpd up to almost 400,000 bpd is part of the Bapco Modernisation Programme, which is on track for completion in 2022.

“The expansion of the country’s refinery would increase refined fuels production by 30 per cent, providing a crucial boost to export revenues,” Richard Bailey, senior vice president at DNV GL - Oil & Gas said to Pipeline Magazine. “The refinery expansion will also inevitably play a role in meeting the increasing but relatively modest local demand.”

In recent years, refined fuels exports were increasingly insufficient to support the country’s social expenditure programmes. At the same time, energy subsidies have resulted in strong power consumption growth resulting in less refined products available for export, Bailey said.

Bahrain in December 2017 awarded a $4.2 billion engineering, procurement, construction and commissioning turnkey contract to a consortium led by TechnipFMC with Samsung Engineering and Spain’s Tecnicas Reunidas. The signing of the contract was expected for January-end, Bahrain’s oil minister Sheikh Mohammed bin Khalifa al-Khalifa said.

The project is located on Bahrain’s Eastern coast and entails the expansion of the capacity of the existing Sitra oil refinery, improving energy efficiency, valoristion of the heavy part of the crude oil barrel (bottom of the barrel), enhancing products slate and meeting environmental compliance. With estimates putting the cost of the expansion as high as $9 billion, it will be the largest project ever financed in the kingdom.

Saudi-Bahrain pipeline

Sitra currently refines oil from Saudi Arabia’s Abqaiq processing facility, which is fed by the Arabia-Bahrain (AB) pipeline. This pipeline is being replaced with a new one that will expand capacity from 230,000 bpd to 350,000 bpd. The new oil pipeline will be completed in 2018 to serve the planned expansion of Bahrain’s refinery capacity. The pipeline will be ready to run by the end of 2018 with more than 50 per cent of the work already completed, Sheikh Mohammed said in a statement on Bahrain News Agency (BNA). The pipeline is being laid underground in the south of Bahrain. Bahrain currently produces 200,000 bpd of oil including output from the offshore Abu Safa, its major source of government revenues. Authorities are looking to increase output from Bahrain’s own oilfield by tapping pre-khuff gas, which is gas located in deep deposits.

For the Sitra refi nery however, the country will continue to rely on crude imports, particularly from Saudi, because of its small and depleting resource base, Bailey said. “The recent enhanced and improved oil recovery work slowed the decline of recoverable reserves, but not enough to reverse the trend,” he added.

LNG import terminal

Additionally, the refinery expansion will push up demand for gas, adding to the pressure on the commodity that is expected to hit a deficit in coming years despite plans for improving power stations to save gas use.

“Industry accounts for the majority of Bahrain’s gas needs - it represented 41 per cent of demand in 2015, with Aluminium Bahrain (Alba) accounting for nearly half,” Mustafa Ansari, analyst, energy research at APICORP said to Pipeline Magazine.

“The Bapco refinery, whilst not on the same scale as Alba, is also a large consumer of gas, and demand for natural gas is expected to more than double within the medium term horizon following the refinery expansion.”

Gas output in Bahrain was around 19.5 bcma in mid-2017, primarily sourced from the Khuff gas reservoirs – accounting for nearly 80 per cent of gas supplies. The remaining 2.6 bcma comes from residue gas production from the Bahrain National Gas company (Banagas).

Supplies are expected to increase marginally over the next five years due to the Deep Gas resource from the Bahrain onshore field, only to plateau to a little under 23 bcm by 2024, according to APICORP.

Although current demand is adequately met by existing levels of output, natural gas demand is expected to continue rising where by 2019 the country will experience a gas deficit of around 1.9 bcm.

Bahrain’s offshore LNG import terminal will have an initial capacity of 4.1 billion cubic meters (bcma) with the potential to expand to 8.2 bcma. This would present the kingdom with adequate capacity to cover the deficit up to 2027 at the very least, APICORP forecast.

“Given the number of liquefaction plants in recent years, competition for LNG imports has gone down and with it the price of imports. Nevertheless, Bahrain’s LNG terminal will consist of a floating storage unit (FSU), offering the kingdom the flexibility to cater to seasonal demand and the option to re-export to regional demand centres,” APICORP’s Ansari said. “The configuration will include an LNG vessel serving as an FSU, with on jetty regasification. This will enable the kingdom to optimise the utilisation of the FSU, by redeploying it to trade as an LNG carrier when imports are not required.”

Bahrain’s gas terminal project is jointly owned by Bahrain’s Oil and Gas Holding Co (Nogaholding) and a consortium of Teekay LNG Partners, Gulf Investment Corp and Samsung C&T.

Bahrain’s oil minister has said that Saudi Aramco could potentially use the terminal as part of a wider scheme to connect Gulf Arab countries with a gas pipeline.

Bahrain has set its budget based on oil price of $55 per barrel. The kingdom is taking part in an OPEC-led pact to scale back production, which will remove a stock overhang and prop up oil prices. Sheikh Mohammed recently said he expects average 2018 prices to go beyond $70 per barrel.