Despite moves to diversify away from a dependence on hydrocarbons, the oil and gas sector remains key to the strength of the Bahraini economy. O&G speaks to HE Dr. Abdul Hussain bin Ali Mirza, Bahraini Minister of Oil and Gas Affairs and Chairman of the National Oil and gas Authority, about plans for 2011 – and their impact on the infrastructure sector.
“Our investment was not curtailed by the recession. We are engaging both local contractors and reputable international contractors in our investments, which are creating wealth for Bahrain.”
-Dr. Abdul Hussain Bin Ali Mirza
Bahrain enjoys a strong and diverse economy. Unlike many of its Gulf neighbours, Bahrain's economy is not reliant upon the oil industry, having successfully diversified away from a dependence on oil; and although oil does play an important part in the country's economy - oil and gas revenues make up over 80 percent of government revenues - Bahrain also has an increasingly important financial services industry, and acts as a financial centre for the Middle East and North Africa region. Refining, aluminium production and tourism are also significant contributors to the country's gross domestic product.
But nonetheless, the oil and gas sector has traditionally been a big driver for the Bahraini economy - and remains an important driver for much of the infrastructure development currently taking place within the tiny island-state. And according to HE Dr. Abdul Hussain bin Ali Mirza, Bahraini Minister of Oil and Gas Affairs and Chairman of the National Oil and gas Authority, investing in infrastructure project work remains a key part of the country's long-range planning.
"When the National Oil and Gas Authority was established in 2005, we set our long-term strategy," he explains. "It is well known that chief executives of major companies who lose their jobs largely do so not because they did not plan, but because they did not implement the plan successfully. Since setting our plan we have focused on its successful implementation to achieve our long-term goals, and consequently we have not veered from our investment programme."
In the upstream sector this involves the development of the domestic on-shore oil field and Khuff gas field, a project initiated by the formation of Tatweer Petroleum, a joint venture between Occidental Petroleum from the USA, Mubadala from the UAE, and the Oil and Gas Holding Company of Bahrain. "Tatweer started operations in December 2009 and has already arrested the decline in crude oil production," says Ali Mirza. "Investment during 2011 will involve three drilling rigs, drilling some 125 new development oil wells and numerous work-over rigs working full-time to increase the crude oil production. The aim is to increase production by exploiting zones of heavy crude that hitherto have been uneconomical to produce. The investment for this development is of the order of US$15 million over the life of the development and supply contract, which is 20 years."
The downstream sector has also been very active. The Low Sulphur Diesel Project (LSDP), commissioned in 2007, provides the capability to manufacture over 100kbpd of ultra-low sulphur diesel. "This enables us to meet the diesel specifications of any region of the world, thus diversifying our geographic markets," says Ali Mirza. "At a cost of over US$700 million, the project has been extremely successful financially." The success of the LSDP was then followed in 2009 by the commissioning of the Refinery Gas Desulphurisation Project (RGDP), a US$140 million environmental project that reduced the SOx emissions from the refinery to those of a Californian refinery. "The two projects - one profit-driven, one environment-driven - show that our values within the Bahrain oil industry are not just towards profit, since we believe that long-term sustainability depends on caring for all stakeholders - particularly the local community," says Ali Mirza.
As a continuation of this strategy, the country is currently building a catalytic de-waxer plant that will enable it to manufacture Group III ultra-high viscosity index lubricating base oils. This project, at a cost of US$430 million, will be commissioned in the first half of 2011 and is a joint venture between Bahrain Oil and Gas Holding Company, Bapco and Neste Oil of Finland. It will also broaden the product range and meet the specifications of the most demanding markets in the world.
"We are diversifying products and markets, we are manufacturing the highest quality, we are protecting the environment, and we are extending our planning horizons," says Ali Mirza. "We are already thinking about the refinery configuration required by 2020 and this will involve an expansion of crude capacity and construction of upgrading process units such that we reduce the yield of low-value products." Further environmental investment includes a wastewater treatment plant, which is in the design stage. Additionally, the Ministry will be supporting the National Strategy and the Vision 2030 by making gas available to support new industry and the expansion of current industries, and this strategy will include the construction of an LNG terminal by the end of 2014.
Such projects are certainly helping to drive growth in the construction/engineering sector. "Having set a vision for the future, and adhering to its implementation despite the global economic recession, we are providing a constant workflow to the engineering and construction industry," says Ali Mirza. "Our investment was not curtailed by the recession. We are engaging both local contractors and reputable international contractors in our investments, which are creating wealth for Bahrain and sustainable work for the contracting industry."
Ali Mirza believes this is an outstanding achievement for a small country like Bahrain - but one that has only been possible as a result of the clear focus, vision and support of its political leadership, who he says are not only fiscally responsible but also socially responsible and economically driven. "The Vision 2030 sets out the aspirations for Bahrain's economy, government and society in accordance with the guiding principles of sustainability, competitiveness and fairness," he explains. "Following this development path will result in a better standard of living for all in Bahrain, and send a clear message to the engineering and construction industry that Bahrain is business-friendly."
Another key project is the 70-mile crude oil pipeline from Saudi Arabia to Bahrain that was originally due to be completed this year. The so-called A-B pipeline is part of Bahrain's refinery masterplan and will enable the country to increase its refining capacity. "Refineries close to developed markets will close if they are not economically viable and the manufacturing capacity will be taken up by new, efficient, competitive refinery capacity in the Middle East," says Ali Mirza. "Bahrain plans to be part of this paradigm shift and the new A-B pipeline will have a capacity of 350kbpd, which is more than 100kbpd greater than the existing pipeline built over 50 years ago."
The pipeline is important for Bahrain; refining of crude oil has taken place in this country for nearly 80 years and is a strategic industry for the country, thus increasing the capacity of the refinery will enable it to be highly competitive in a core competency. The new pipeline will play a key role in transporting the crude oil required - but nevertheless, its construction has been dogged by delays. "In terms of the status of the project, it is essential for safety and security reasons that the routing of the new pipeline has to be carefully considered," explains Ali Mirza. "After all, this will be a strategic lifeline for Bahrain for the next 50 years. Once all parties are in agreement with the routing and design of the line, the project will be finalised."
The project is typical of how oil revenues are being used to further develop many of Bahrain's critical infrastructure networks - from energy to transportation to water to telecommunications. "Anyone who has visited Bahrain regularly in recent years can see that massive infrastructure investments have been taking place," admits Ali Mirza. For instance, in the transportation sector the Sitra causeway has been completely re-built into a multi-lane highway with flyovers and underpasses to ensure speedy traffic flow. Similarly the development of the Shaikh Salman Highway in Isa Town will improve traffic flow and remove a bottleneck for people travelling to work in Manama. Meanwhile in the power sector, the construction of the largest power station in Bahrain at Al Dur was completed last year and the plant commission just a few months ago.
"NOGA is responsible for ensuring the availability of gas for industrial and infrastructure development and in 2007 we invested US$200 million to ensure gas was available for the new power plant," says Ali Mirza. "The development of the Khuff gas field plus other current gas initiatives by NOGA will provide the energy to ensure that power and water demand through to the mid 2020s is met."
It's part of a concerted effort to make sure Bahrain is economically, environmentally and socially sustainable. Last year NOGA signed an agreement with Masdar to develop ways to cut carbon emissions in the oil and gas industry, displaying a rare commitment to sustainability in the oil and gas sector. Indeed, Dr Ali Mirza believes the engineering community has an important role to play in promoting more environmentally friendly projects. "We signed an agreement with Masdar to cut carbon emissions during 2009, and this was immediately followed up with a major carbon dioxide project at Gulf Petrochemical Industries Company (GPIC) plant site in Sitra," confirms Dr Ali Mirza. "GPIC is the first petrochemicals company in the Middle East to have such an environmentally friendly technology designed to reduce carbon dioxide emissions."
Constructed in co-operation with Technoment of Italy and Japanese giant Mitsubishi Heavy Industries Company, he feels this is a clear example of how the engineering community can bring new technology and ideas to Bahrain. "If they are consistent with our business values we will embrace them and turn them into reality," he says. "The door is open for the engineering and contracting industry to work with Bahraini companies to reduce energy consumption and to create a cleaner environment."
It could yet prove to be a lucrative partnership for both Bahrain and the construction sector, particularly given that the industry has suffered more than most as a result of the economic downturn while Bahrain has weathered the storm relatively well. "The global recession has affected countries and industries worldwide to one extent or another; Bahrain is no exception, but whereas the developed western countries actually went into recession, Bahrain merely experienced a small reduction in the growth rate," explains Ali Mirza. Indeed, growth in the economy has remained positive throughout the global downturn, and this strong economic position has been borne out by the overwhelming interest in government bonds issued by the Ministry of Finance.
"The government has been very astute and careful in guiding the nation through this difficult time, and we have taken this into account with our investment in the oil and gas industry," he continues. "It would be inaccurate to say that there has been no change in our plans; some change is inevitable. However, I am proud to say that the change has been minor and it has taken the form of small adjustments to completion dates. We are still following through on our project commitments. As I said earlier we are currently constructing a lube base oil plant, which has been ongoing for the last three years, and we have just signed an agreement with the EPC contracting company GS Engineering from Korea to build a new wastewater treatment plant at the refinery."
Vision 2030's objective is to shift Bahrain's economy from an oil-driven economy to a global competitive economy predominantly based on finance, tourism and industry, and as such the Economic Development Board has worked in close cooperation with partners across government to develop the National Economic Strategy 2009-2014. The strategy has three guiding principles: to strengthen the private sector and change the balance between private and public sector employment; to aim for diversification and innovation in a sustainable knowledge-based economy, independent of oil to the best extent possible; and to ensure appropriate skill-building in the Bahrain labour market to match the shift in focus.
Ali Mirza believes that delivering on the aspirations of the Vision 2030 will create opportunities for new business investment, the innovative development of existing industries, and the development of a workforce that is renowned for its productivity. "Within the next decade we will see greater development in transportation infrastructure as the country meets the expectations of its citizens at the same time as reducing our impact on the environment," he says. "Within the next decade we will see a greater diversification of industries, and the establishment of a wide variety of light industry not dependent on subsidized fuel. And also within the next decade, the young, educated and developing workforce of Bahrain will be available to meet the growing demands for skill, knowledge and dedication."
Clearly, the opportunities for investors, industries and contractors are going to be plentiful as Bahrain takes another step forward. "There is a saying 'If you do not know where you are going, any road will take you there'," concludes Dr Ali Mirza. "The Government of Bahrain has clearly defined the future; we know where we are going, and we hope the engineering industry will be available to help us get there."
Bahrain's relative economic stability is reflected by the generally steady historical upgrade in its sovereign rating by international rating agencies. In December 2009, the international rating agencies, Standard & Poors and Fitch, reaffirmed their outlook on Bahrain's long-term foreign currency sovereign debt as A (Stable). The same rating agencies assigned a rating of A (Stable) to Bahrain's long-term local currency sovereign debt.
Indeed, in recent years, the financial services sector has been the single largest contributor to Bahrain's GDP, reflecting the high growth in the sector. In 2009, the financial services sector remained the single largest contributor to Bahrain's GDP (contributing 25.1 percent to Bahrain's real GDP). In line with the objectives of Vision 2030, contributions to the economy from manufacturing (15.3 percent. of GDP in 2009), mining and quarrying, including oil and gas (13.2 percent of GDP in 2009), government services (14.8 percent of GDP in 2009), transport and communications (8.8 percent of GDP in 2009) and real estate and business activities (8.7 percent of GDP in 2009) continue to increase.
The GDP numbers indicate a diverse economy and in 2009 the oil industry contribution to the public finance revenues was 83 percent, so in this respect the oil and gas industry is still vital to the economy of Bahrain.