The oil sector in Bahrain accounts for 28 per cent of GDP and generates more than 70pc of government revenues, Oil and Gas Affairs Minister and National Oil and Gas Authority (NOGA) chairman Dr Abdul Hussain Mirza said yesterday.He also revealed that a new natural gas pricing structure would result in additional revenues of $40 million a year to the government.
Dr Mirza highlighted Bahrain's latest economic reforms initiative in the oil and gas sector during the First Economist Business Roundtable Conference with the Bahrain government at the Ritz-Carlton Bahrain, Hotel and Spa yesterday.
"The economy of the kingdom is oil-dependent, and although the country has been able to plan and implement successful diversification policies, the economic indicators still show that the oil sector accounts for 28pc of GDP, and it still generates more than 70pc of government revenues," he added.
"These challenges dictated the need for a paradigm shift in the way this sector should be managed and structured.
"As a result, the oil and gas sector has witnessed major changes in the way it is structured as well as in the policies and strategies that are applied in both the upstream and downstream operations."
The purpose of establishing NOGA in September 2005 was to streamline and create an independent authority that can apply the private sector mentality and best practices in managing this vital sector of the kingdom, said Dr Mirza.
"Exploration for new hydrocarbon resources has been our number one priority, as our aim was to enhance our own resources, rather than to rely on imports," he added.
"Therefore, in March last year, we launched a new Bahrain Bid Round 2007 in an international Press conference at the MEOS (the Middle East Oil Show).
"Through various well-planned transparent measures and introduction of a modified and more attractive exploration and production sharing agreement, we signed the agreements for offshore blocks 3 and 4 with Occidental Petroleum Corporation and for block 2 with Thailand's PTTEP.
"We hope that the new attempts as a result of these new agreements will result in new discoveries of oil and gas."
The discovery of oil in Bahrain dates back to June 1932, which was then the first oil discovery in GCC countries. This field has been producing oil and gas for the last 75 years.
"Despite successfully maintaining our onshore production consistently at about 35,000 barrels per day (bpd), we are now aiming to develop the existing field to significantly enhance its production rate," said Dr Mirza.
"Therefore, at the MEOS 2007 we offered Production Sharing Agreement (PSA) for the onshore Awali oilfield development.
"Bids were received and opened last December, and we were pleased to see eight global oil companies, including majors, competing to participate in the project.
"We consider their interest, is a vote of confidence in Bahrain. We are now in the process of evaluating their bids and hope to complete this process by the end of May."
The bid rounds were conducted in most transparent and professional manner.
"Some 87 international oil companies (IOCs) accessed our website and a total of 24 IOCs attended our Data Room in Bahrain," said Dr Mirza.
In Bahrain, like many other countries elsewhere, natural gas is considered one of the main sources of energy.
It is the main fuel for power generation, water desalination and many other large, medium and small industries.
"We at NOGA always value the tremendous contribution of the gas industry and gas-based industries to the economical and social transformations of the country," said Dr Mirza.
"The kingdom has been relying on its own gas reserves to provide for both domestic and industrial power demand. However, the local supply would not be enough to fulfill the increasing demand for gas in future years.
"Therefore, to meet the ever increasing short and medium-term demand, NOGA authorised Bapco to start a drilling programme, costing around $200 million, to increase gas production by drilling additional eight wells in the Khuff Gas Zone, to produce an extra 500m standard cubic feet per day of gas."
To meet the strategic long-term demand, Bahrain has initiated negotiations with some of its neighbours to import natural gas.
"We have had discussions with Qatar regarding the importation of Qatari natural gas to Bahrain," he revealed.
"However, Qatar is currently carrying out studies to determine their capability to produce more gas in view of their current and future commitments."
As far as a GCC gas-wide grid is concerned, initially there was an ambitious plan for the Qatari North Gas Field development.
After supplying natural gas for domestic consumption, this plan was designed to establish pipelines for export to the neighboring GCC countries.
Dolphin project, to supply two billion standard cubic feet per day of natural gas grids to UAE, has already started last June.
"We in Bahrain encourage considering this as the first phase of larger GCC gas grid and will support all initiatives to progress this further," Dr Mirza added.
"We are also seeking gas imports from Iran, and we are having a series of discussions with the Iranians on this matter. We have signed a memorandum of understanding in November last year and we are currently discussing various available options. We are aiming to sign the final agreement in this respect with Iran by the end of this year."
A new natural gas pricing structure has been enforced in the local market as of April last year, said Dr Mirza.
For existing gas users, the current price is equivalent to one dollar and 10 cents per million Btu and this will be incrementally increased by 10 cents per year for the next four years until a price of $1.5 per million Btu is reached in April 2011.
For new customers, they are asked to pay $1.5 per million Btu effective from last year.
"The new pricing structure is expected to result in additional revenues of $40m per year to the government and lead to rationalising the consumption and encouraging conservation by the end-users as well as streamlining and standardising the local market pricing policy," said Dr Mirza.
A Gas Committee has been established under NOGA, and includes membership of relevant governmental bodies and most of major consumers, with the mandate to process gas requests, monitor consumption and make recommendations for gas supply allocations.
The government has already begun energy conservation awareness programmes, said Dr Mirza.
"We initiated the establishment of Energy Conservation Committee," he revealed.
"The committee has been working in promoting conservation of energy in general and aiming at the implementation of a strategy to increase the efficiency of natural gas utilisation and consider alternative renewable sources of energy."
Dr Mirza highlighted Bahrain's latest economic reforms initiative in the oil and gas sector during the First Economist Business Roundtable Conference with the Bahrain government at the Ritz-Carlton Bahrain, Hotel and Spa yesterday.
"The economy of the kingdom is oil-dependent, and although the country has been able to plan and implement successful diversification policies, the economic indicators still show that the oil sector accounts for 28pc of GDP, and it still generates more than 70pc of government revenues," he added.
"These challenges dictated the need for a paradigm shift in the way this sector should be managed and structured.
"As a result, the oil and gas sector has witnessed major changes in the way it is structured as well as in the policies and strategies that are applied in both the upstream and downstream operations."
The purpose of establishing NOGA in September 2005 was to streamline and create an independent authority that can apply the private sector mentality and best practices in managing this vital sector of the kingdom, said Dr Mirza.
"Exploration for new hydrocarbon resources has been our number one priority, as our aim was to enhance our own resources, rather than to rely on imports," he added.
"Therefore, in March last year, we launched a new Bahrain Bid Round 2007 in an international Press conference at the MEOS (the Middle East Oil Show).
"Through various well-planned transparent measures and introduction of a modified and more attractive exploration and production sharing agreement, we signed the agreements for offshore blocks 3 and 4 with Occidental Petroleum Corporation and for block 2 with Thailand's PTTEP.
"We hope that the new attempts as a result of these new agreements will result in new discoveries of oil and gas."
The discovery of oil in Bahrain dates back to June 1932, which was then the first oil discovery in GCC countries. This field has been producing oil and gas for the last 75 years.
"Despite successfully maintaining our onshore production consistently at about 35,000 barrels per day (bpd), we are now aiming to develop the existing field to significantly enhance its production rate," said Dr Mirza.
"Therefore, at the MEOS 2007 we offered Production Sharing Agreement (PSA) for the onshore Awali oilfield development.
"Bids were received and opened last December, and we were pleased to see eight global oil companies, including majors, competing to participate in the project.
"We consider their interest, is a vote of confidence in Bahrain. We are now in the process of evaluating their bids and hope to complete this process by the end of May."
The bid rounds were conducted in most transparent and professional manner.
"Some 87 international oil companies (IOCs) accessed our website and a total of 24 IOCs attended our Data Room in Bahrain," said Dr Mirza.
In Bahrain, like many other countries elsewhere, natural gas is considered one of the main sources of energy.
It is the main fuel for power generation, water desalination and many other large, medium and small industries.
"We at NOGA always value the tremendous contribution of the gas industry and gas-based industries to the economical and social transformations of the country," said Dr Mirza.
"The kingdom has been relying on its own gas reserves to provide for both domestic and industrial power demand. However, the local supply would not be enough to fulfill the increasing demand for gas in future years.
"Therefore, to meet the ever increasing short and medium-term demand, NOGA authorised Bapco to start a drilling programme, costing around $200 million, to increase gas production by drilling additional eight wells in the Khuff Gas Zone, to produce an extra 500m standard cubic feet per day of gas."
To meet the strategic long-term demand, Bahrain has initiated negotiations with some of its neighbours to import natural gas.
"We have had discussions with Qatar regarding the importation of Qatari natural gas to Bahrain," he revealed.
"However, Qatar is currently carrying out studies to determine their capability to produce more gas in view of their current and future commitments."
As far as a GCC gas-wide grid is concerned, initially there was an ambitious plan for the Qatari North Gas Field development.
After supplying natural gas for domestic consumption, this plan was designed to establish pipelines for export to the neighboring GCC countries.
Dolphin project, to supply two billion standard cubic feet per day of natural gas grids to UAE, has already started last June.
"We in Bahrain encourage considering this as the first phase of larger GCC gas grid and will support all initiatives to progress this further," Dr Mirza added.
"We are also seeking gas imports from Iran, and we are having a series of discussions with the Iranians on this matter. We have signed a memorandum of understanding in November last year and we are currently discussing various available options. We are aiming to sign the final agreement in this respect with Iran by the end of this year."
A new natural gas pricing structure has been enforced in the local market as of April last year, said Dr Mirza.
For existing gas users, the current price is equivalent to one dollar and 10 cents per million Btu and this will be incrementally increased by 10 cents per year for the next four years until a price of $1.5 per million Btu is reached in April 2011.
For new customers, they are asked to pay $1.5 per million Btu effective from last year.
"The new pricing structure is expected to result in additional revenues of $40m per year to the government and lead to rationalising the consumption and encouraging conservation by the end-users as well as streamlining and standardising the local market pricing policy," said Dr Mirza.
A Gas Committee has been established under NOGA, and includes membership of relevant governmental bodies and most of major consumers, with the mandate to process gas requests, monitor consumption and make recommendations for gas supply allocations.
The government has already begun energy conservation awareness programmes, said Dr Mirza.
"We initiated the establishment of Energy Conservation Committee," he revealed.
"The committee has been working in promoting conservation of energy in general and aiming at the implementation of a strategy to increase the efficiency of natural gas utilisation and consider alternative renewable sources of energy."
Many mechanisms were carefully planned to enhance the oil and gas sector's contribution to the national economy.
"Last August we announced the second part of the oil and gas sector's restructuring package, that is, the creation of the Oil & Gas Holding Company," he revealed.
"Operating under the supervision of NOGA, the new company, will manage the government's holdings in all local oil and gas companies, establish new companies and take stakes in domestic and international projects. "
With respect to downstream activities. Bahrain refinery modernisation programme has involved significant investment funds amounting to $1.2 billion. At the forefront of this effort is the Low Sulfur Diesel Project (LSDP).
"With the commissioning of LSDP Project in December last year at a cost of $725m, we started to reap benefits," said Dr Mirza.
"It is estimated that the government will yield incremental revenue of around $300m per annum compared to pre LSDP operation."
Downstream operations activities include other major projects under study.
Basically, they are four projects in a package costing around $670m (BD253m), the main of which is Lubricant Oil production plant. This project is proposed to be a joint venture with the International leading lube player, Finland based, Nest Oil.
It is estimated to cost $180m with an estimated internal rate of return of 25pc. As another example of working in partnership with the private sector, the government has also been studying a number of privatisation initiatives in the oil and gas sector. One of these initiatives involves the privatisation of retail service stations sector.
The idea is to reduce the direct governmental role in this sector and limit it to a regulator role, and encourage the private sector to invest in this business, to stimulate the economy and achieve a better distribution of wealth.
In September last year, a steering committee, chaired by NOGA, consisting of representatives from NOGA, Bapco, Finance Ministry and the Economic Development Board was formed to work with an appointed international consultancy firm (CRA International) on this project.
"Last August we announced the second part of the oil and gas sector's restructuring package, that is, the creation of the Oil & Gas Holding Company," he revealed.
"Operating under the supervision of NOGA, the new company, will manage the government's holdings in all local oil and gas companies, establish new companies and take stakes in domestic and international projects. "
With respect to downstream activities. Bahrain refinery modernisation programme has involved significant investment funds amounting to $1.2 billion. At the forefront of this effort is the Low Sulfur Diesel Project (LSDP).
"With the commissioning of LSDP Project in December last year at a cost of $725m, we started to reap benefits," said Dr Mirza.
"It is estimated that the government will yield incremental revenue of around $300m per annum compared to pre LSDP operation."
Downstream operations activities include other major projects under study.
Basically, they are four projects in a package costing around $670m (BD253m), the main of which is Lubricant Oil production plant. This project is proposed to be a joint venture with the International leading lube player, Finland based, Nest Oil.
It is estimated to cost $180m with an estimated internal rate of return of 25pc. As another example of working in partnership with the private sector, the government has also been studying a number of privatisation initiatives in the oil and gas sector. One of these initiatives involves the privatisation of retail service stations sector.
The idea is to reduce the direct governmental role in this sector and limit it to a regulator role, and encourage the private sector to invest in this business, to stimulate the economy and achieve a better distribution of wealth.
In September last year, a steering committee, chaired by NOGA, consisting of representatives from NOGA, Bapco, Finance Ministry and the Economic Development Board was formed to work with an appointed international consultancy firm (CRA International) on this project.
Source: Gulf Daily News | By SOMAN BABY
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