The Persian Gulf can boast of a history in oil.
Early in the twentieth century, as the Texan oil boom appeared slowing down and the global crude consumption began to rise – for a host of reasons – the search for newer oil resources intensified.
World War I once again underlined the importance of obtaining and controlling oil resources from a geopolitical perspective too. And thus, for its specific geography, the Persian Gulf became an area of special interest and indeed perennial conflicts, propelling geologists and explorers from various parts of the world to move into the region and secure its energy assets.
Oil in the region was first hit in Iran. The Anglo-Persian Oil Company (APOC), discovered oil and began its production in Iran in 1911.
Later, post-WWI, British found oil in Iraq. However, the Saudi oil story was still in the making. In fact, before Saudi Arabia, oil in commercial quantities was struck in the tiny island of Bahrain, some 25 kilometres from Dhahran in Saudi Arabia, in 1932 by the Standard Oil Company of California (Socal). The first Saudi oil in commercial quantities was discovered six years later in 1938 in ‘Damman 7’ well.
But despite hitting oil first, Bahrain’s crude output has been considerably below the euphoric expectations expressed in the beginning. Ever since them, the Bahraini output has been no comparison to the Saudi output.
In recent years, while Saudi Arabia, the Organisation of the Petroleum Exporting Countries (Opec) kingpin, is producing around 10 million barrels per day (bpd), the Bahraini output has literally been no match. It currently produces around 45,000 bpd from its onshore Awali field, while it also receives 150,000 bpd of crude from the Abu Safah field, which it shares with Saudi Arabia.
But courtesy the shale revolution all this could be in for a real change.
Last week, Bahrain officially announced the discovery of its biggest oil field since it started producing crude in 1932. The shale oil and natural gas discovered in a deposit off the island state’s west coast, in the Khalij Al-Bahrain Basin, is estimated to hold more than 80 billion barrels of oil, Bahraini Oil Minister Sheikh Mohammed bin Khalifa Al-Khalifa revealed at a press conference last Wednesday.
The volume of natural gas at the field is estimated to be between some 10-20 trillion cubic feet, AFP quoted the minister as saying. Before the latest oil discovery, Bahrain was estimated to have proved reserves of just 125 million barrels of crude.
The new discovery would make Bahrain crude asset base comparable to Russia, the world’s largest oil producer today. Yet, there is a caveat to the entire story.
Analysts are describing the find as “a layer with moderate conventional reservoir properties on top of an organic-rich source rock.”
Hence, extraction from the field is not expected to begin for at least the next five years, a Bahrain Petroleum Company executive was quoted as saying in the press. And the output would not only rise slowly but as per initial reports, it would remain just a fraction of what Russia produces today. Production from the new discovery could ‘one day’ reach 200,000 bpd, Bahraini newspaper Al-Ayam said, quoting local sources.
There are reasons for that. This potentially tricky geology could see the field classified as being on the borderline between conventional and unconventional. That, in turn, has led some analysts to warn of issues involved in extracting crude from the formation.
The amount of oil and gas that can be recovered from hard-to-reach pockets in shale rocks under the sea is uncertain, and development is potentially an expensive proposition. Halliburton Co. will drill two wells this year in the offshore Khaleej Al Bahrain basin to appraise how much of the 80bn barrels of oil contained underground is actually recoverable.
Tapping the shale formation will require hydraulic fracturing, the Bahraini oil minister said. Deep drilling will be needed. This makes the development an “economic and technical” challenge, Saddad al-Husseini, a former Aramco executive was quoted as saying by Bloomberg.
Finding the new deposit is only the initial step. Determining how much of the hydrocarbons can be exploited commercially and starting production from accessible reserves may be a costly, years-long effort. A single shale well onshore will cost about $7m to drill and frack this year, according to a 2017 Citigroup estimate. A well from the new Bahrain offshore deposit will cost “no less than $20m,” Husseini estimated.
The Bahraini find underlines that the shale era has arrived and it is now beginning to extend its wings beyond the borders of the United States.
Beneath the ground, ample resources are available and so is the technology, though at a price.
Published in Dawn, April 8th, 2018