Bahrain Petroleum Industry
Figure 7. Lower Gulf States: Oil Fields, Gas Fields, and
Refineries, 1993
In 1929 the San Francisco-based Standard Oil Company of
California (Socal)--now known as Chevron--set up a
subsidiary to
acquire an oil exploration and production concession on
the
island of Bahrain. Socal drilling crews discovered oil in
1932,
and two years later the first shipment of crude oil was
exported
from Sitrah. By 1935, when sixteen oil wells were in
production
and construction of the Bahrain refinery commenced, the
royalties
that Socal paid to the government constituted more than 40
percent of the state budget. In 1936 Socal sold half of
its oil
interest to Texas Oil Company (Texaco) and, with its new
corporate partner, formed the Bahrain Petroleum Company
(Bapco).
In the years up to independence in 1971, Bapco oil
revenues
annually averaged 60 percent of government income and
helped to
finance major development, education, and health programs.
The
government of Bahrain acquired a 60 percent interest in
Bapco in
1975 and assumed control of the remaining 40 percent in
1980.
Bahrain's proven oil reserves are limited in comparison
with
the extensive oil fields of Kuwait and Saudi Arabia. As
early as
1965, Bapco estimated that one-half of the island's total
oil had
been depleted. Oil production peaked in 1977 at 77,000
barrels per day
(bpd--see Glossary)
and steadily declined thereafter.
During the 1970s and early 1980s, two developments
helped to
maintain the government's relatively high income from oil
revenues despite declining production. First was Bahrain's
share
of profits from the offshore Abu Safah oil field in the
Persian
Gulf between Bahrain and Saudi Arabia
(see
fig. 7). When
the two
countries demarcated their marine boundaries in 1958,
Bahrain
ceded its claims to an area of the gulf north of the
island in
return for a Saudi agreement to share the profits from any
oil
that might be discovered there. Subsequently, oil in
commercial
quantities was found in the seabed, and from 1968 to 1986,
revenues from the Abu Safah field contributed
significantly to
Bahrain's overall oil income. Since production from the
Abu Safah
field ceased in early 1987, Saudi Arabia has provided
Bahrain
with 75,000 bpd of crude oil as compensation for this
loss.
The second development was the more than tenfold
increase in
oil revenues that followed the December 1973 decision by
the
Organization of the Petroleum Exporting Countries (OPEC)
to
triple the international price of crude oil. During 1974
and
1975, income from oil accounted for an unprecedented 80
percent
of government revenues, although this percentage gradually
declined in subsequent years. Nevertheless, as long as oil
prices
remained high, oil revenues remained high. At the end of
1985,
however, Saudi Arabia significantly increased its own oil
production, which resulted in a glut of oil on
international
markets and caused prices to fall by more than 50 percent
in just
a few months. Bapco could not increase production from its
declining oil fields beyond 42,000 bpd, and consequently
Bahrain's oil revenues in 1986 were 65 percent less than
in 1985.
Oil revenues did not increase substantially until 1990,
when the
regional political crisis that accompanied Iraq's invasion
of
Kuwait precipitated a rise in oil prices. In 1991 oil
revenues
constituted about 62 percent of revenues in the
government's
budget (see
table 14, Appendix).
Although Bahrain has had an oil-based economy since
1935, by
1993 proven reserves were estimated at 200 million
barrels, and
the government anticipated that all oil would be depleted
by
2005. Nevertheless, the country's economists expected oil
to
remain important long beyond that date because of the
large
refinery Bapco has operated at Sitrah since 1937.
Periodically
expanded and modernized, the refinery has the capacity to
process
250,000 bpd of crude oil, at least five times the amount
produced
by the island's oil wells (see
table 15, Appendix). During
1992
the United States firm Bechtel Corporation began expanding
the
refinery's capacity to 360,000 bpd. More than 80 percent
of the
petroleum that the refinery processes comes via pipeline
from
Saudi Arabia. The Sitrah refinery has been refining Saudi
crude
oil since 1938 and expects to continue to do so well into
the
twenty-first century. Its refined petroleum products, most
of
which are exported, include aviation fuel, fuel oil, and
gasoline.
Substantial deposits of natural gas are associated with
Bahrain's oil fields. Before 1979, when the government
established the Bahrain National Gas Company (Banagas), an
estimated 3 million cubic meters per day of this gas were
being
vented to the atmosphere. Banagas opened a gas
liquefaction plant
that collected this gas and processed it into propane,
butane,
and naphtha. There are also large deposits of natural gas
in the
Khuff field, which is separate from the oil fields.
Banagas has
drilled more than fifteen wells to tap this gas, which is
used
for fuel to power the oil refinery, electric generators,
and the
water desalination plant. Some of the gas is reinjected
into the
oil fields to maintain reservoir pressure and stimulate
production. In 1990 Banagas estimated total natural gas
reserves
at 209 trillion cubic meters; daily production averaged
about 20
million cubic meters.
Data as of January 1993
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