Bahraini minister says oil line figures into refining plans

An improved global financial climate means that the designs and planning for a new oil pipeline to Bahrain from Saudi Arabia will appear later this year after an earlier delay, according to a senior Bahraini official.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, May 28 -- An improved global financial climate means that the designs and planning for a new oil pipeline to Bahrain from Saudi Arabia will appear later this year after an earlier delay, according to a senior Bahraini official.

“We are today placed in a very inflationary environment but we have taken the challenges head-on and reacted proactively to retain our competitive edge and stay on course for continued growth and earnings in line with market expectations,” said Bahrain’s Oil and Gas Affairs Minister Abdul Hussein Mirza.

Mirza also told delegates at Middle East Petrotech 2010 in Bahrain that the projected pipeline, which is expected to help Bahrain expand its refining operations, will use a safer route than the existing pipeline between the two countries.

Delegates also heard from Mirza that Bahrain is looking at its refining capacity beyond 2012 to help give the country a competitive advantage and make it better positioned to capture future market opportunities.

Bahrain’s single refinery, operated by state owned Bahrain Petroleum Co. (Bapco) currently processes more than 250,000 b/d of crude, about one sixth of it from Bahrain field, with the remainder imported from Saudi Arabia via pipelines extending 27 km over land and a further 27 km under the sea.

“Bahrain will have a lot of oil supplies in the next few years and this will entail not only the capacity of Bapco being augmented but also setting up another refinery,” said Mirza.

The minister said the new line from Saudi Arabia will increase Bahrain's oil supply to 350,000 b/d from the current 240,000 b/d, while ongoing development of Bahrain field will mean an output increase to 100,000 b/d from the current 32,000 b/d.

“An expansion at Bapco is on the cards but we may also look at a new refinery in the private sector,” said Mirza, who still sounded a note of caution.

“Though we remain optimistic about the future of the oil business, our optimism is moderated with caution,” Mirza said.

“There is some concern amongst industry observers that the rate at which additional refining capacity is coming onstream worldwide is outpacing the rate at which demand for refined products is expected to grow,” he said.

“This overcapacity might lead to tighter refinery margins which in turn would dry up investment in modernization and new ventures,” he said.

“Therefore, we are looking at our refining capacity beyond 2012—to give us a competitive advantage and better position to capture the opportunities that future market environments may offer.”

Mirza noted that Bahrain's Refinery Master Plan Project would also look at optimizing refinery capacities, crude oil import and production as well as future investments, among others.

“After the sharp dip of late 2008, crude prices have recovered appreciably, creating a healthy outlook for the upstream side of the business,” he said, adding: “In contrast, the gain in refinery margins has been very modest.”

Mirza said margins have generally stayed very depressed, and that the first quarter has averaged just slightly above the extremely weak final quarter of 2009.

“Therefore the challenge remains with us for the foreseeable future—how to ensure the profitability and sustainability of the downstream business? In downstream, the road to recovery does not appear to be a smooth, well-lit highway,” Mirza said, adding that, “It appears more like a sluggish uphill walkway.”

The minister said oil prices continue to be volatile and that predicting future movements continues to be extremely difficult due to the “many factors” that could impact the market for crude oil in the long term.

Mirza said worldwide fuel oil demand was expected to shrink, resulting in surplus volume. “This is why we are actively considering several options aimed at processing the ‘bottom of the barrel’ to high-value products,” he said.

“New capacity is coming onstream in our region and India and this will compete with our exports,” Mirza said, adding: “Our plan is to be ahead of the game, providing a better product and better service.”

Meanhwile, Bahrain will shut a 69,000 b/b crude unit during maintenance at its 267,000 b/d Sitra refinery in February 2011 for about a month, a company source said.

Bapco would also shut a 70,000 bpd vacuum distillation unit and a 50,000 b/d low sulfur diesel complex, the source said.

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