Meanwhile, the cash-strapped kingdom—ill-placed financially to become dependent on costly foreign energy—is stepping up decades-long efforts to find and develop indigenous gas resources, with hopes buoyed by a discovery deep below the country’s sole oilfield a few years back.
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But years of debate over the capacity and form of the import facilities—interspersed with periods of political turmoil—delayed concrete progress until December 2015. At that point Nogaholding, the investment arm of the government’s national oil and gas authority (Noga), signed a 20-year build-own-operate-transfer contract with a consortium of Bermuda-registered Teekay LNG (30pc), Kuwait-based Gulf Investment Corporation (20pc) and South Korea’s Samsung C&T (20%) to execute the project as a regionally-novel public-private partnership (PPP), with the state firm holding the remaining shares in the project company and providing offtake guarantees.
Financial close on the $741mn limited-recourse project loan took another two years later and made heavy use of South Korean export credits—as Bahrain’s sovereign credit rating was buffeted by the mid-decade oil price slump. Completion of the import facilities—which have send-out capacity of 800mn ft³/d (22.6mn m³/d) and comprise a floating storage unit (FSU), an offshore receiving jetty, a regasification platform and an onshore gas-receiving facility—was, at that time, due in the first half of 2019.
By August of last year, though, and with no commissioning in sight, Teekay admitted start-up was slipping into the year’s final quarter. But it was not until late January that the public/private consortium announced belated completion of commissioning.
Unfortunately for all four project sponsors, the announcement was accompanied by disclosure that the Bahrain Spirit FSU, having received the final commissioning cargo, would henceforth be redeployed under short-term charter—rather than being used for its intended import purpose. No reason was given for the further delay to commercial start-up, but is thought to indicate an inability to reach agreements with LNG suppliers.
This failure is somewhat glaring given that the Bahraini government has very publicly trumpeted discussions with potential sellers for many years. Russia was long talked-up as the likeliest source, and memorandums of understanding (MOUs) to co-operate with Russia’s Gazprom in the LNG sector were signed in 2016 and 2017.
Lower transport costs would in theory make regional supplies cheaper, and an agreement in November 2018 with Abu Dhabi’s Adnoc LNG to supply the commissioning cargo was part of broader discussions that included the potential for a longer-term deal. But Qatar is precluded by hostile political relations, with Bahrain one of three Mid-East Gulf states subjecting its neighbour to an economic blockade since mid-2017.
Pricing is assumed to be the sticking point. But completion of the terminal, the upfront outlays involved and the urgency of Bahrain’s gas need are expected to galvanise supply talks.
The last of these is perhaps most pressing and could encourage the Bahraini side to compromise and to get imports up-and-running before the end of the year. Domestic gas demand is expanding rapidly to meet the power generation needs of a fast-growing population and to fuel industrial expansion, including that of the gas-guzzling Aluminium Bahrain smelter— which doubled in capacity last year to become the world’s largest.
However, the government’s hopes of not having to sign up to long-term imports were delivered a substantial shot in the arm by a discovery announced in April 2018—and somewhat overshadowed by a substantial offshore oil find revealed simultaneously—of an estimated 13.7tn ft³ of deep gas below the onshore Awali oilfield, the country’s sole crude producer since the 1930s.
Noga has yet to enlist international assistance to develop the new resource but has been courting Italy’s Eni over wider engagement in the kingdom’s energy sector for several years. The efforts bore some fruit in May last year, when the Bahraini government signed an exploration and production-sharing agreement with Eni for an offshore block in the north, where drilling is due to start this quarter. In early February, the Italian firm also signed an MoU with Noga-owned Tatweer Petroleum, the state’s upstream operator, to explore collaboration in various domains, including gas.
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