So much noise about Bahrain oil

Apr 3, 2018 4:17 PM|Marcin Lipka

“Over the weekend, the world heard news of Bahrain’s discovery of the largest oil reserve in the history of the country. There was hope that this would be the next stage of oil’s global price revolution. Unfortunately, the reality may be less optimistic and drivers won’t feel any relief at the pump,” writes Marcin Lipka, Conotoxia Senior Analyst.

Marcin Lipka, główny analityk

On April 1, the Bahrain News Agency (BNA) published a report about the discovery of the largest oil deposits since the Bahrain Oil Field was launched in 1932. According to official reports, they may "outshine Bahrain's current reserves." Apart from this information, the message is rather limited, which suggests that we may be forgetting about hundreds of thousands of barrels a day of additional oil supply.

How much oil does Bahrain extract?

According to the Economic Development Council of Bahrain (EDB), 197k oil barrels per day (b/d) were extracted in 2017. This included production from the aforementioned Bahrain Oil Field at the 44 b/d level.

The rest of the oil comes from the Abu Sa'afah oil field that is jointly managed by Saudi Arabia. It is highly likely that the official announcement regarding the newly discovered oil and gas deposits and the statement of their "eclipse" refers only to those 44k b/d.

By comparing these numbers to global supply and demand, it is worth noting that Saudi Arabia and Russia extract around 10 million barrels a day, and March’s IEA (International Energy Agency) estimates show that the global demand for black gold will exceed 100 million b/d in the fourth quarter of this year. Bahrain’s oil supply from Bahrain is therefore marginal on a global scale.

Experimental extraction?

Another element of uncertainty in the message from Bahrain is the type of deposit itself. The wording suggests that this was a shale oil deposit and its exploitation would be from the marine area. Until now, commercial oil extraction from unconventional seabed deposits haven’t been the status quo.

If it was really about introducing new technology, the risks associated with the project would grow significantly. A hypothetical impact, not only on the global oil market, would probably go unnoticed. However, the project itself would not have to be particularly helpful to Bahrain itself. The Kingdom has been experiencing a financial shortage lately, despite a number of reforms. All basic rating agencies have cut their creditworthiness clearly below the investment level, and the debt-to-GDP ratio may approach 100% within three years (S&P Global Ratings forecast for 2020 is 97.9%).

Even an optimistic scenario is not enough

Putting doubts about the scale of extraction and technology aside, it is worth considering a positive scenario. We assume that the Kingdom will extract 10 times more from the new deposit than from the Bahrain Oil Field. All this time, however, despite these unusually optimistic estimates, the scale of oil production would be very limited and would amount to less than 500,000 b/d, or 0.5% of the total global demand. Despite oil sensitivity, even against the relatively small changes in the global balance, it is not enough to noticeably affect the price of this popular energy resource.

On Wednesday, Bahraini authorities will announce the basic new deposit parameters at a special press conference. There is an unusually small chance that this information will translate into lower oil prices. Drivers will need to be patient and reach deep into their pockets, because the chances of fuel price drops will remain limited over the next few weeks. These new announcements from Bahrain will unfortunately not change anything.


Apr 3, 2018 4:17 PM|Marcin Lipka

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