2018: Oil Discovery Resembles "April Fools", No Clue on How to Extract 80 Bln Barrels of Shale Oil
2019-02-01 - 7:22 am
Bahrain Mirror (Exclusive): Bahrain's announcement of the discovery of a large shale oil field off the country's west coast was one of the highlights of 2018. It was the largest discovery as described by the state agency since 1932; estimated to be over twice the size of the Bahrain Field. It was a great occasion for formal government celebration, but it also quickly turned into unanswered questions.
In a statement published by Bahrain News Agency (BNA), Crown Prince Salman bin Hamad Al Khalifa gave directives to the Higher Committee for Natural Resources and Economic Security (NOGA) "to determine the feasibility of extractable quantities from this new field and to develop plans for its development over time, taking into account the geological nature of the site and the production costs". This showed that the Higher Committee has no conclusive information as to whether the discovered quantities were capable of being invested.
This was confirmed by a press conference held by Oil Minister Mohammed bin Khalifa Al Khalifa, who stressed that he had no further information on the oil discovery. "The National Oil and Gas Authority is in the process of conducting geological surveys to determine the quantities that can be extracted, followed by studies on how to extract them with the best technology, in light of which the cost of extraction will be determined, and finally determine the extraction sites," the minister said.
He pointed out that the expected time for the extraction of shale oil, in addition to the extraction of deep gas from the new oil field is 5 years, should operations start this year.
The announcement revealed the disclosure of many conflicting information. "The quantities of light oil and associated gas, which may exceed 80 billion barrels, are based on technical data after all studies and analysis of information available," said John Hornbrook, Vice President of Demac at a press conference in Manama. The figures of the oil minister during the conference were different. He pointed out that "the quantities of gas estimated between 10 to 20 trillion cubic feet."
Whether the first or second estimates were correct, it was only the beginning of further skepticism, for these numbers mean Bahrain's resources outweigh the estimates of the U.S. Energy Information Administration (EIA) of world shale oil and shale gas resources. So according to Bahrain's estimates, it beats Australia, the United States, China, Argentina and Mexico. These are the richest countries in the world in terms of unconventional shale oil.
The skepticism spread to the reports and websites of international economic press and research centers. "The investment and time needed to extract the oil and the impossibility of predicting at what level prices will be when it's recovered will mitigate any immediate optimism from the announcement," said Bloomberg, an international financial reporting agency.
Meanwhile, a report by Stratfor, an American geopolitical intelligence platform and publisher, drew a more detailed and gloomy picture of the future of discovery, noting that "while the field's discovery may be significant, it won't be able to solve Bahrain's financial and economic challenges overnight - or even within the next few years." Stratfor added that it's not clear how much of the hydrocarbons will actually be recoverable; the touted figures are "in place" resources, and they are in rock formations known as "tight oil" and "tight gas," meaning they have low permeability (similar to U.S. shale formations), which hinders the flow of hydrocarbons. "Extracting the oil and gas in the new field will require expensive techniques, and Bahrain will still not be able to withdraw a large majority of it," it further explained.
In this context, the Minister of Oil told members of the Shura Council and House of Representatives that the ministry will work to ensure that the cost of producing a barrel of shale oil and gas will not exceed 40 dollars. But that is the cost at best. There is no doubt that shale oil costs more than conventional oil to extract. Beyond that, there is a lot of variability in the cost of extracting shale oil, meaning that every well has a different level of cost-per-barrel of production from as low as $40 a barrel to over $90 a barrel.
In terms of announced positions, Saudi Arabia initially declined to make any official comment on the oil discovery, despite the rush of other Gulf countries to congratulate Bahrain. Saudi reactions at that time were limited to two popular Twitter pages, who announced Bahrain's good news amid the state's silence. This opened the door for the emergence of some questions about the real Saudi position regarding the discovery announcement, especially that the discovered field, which was named Khaleej Al-Bahrain (Gulf of Bahrain), is located in parallel with the territorial waters of Saudi Arabia. The maps published by the Higher Committee for Natural Resources and Economic Security show that the field extends topographically along the eastern border of Saudi Arabia, in a manner in which the sea portion of the Arabian Gulf between them is almost halved.
Saudi Arabia did not announce its official stace until a week after the discovery announcement by a statement issued by the Saudi ambassador congratulating Bahrain.
"A memorandum of understanding was signed in cooperation with Halliburton to prepare for the drilling of production wells in the new field," said the oil minister at a press conference held on the discovery. The oil minister also said in subsequent statements that Bahrain was trying to attract US investors in the oil sector on appropriate terms. "We have addressed many companies in the United States, who have experience and specialization. We know that unconventional resources are prevalent in the United States. What we are trying to do is attract them, under appropriate conditions once we have finished determining the geological aspect which we think will be good," he further states.
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