Analysis: Extracting Oil from Discovered Bahraini Field would be First of its Kind in World if Successful

2018-04-19 - 8:46 p

Bahrain Mirror: A report issued on World Politics Review website stated that the nature of the new oil discovery in Bahrain is "an offshore shale oil field, which if successful would be the first of its kind in the world."

For the cash-strapped government in Manama, which has faced a mounting fiscal deficit and nagging social pressures, the news came as a major relief, the report noted.

Before this month's discovery, Bahrain's reserves had dwindled to 125 million barrels, as efforts to revive Awali's production with modern methods and technology had largely lagged. To add to the country's woes, the precipitous fall in global energy prices in 2014 sent Bahrain's economy tumbling down with them.

In this context, the report said "Bahrain can undoubtedly use extra revenue from increased energy exports to slash its deficit and stop borrowing to meet its budget needs."

However, it said that the nature of discovery means there is a major difference between the scale of the reserves and the amount that is actually recoverable, given accessibility and the high cost of this kind of drilling.

"That could lead to false hopes and potential delays to much-needed economic reforms."

"There is a concern that the energy discovery could distract from more important economic and social priorities, particularly if the reserves prove to be more difficult or costly to extract," says Kristian Coates Ulrichsen, a fellow for the Middle East at Rice University's Baker Institute for Public Policy, in an email.

Karen Young, a senior resident scholar at the Arab Gulf States Institute in Washington says that the Bahraini government has been split between reform-minded technocrats and a parliament that has dragged its feet on basic steps like cutting public subsidies.

At its current spending rates, the government would need oil prices to reach $118 per barrel to balance its 2018 budget. While some action has been taken, especially on labor reforms, much more needs to be done.

The 2011 episode damaged Bahrain's public image around the world, hurting its economy and investment prospects. It also caused Bahrain to spend more on social programs, weapons and security. The government recently outlined plans to build 25,000 new homes and invest $32 billion in infrastructure, and it has shelled out billions of dollars on major arms deals with the United States and others since 2011.

"But the government could be investing its resources elsewhere," the report further states, indicating the cost of Bahrain's hosting to a new UK base, opened last week, is $56 million.

The new oil and gas discovery adds to the potential for further delays (for vat and other basic reforms like raising state revenue through taxes) by diverting capital and focus. But by any estimate, the field is years away from being productive, so it also doesn't solve any of Bahrain's current fiscal issues, according to Young. "This is not a windfall, for right now," she says. "Bahrain still has the same challenges it had a year ago."

Arabic Version



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