Bahrain, the smallest state in the Persian Gulf, hit the headlines last week for a reason other than the Grand Prix – its largest oil discovery since the 1930s. Oil minister Sheikh Mohamed bin Khalifa described the find in the offshore Khaleej Al Bahrain Basin as “at substantial levels”. The new oilfield dwarfs the nation’s current reserves and is clearly a stroke of luck for the smallest energy producer in the region.
With the current state of affairs in global energy markets and the global push to transition to renewable energy, however, the Bahraini government is far more likely to reinvest additional revenue from this new field than go on a petrol-fueled extravaganza. With the fossil fuel era waning, this new oil find offers the Bahrainis an opportunity to diversify their economy and accelerate progress towards meeting the renewable energy commitments the government has already made.
The discovery, announced last Sunday, has already boosted Bahrain’s economic outlook given that energy sales currently make up 87 percent of total annual income and prices are still recovering from the global slump. Thanks to the oil discovery, as well as rising oil prices, BMI economic forecasters have revised Bahrain’s growth predictions upward. The country’s economy should grow by at least 3 percent annually over the next three years, reassuring investors and give the country more breathing space to raise capital.
It’s essential, however, that Bahrain intelligently reinvests additional funds. There are a number of reasons why Bahrain won’t be pumping out crude with reckless abandon—and particularly why it won’t be over-focusing on its newfound oil reserves to the detriment of renewable energy projects that are currently getting off the ground.
Firstly, the country doesn’t have free reign to produce oil. It is bound by the current agreement, negotiated by its close partner and ally Saudi Arabia, to limit oil production among the world’s major producers in order to stabilize global oil prices. Bahrain itself benefits from those production controls and stable prices, including in terms of non-oil growth. Secondly, experts have noted that the newly-discovered crude is situated in shallow reservoir waters which makes resource extraction less than straightforward—though its location near existing oil facilities would cut costs somewhat.
Thirdly, and most crucially, Bahrain knows it must invest in economic diversification to ensure its long-term economic stability. The oil find gives Bahrain a shot in the arm in the short term, but the country’s leaders have already made clear they understand that relying on revenue from fossil fuels is not sustainable in the long run. Five key non-oil industries have been earmarked for investment – financial services, manufacturing, logistics, tourism and ICT. Rather than lose sight of this commitment, the government should be expected to use any economic jolt from this oil discovery to kickstart investment in other, more sustainable sectors.
Key to breaking reliance on oil is the shift towards renewable energy which has spread across the Gulf region over the past few years. Among Bahrain’s, Gulf neighbours, both Saudi Arabia and the UAE have started to invest in solar and wind energy. The UAE is committed to generating 75 percent of its electricity from renewables by 2050, while the Saudis have set a target of 10 percent renewable energy by 2023. They have also announced plans to put $7 billion into solar and wind projects.
Bahrain has taken its own concrete steps towards a renewable future as well. The government is working towards targets of 5 percent renewable capacity by 2025 and 10 percent by 2035. The country has also unveiled plans for a large-scale solar power project at the Askar landfill site. Bahrain’s National Renewable Energy Action Plan (NREAP) initiatives include schemes to increase energy efficiency, renewable energy mandates for new buildings and net metering policies to encourage consumers to switch to solar power.
There are two good reasons for this buildup of renewable energy capacity in the Gulf states. The first is that costs have significantly fallen in recent years, meaning solar and wind-powered energy is now becoming cheaper than fossil fuels. Further technological advancements mean solar costs are expected to fall by 59 percent between 2015-2025.
Keeping electric bills affordable is essential for the Gulf states. Bahrain and its neighbours experience high energy consumption levels, with most buildings needing air-conditioning in the summer to make the desert humidity bearable. As renewable costs fall, then, increasing their part of the energy mix makes sound economic sense in addition to cutting pollution and emissions from the largely oil-powered capacity they rely on at present.
The Gulf states also recognizing the imperative to invest in renewable capacity to free up oil and gas reserves for export, enabling the countries to raise more capital. For example, Saudi Arabia currently consumes about 680,000 barrels of oil a day. If the country were to utilise its abundance of sunlight to power its domestic needs instead, those barrels would fetch around $47 million at current prices.
Bahrain is ultimately best served taking advantage of the short-term benefits from its new find to bankroll its economic transition and keep its eyes set squarely on the future. After all, with the global move towards clean energy and electric vehicles, much of the recently discovered reserves may never ultimately leave the ground.
*Gary Buswell is a freelance writer and a regular contributor to the New Londoners and Expatica.