Bahrain will make a final decision on whether to expand its only oil refinery next year, a senior oil executive said, predicting that falling crude prices and growing refining capacity in the region would squeeze product margins.

The proposed expansion would boost the capacity of the Sitra refinery by 100,000 barrels per day (bpd), Peter Bartlett, chief executive of state-run Bahrain Petroleum Co ( BAPCO ), said in an interview. The refinery’s existing capacity is 267,000 bpd.

“We are in FEED (Front-End Engineering Design) right now, and we will be in that stage in 2015. We will present the kingdom with a plan to proceed or not with the final investment decision in 2016,” he said in Dubai.

Bartlett said BAPCO had concluded term deals for a large part of its 2015 forward production at “pretty good margins”. But he predicted oil product prices would weaken as crude prices continued to fall, echoing comments by Gulf-based oil products traders who see a tough 2015.

“My expectation is that … if crude prices would decline in a more rapid way then the product prices would soften,” he said. Brent crude was trading below $48 a barrel showing no sign of halting its months-long tumble from highs of $115 in June last year.

Bartlett said a recent expansion in refining capacity in the Gulf might create a supply glut, adding more pressure to product prices.

Two newly opened plants in neighbouring Saudi Arabia, SATORP and YASREF, will expand the kingdom’s refining capacity by 800,000 bpd in 2015.

The United Arab Emirates expanded its Ruwais refinery late last year, adding more than 400,000 bpd of capacity.

Bartlett also said a government decision this week to begin increasing commercial gas prices was likely to be the beginning of a longer-term trend of easing subsidies, but declined to say how much the increase would be.

Bahrain’s cabinet decided to raise prices of natural gas sold to domestic companies incrementally from April 1, easing subsidies that have put pressure on state finances as oil prices have fallen. “I think there will be a series of increases in the coming years as well … there is a recognition within the region, and certainly in Bahrain, that we have to look at the input cost subsidies,” Bartlett said. “It is an ideal time for governments to consider taking advantage of lower oil prices and pass through some of those adjustments in pricing.”

Source: Reuters / ww.zawyer.com

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