As One of its strategic goals for the future, Bapco aims at diversifying its product range and produce higher value products at its refinery. In order to remain competitive and improve its operating margins this approach is essential. The newly commissioned hydrocracker at the low sulphur diesel production (LSDP) complex offered one such opportunity. The ultra-low sulphur unconverted oil from the hydrocracker bottoms is an excellent feedstock for the manufacture of high value lubricant base oils.

A facility to produce Group III, Very High Viscosity Index (VHVI) lubricant base oils has now been built at Bapco refinery at a cost of $430 million. The Group III lubricant base oil products, which will meet the next generation of lubricant performance and environmental standards, are in increasing demand in Europe and North America.

The Oil and Gas Holding Company (nogaholding), the business and investment arm of National Oil & Gas Authority (Noga), and Bapco each hold a 27.5 per cent share in the manufacturing facility joint venture whereas Neste Oil of Finland holds 45 per cent share. This provides Bahraini companies a majority share of 55 per cent in the joint venture in which Bapco will operate the facility while Neste Oil will lift and market the products. This project is a strategic fit between the joint venture partners enabling them to meet their long term objectives.

The ultra-low sulphur hydrocracker bottoms feedstock from the LSDP facility combined with Chevron Lummus Global and Neste Jacobs Technology allows the manufacture of VHVI base oils. The world-scale facility built under an engineering, procurement and construction (EPC) contract by Samsung Engineering Company Ltd (SECL) of Korea will produce up to 400,000 metric tonnes per year of Group III products. The LBOP project inauguration ceremony was organised on November 29, 2011 under the patronage of HRH the Prime Minister Prince Khalifa Bin Salman Al-Khalifa. Product shipments to international markets have commenced.

A-B PIPELINE PROJECT

Currently, Aramco supplies approximately 235,000 BPD of Arabian Light Crude Oil to Bapco via its Dhahran Pump Station. The oil is pumped through the Abqaiq-Dhahran Pipelines System approximately 61.5 km long of which 27 km is sub-sea and the rest run onshore at about equal lengths in both Saudi Arabia and Bahrain.

The existing A-B pipeline system is of 1940s vintage and has recently proved to have shortcomings in terms of reliability of continuous crude transfer within operational safeguards. To mitigate the shortcomings and further simplify the system, a new single crude oil pipeline with supporting facilities has been proposed to be constructed from Aramco’s Abqaiq Plant to Bapco refinery through Qurayyah utilising an existing fuel pipeline corridor from Abqaiq to Qurayyah, then offshore to Bahrain and finally on a newly defined route to Bapco refinery.

This new crude oil pipeline shall be of 30 inch diameter, approximately 115 km long, and capable of supplying 350,000 barrels per day (bpd) of Arabian Light Crude to Bapco refinery.

The feasibility study and the pre-front end engineering design study (Feed) study have been completed. The memorandum of understanding (MoU) for the Feed Study with Aramco was signed in 2009. Routing issues for the Bahrain onshore segment have now been resolved following approvals from The Royal Court and Central Planning Office.

The minor changes in Bahrain’s onshore route will necessitate an addendum to the MOU signed for the Feed Study to define the changes to scope of work. The Feed Study shall recommence in first quarter of 2012 and the project is scheduled for completion in 2015 in line with the proposed Refinery Master Plan development schedule. The Total Installed Cost (TIC) for the new crude oil supply system is estimated to be in the range of $350 million.

THE BAHRAIN LNG SUPPLY PROJECT

Bahrain has been self-sufficient in energy for many years. However, given the rapidly growing gas demand from the power and desalination sectors in particular, Bahrain has taken strategic decisions with regard to its long term energy policy and decided to consider importing natural gas in addition to the development of new domestic gas resources to ensure its primary energy supply.

While Bahrain does not face an immediate crisis, it is prudent to launch now a process for evaluating the potential of Liquefied Natural Gas (LNG) imports to meet a portion of the country’s energy requirements. nogaholding has been given a mandate to proceed with the formation of an entity that will be responsible for LNG supply and the development, financing, operation, maintenance and management of a LNG import and regasification terminal (The Bahrain LNG Terminal).

This LNG import facility will be located on north-eastern side of Bahrain, near the existing Khalifa bin Salman Port (KBSP). Bapco has been assigned to this project as Technical Consultant to nogaholding. nogaholding is considering a joint venture (JV) with a ‘strategic partner’ that has core specialisation in the LNG business and with comprehensive experience in the entire LNG value chain. The ‘strategic partner’ will be selected through a competitive bidding process. Proposals in this regard have been received from nine international companies that have been evaluated by a multi-disciplinary core working team comprising representatives from Noga, nogaholding and Bapco.

A short-list of potential ‘strategic partners’ has been prepared for negotiations to be conducted for establishing the best possible business case for Bahrain. The joint-venture framework for the project with the selected partner(s) is expected to be finalised in the second quarter of 2012 following which the Feed study will commence.

The terminal configuration shall be finalised in line with the project objectives with safe handling and storage of LNG being of paramount importance. The two main configurations under consideration are the floating storage and regasification unit (FSRU) concept and the conventional onshore terminal option.

PILOT SOLAR POWER PROJECT

The concept of harnessing the energy of the sun for practical purposes is not new and has been prevalent since ancient times when the power of the sun was used to keep homes warm and disease free. The best thing about solar energy is that it is clean, renewable and sustainable.

The Pilot Solar Power Project is a Noga initiative to explore renewable energy options that has received Bapco Board approval in October 2011 for taking it forward under the management and leadership of Bapco for Bahrain. The project will be kick-started with a mini-pilot project of 3 – 5 megawatt (MW) in Awali Village and may be developed further for country-wide deployment to achieve 300 MW by 2020 depending on the results of the pilot run.

In 2010, discussions were initiated by Noga with Petra Solar/Caspian Energy Consultancy with the participation of Electricity and Water Authority (EWA) to consider introduction of a solar energy system on a broad scale in Bahrain. A ‘business discovery’ survey was conducted and a preliminary proposal was presented to Noga, Bapco, Economic Development Board (EDB) and other stakeholders in 2011.

Nexant and Freshfields, well established and renowned consultants, were appointed by Bapco/Noga to conduct an assessment of the initiative and provide support on technical, commercial and legal aspects of the proposal. The project framework has now been established and work is scheduled to commence shortly.

The pilot project, expected to cost around $25 million, cannot be strictly evaluated from a purely economic standpoint. The levelised cost of electricity (LCOE) produced from solar power may be higher when compared with the cost of electricity produced by traditional means such as gas-fired power plants, especially at subsidised gas prices, but such projects have environmental benefits and contribute to diversification of energy resources and energy security while providing an opportunity for transfer of advanced technologies to countries such as Bahrain and creating new job opportunities.

The Pilot Solar Power Project will form a strong basis for much needed research and development of solar energy in Bahrain. A research and development program is planned with Petro Solar, Bapco, Noga and university research centres which will focus on solar photo voltaic systems and other forms of alternative energy in Bahrain. The project will also initiate a national public relations programme which will promote the importance of the smart solar energy industry. Scholarship programs on smart solar technology have also been planned under the project.

ENVIRONMENTAL INITIATIVES

Waste Water Treatment Plant (WWTP) Project: Bapco is committed to the protection of the environment and the health and safety of its employees and the surrounding community. This commitment is one of the main driving forces for Bapco’s new $120 million Waste Water Treatment Plant (WWTP), which entered the engineering, procurement and construction (EPC) phase in the fourth quarter of 2010.

Currently, the refinery uses primary treatment for oily waste water, to remove solids, oil and grease from effluent water. The new WWTP utilises a secondary treatment process which incorporates the latest technology membrane bioreactor (MBR), to treat dissolved organics, as well as nitrogen and spent caustic. The WWTP project is extremely challenging on many fronts e.g. the waste water itself is hot and highly saline, which strongly impacts biological activity, and the environmental regulations stipulated by the Government of Bahrain for wastewater discharge into the Gulf are very stringent.

Given these difficulties, and since there were no comparable plants from which to learn, the WWTP project required a totally integrated scientific approach starting from process engineering fundamentals to take it from concept, through development of a viable biological process for Bapco’s waste water, to the installed plant.

Bapco developed an innovative process configuration based on MBR technology to meet the very low organics, nitrate-nitrogen, nitrite-nitrogen, TKN and total suspended solids (TSS) limits.

Although MBR’s are not commonly used in Refineries, due to concerns on membrane compatibility with oily waste waters, Bapco used bench scale studies and the full scale pilot plant operation for 12 months to obtain the required design basis for the full scale WWTP and to prove that the risk due to membrane fouling by organics and oil is negligible. Bapco’s WWTP will be the first MBR application of its scale i.e. 4400 USgpm (1000 cubic metres per hour) to treat refinery waste water.

The EPC contract was awarded to GS E&C of Korea and the Contract Signing Ceremony took place on 30th September 2010. Detailed engineering, procurement and site activities are progressing well and the project is on track for completion in the third quarter of 2012 as scheduled.

CO2 Recovery Plant Project: Bapco and Yateem Oxygen, a long-established and reputable local company involved in the industrial gases business, signed a renewable fifteen year technical and commercial agreement for a Carbon Dioxide (CO2) Recovery Plant near the Bapco refinery in May 2011. The CO2 Recovery Plant will be built, owned and operated by Yateem Oxygen while Bapco will provide a carbon dioxide rich feed stream from the refinery’s No 1 hydrogen plant which is currently vented to atmosphere.

This is for the first time in Bahrain that carbon dioxide that has many uses especially in the medical and food industry, will be extracted in an environmentally safe manner as against conventional methods that entail burning of fossil fuels. The plant will initially have a capacity to capture and recover 200 metric tonnes of carbon dioxide per day that can be doubled in the near future.

Bapco is at the forefront of Bahrain’s green drive and has implemented several environmental projects. As an industry leader, it has taken upon itself the responsibility of pushing through numerous initiatives that have helped in not only increasing overall environmental awareness, but also demonstrated that sustained progress is achievable without damaging the environment. This CO2 Recovery Plant is an ambitious environment conservation project that Bapco and Yateem Oxygen are embarking on in close cooperation and partnership for a cleaner and greener Bahrain. The joint objective is to convert a waste stream into a valuable product and reduce consumption of fossil fuels, thereby delivering economic and environmental benefits.

The construction work for the Carbon Dioxide Recovery Plant will be carried out without disrupting regular operations of the refinery. The tie-in works at the refinery end were completed in January 2011 using a window of opportunity provided by a scheduled shutdown of No.1 Hydrogen Plant. The technology provider for the plant has been selected and detailed engineering is nearing completion. Procurement and construction activities have also commenced. The plant, split into on-site facilities (inside Bapco refinery battery limits) and off-site facilities (built on Bapco leased land outside the refinery fence), is expected to be commissioned in the first quarter of 2012.

Bagru performance rectification project: The bulk acid gas removal unit (Bagru) at No2 sulphur plant is designed to treat high pressure natural sour Khuff Gas, in an amine based absorption / stripping process. During commissioning and performance trials in 2007, it was found that the Bagru was unable to operate at design capacity while maintaining the sweet gas on specification.

The Bagru Performance Rectification Project was initiated to rectify this problem and the main modifications carried out as part of this project are as follows:

• Installation of a new feed gas cooler;

• Installation of a new feed gas coalesce;

• Installation of a new lean amine cooler;

• Replacement of existing regenerator overhead condenser;

• Providing hydrocarbon skimming facility in the bottom of the absorber; and

• Replacement of top trays in the regenerator.

JGC–Gulf was awarded the contract for engineering and procurement works in Q3 2008 which was completed in Q4 2009. For construction work, Bapco engaged its local core contractor, AMA, to execute all related civil, mechanical, electrical and instrumentation works. The construction work commenced by installing essential tie-ins in March 2009 during the catalyst change out of No 1 hydrocracker unit. Major construction works, including installation of most new equipment during run, were carried out in 2010. The remaining works were successfully completed during the LSDP Complex T&I in February–March 2011 and the Bagru was successfully commissioned meeting desired specifications. The total installed cost (TIC) for the project is $10.5 million.

No2 hydrogen plant -recover process condensate (RPC) project: The low sulphur diesel production (LSDP) complex was successfully commissioned in mid-2007 which included No 2 hydrogen plant.

Following the start-up of the No 2 hydrogen plant, the process condensate generated within the hydrogen plant would normally be routed to the deaerator for use as boiler feed water. However, the process condensate was required to be routed to the oily water sewer (OWS) as it had a high concentration of ammonia (NH3) and associated high conductivity.

This loss of process condensate to the OWS could not be tolerated as the loss of water was significant. The best remedial solution identified was to install a HP stripper, to provide high temperature stripping of the process condensate. The new stripping system is designed to overcome the loss of about 250 USgpm of process condensate and preserve the refinery water balance by offloading the desalination plant.

Technip-USA, the technology licensor of No 2 hydrogen plant, was awarded the contract to execute the engineering design package (EDP) in February 2009. This EDP was completed in November 2009. The engineering, procurement and construction (EPC) Contract was awarded to JGC in February 2010. The project is now complete. A major portion of the construction work was carefully planned and executed during the LSDP Complex T&I in February–March 2011.

This project saw many firsts in Bapco. For the first time in the history of Bapco, a column was installed in a live operating unit safely and successfully. This was essential to meet the project schedule. All safety measures and risk mitigation plans were thoroughly worked out in great detail prior to the actual task keeping in tradition with Bapco’s Osools. Furthermore, it was also for the first time that a full-fledged project encompassing civil, mechanical, piping, electrical and instrumentation items of work was coordinated and executed within a small window of opportunity provided by a scheduled T&I, and then seamlessly integrated with existing operations. The total installed cost (TIC) for the project is $6.5 million.

Steam drum modification works: Bapco had been unable to operate the Steam Drum (76V7604) satisfactorily since the commissioning of No 2 hydrogen plant in June 2007. The HP steam generated from the steam drum did not meet the purity specifications required for No 1 hydrocracker unit recycle gas compressor turbine driver (T7701) and water carryover from the steam drum had resulted in the deposition of salts on the blades of downstream turbine, in control valves and on the inside of the reformer steam superheat coils.

The Process Licensor suggested changing the separation device, install 3 additional nozzles on the steam drum to equalise flow distribution and modify cyclones to improve performance.

The engineering details were finalised by Tehnip-USA (the technology licensor of No 2 hydrogen plant), FBM Hudson (the original equipment manufacturer) and Bapco’s multidisciplinary team.

Procurement activities were completed in time for the modification work to be carried out during the LSDP Complex T&I in February – March 2011. The modification works, identified as being on the critical path of the T&I schedule, were successfully completed on time. Steam drum performance (76V7604) has now been established to be satisfactory.

Steam turbo-generator (STG) project: Currently, there are five steam-turbo generators (STGs) in No 2 power plant.

These units were installed and commissioned between April 1946 and March 1958 with a total generation capacity of 21 MW. These units have far exceeded their design operating running hours and the condition of these sets is now poor due to ageing. A feasibility study recommended replacement of these five existing steam turbo-generators and the associated auxiliaries, with two condensing / extraction type steam turbines, each of 10 MW rating to address reliability, safety and performance issues.

The STG Project was initiated on this basis with an approved budget of $106 million.

On completion of the tendering process in 2009, an engineering, procurement and construction management (EPCM) contract was signed with Technip France (Abu Dhabi). The project activities were commenced on October 20, 2009 with a 26-month schedule.

As of end-November 2011, the EPCM progress is 87.2 per cent versus a plan of 93.1 per cent. Construction progress has been delayed due to unavoidable circumstances in 2011 and the project completion has been rescheduled to June 20, 2012.

During 2011, all materials and equipment were delivered to the site. Construction on the project was the mainstream activity during the year 2011. The STG sets were installed at site in September 2011. Civil work was extensively focused upon in early 2011 in order to complete foundations for pipe racks and buildings, and install underground piping. In total, almost 3,000 cubic metres of concrete has been poured on the project. The STG Building itself dominates the project site skyline with its 730 tonnes of steel, and as of end 2011 it is essentially complete except for the roofing and cladding.

PRODUCTION AND EXPLORATION

The exploration activities of the year 2011 were mainly concentrated in the Bahrain offshore blocks related to geological and geophysical studies, geotechnical, environmental surveys prior to exploratory drilling in offshore blocks-1, 2, 3 and 4.

Further progress was made by Bapco and its international oil company partners in the quest to find commercial oil and gas reserves in all four offshore blocks. New venture initiatives outside Bahrain were studied with special focus on the Middle East region. Additional support was also given to Tatweer Petroleum Company and the deep gas project.

The major activities of the Exploration Department during the year 2011 are as follows:

• Exploration activities related offshore block – 1;

• Exploration activities related offshore block – 2;

• Exploration activities related offshore block – 3;

• Exploration activities related offshore block – 4;

• New ventures outside Bahrain; and

• GIS data management and support to various departments.

Exploration activities of offshore blocks: Geological and geophysical (G & G) studies were completed in all four Bahrain offshore blocks as per the Exploration & Production Sharing Agreement (EPSA) signed with both Occidental and PTTEP Companies. Integration of 2D & 3D seismic data of different vintages, well data and Geological information resulted in preparation of detailed subsurface structural maps at selected Reservoir levels.

These studies were also resulted in identifying few drillable prospects in each offshore block. Several surveys such as environmental impact assessment, geotechnical, route and site surveys were conducted prior to exploration drilling in three offshore block’s well Locations. These surveys were smoothly completed due to Bapco’s full involvement and coordination with several Governmental agencies such as BDF, Coast Guard, Fisheries, CPO and Environmental departments.

Exploration drilling campaign for the four offshore wells has begun from the first week of December 2011.

New ventures outside Bahrain: Upstream exploration and production sharing opportunities outside Bahrain have been shortlisted with special focus on the Middle East region. Feasibility reviews have also been carried out to participate in various exploration bid rounds and farm-in opportunity with IOCs.

GIS and data management: GIS data management group has supported the Exploration, DPSA Monitoring Group, gas distribution and sales and plant engineering by creating GIS Services and hosting them on the Corporate GIS Server as to provide data access to the whole community within the department and to the entire User’s within Bapco. GIS is also handling the various G & G and petroleum data received from Tatweer Petroleum.

The GIS team is also participating in the National GIS Steering Committee (NGIS) where Bapco is one of the stakeholder where “Go live stage III” of the National GIS System will commence very soon with no ‘manual Wayleave’ will be entertained.

REFINERY MARGINS

There was an improvement in market prices in 2011 compared to 2010. The refinery managed to capitalise on the improved market prices and returned superior margins compared to 2010. This could only be made possible by the contributions of all staff in maintaining safe and reliable operations.

Crude run: The refinery processed an average of 258,994 bpd during 2011 compared to an expected budgeted crude run of 258,772 bpd. The highest ever crude processing rate of 271,287 bpd was achieved in November. This was closely followed by the average December crude rate of 271,166 bpd.

Maximised high-value middle distillate: A middle distillate yield of 55.5 vol per cent was achieved in 2011 which was lower than the record achieved in 2010 of 58.2 vol per cent. This was expected, given the high number and duration of planned shutdowns as well as the introduction of the lube base oil production.

The average diesel pool sulphur for 2011 was 0.06 wt per cent versus 0.07wt per cent for 2010.

Minimised low-value heavy ends (fuel oil and asphalt): The yield of low-value products (heavy ends) of 21.0 vol per cent is higher compared to previous years. This is attributed to the number of planned and unplanned shutdowns experienced during the year, especially considering some of these units were high conversion units. A planned high volume of atmospheric residue that was exported over the planned shutdown has been included in the heavy ends.

Asphalt production has continued to be profitable. Production averaged 2.5 vol per cent (6,445 bpcd) and the estimated profit compared to selling as fuel oil over the year was $16.0 million.

LPG and naphtha recovery: A total of 3,286 mmscf refinery offgas was sent to Banagas with a total recovery of 869,441 barrels of propane, butane and naphtha. It is estimated that this recovery is worth $62.0 million. The recovery is lower than 2010 and this is due to the extended Hub #1 T&I, at the beginning of the year. The refinery has continued to maximise the routing of off gas to Banagas in particular, CGRU and NRC off gas.

Operational availability: The plant operational availability at 94.9 per cent for 2011 is lower compared to 2010. This is due to the major T&I, Hub #1, undertaken in 2011.Unfortunately the Hub #1 T&I was extended by 22 days due to an unexpected lengthy mechanical repair, which further impacted this index.

Jet/kerosene flash point: As per the productivity improvement study, a 0.5 deg C reduction in kerosene flash point, at an estimated benefit of $110,000 per month (using 2009 prices) would be realised. The trial targeting a flash point of 39.0 deg C min commenced mid-February 2010. The average jet/kero flash point achieved over the 2011 period was 39.0 deg C, which resulted in a corresponding benefit of $1.7 million for the year which has exceeded the estimated benefit for 2011.

Refinery mass loss: The average mass loss for 2011 of 0.58 weight per cent is slightly higher than last year’s mass loss of 0.57 weight per cent. This increase can be attributed to the multiple shutdowns experienced by the refinery over the last year.

Energy usage: Energy Intensity Index, EII, is an industry standard that measures and ranks the energy efficiency of a refinery. The correlations used in the EII calculation were revised by Solomon during the 2008 Study. For 2011 an EII of 133.7 was achieved. This is higher than previous years primarily due to the high number and duration of planned and unplanned shutdowns that occurred in 2011.

Lost profit opportunity: The lost profit opportunity (LPO) for 2011 is unfortunately very high at $0.48/bbl compared to $0.09/bbl for 2010.

During 2011, International crude prices were generally healthier than 2010 levels brought on by continuing fears about the status of the global economy and the distress over the Euro-zone debt crisis and geopolitical tensions; especially during the second half of the year. Abu Safah crude exports totalled 54.7 million barrels in 2011 and the average sales price realised for Abu Safah crude was $106 per barrel compared to $76.6 per barrel in 2010.

With the stronger demand on medium grade crudes throughout the year; the Marketing team managed to achieve higher/competitive premiums for the contractual Abu Safah volumes which directionally contributed positively to the Kingdom’s national economy/wealth. Bahrain holds an equity share of 150,000 bpd in output from the joint Saudi Arabia – Bahrain Abu Safah offshore field.

In view of some planned shutdowns during the year, petroleum products exports during 2011 totalled 82.7 million barrels compared to 85.6 million barrels in 2010. Middle Distillates accounted for 56 per cent, followed by fuel oil 21 per cent sold mainly to the Middle East bunker market and naphtha 18 per cent sold mostly to Asian petrochemical industry.

Like the past year, Middle East (mainly GCC Countries) accounted for the highest share of total sales (at 49 per cent), followed by Far East (mainly Japan) and South East Asia (at 19 per cent), Africa (at 17 per cent), Europe (at 9 per cent) and Indian Subcontinent (at 6 per cent).

Approximately 474,000 barrels-equivalent of sulphur was exported, with again the Indian Subcontinent being the main consumer (63 per cent), followed by South East Asia (19 per cent) and Africa, Far East and Middle East (18 per cent).

The first shipment of Group III base lube oil under the joint venture agreement between Bapco (27.5 per cent), National Oil and Gas Authority (Noga) (27.5 per cent) and Neste Oil Finland (45 per cent) was successfully lifted on board M/T “Sky Dream” on November 28, 2011 and destined to Europe.

The total volume of local refined product sales amounted to 8 million barrels, led by high octane (Mumtaz) gasoline (36 per cent of sales), diesel (28 per cent) and low octane (Jayyid) gasoline (21 per cent).

As part of modernising the company’s fleet, eight new tractors units joined the tanker fleet during first quarter 2011.

Each vehicle is state of art equipped with Euro III low emission diesel engines and meets ADR European petroleum standard for carrying hazardous substances.

The retail section in local marketing successfully passed OHSAS 18001 audit in November 2011. A total of 12,612 bpd of Jet A-I fuel was supplied to Bahrain Aviation Fuelling Company (Bafco) at Bahrain International Airport, of which Bapco’s share amounted to approximately 7,000 bpd.

Following a review of various international business models and practices, Noga decided to discontinue the inspection and oil gauging services for ships attended at Bapco wharf and focus on its original role of being a regulator as of January 1, 2012.

Bapco’s international customers were given the option of flexibility to appoint their preferred independent inspector(s) from a list of four reputable independent international inspection firms stationed in Bahrain.

The overall refinery margins slightly improved over 2010 levels. Albeit quite depressed refinery margins in the first half of the year, the margins improved during the second half of the year resulting in a gross margin of approximately $7.65 per barrel.