Author:Smith, Pamela Ann

Pamela Ann Smith reports on developments in Bahrain where swiftly diminishing oil reserves mean facing up to the challenges of economic diversification is no longer a futuristic pipedream.

Bahrain's fortunes have been mixed in recent years as the country seeks to provide jobs for its young and growing population and to expand its important oil, banking and industrial sectors. New laws are being drafted to encourage foreign and private investment, but political uncertainties at home and within the region are expected to slow the pace of growth.

Gross domestic product (GDP) rose by 3.8 per cent in 1997, partly as a result of lower costs for its imports of crude oil from Saudi Arabia. However, GDP is expected to fall by 2.5 per cent this year, according to estimates made in February by the Economist Intelligence Unit (EIU) in London. Thereafter an improvement is expected, largely because of the government's commitment to increase spending on infrastructure and a forecast recovery in world oil prices. The EIU estimates that it will reach 3.4 per cent next year.

One of the most promising developments has been news that the big US oil corporation, Chevron, has decided to renew its oil exploration activities in the country. Although Bahrain was the first Arab state to begin producing oil, with refining operations beginning as early as 1935, crude oil output has been declining in recent years and currently averages only about 40,000 barrels a day.

Chevron's agreement, which was signed with the Bahrain National Oil Company (Banoco) in February, covers offshore areas in the north and west of the Bahrain archipelago. It has been granted a 100 per cent concession and expects to start drilling in the year 2000 after the completion of seismic studies.

The announcement marks the first time that new oil exploration has been conducted in Bahrain since the mid-1980s. Industry analysts say that Chevron's optimism stems from the development of new exploration and recovery techniques which could make the areas involved -- which cover 5,900 square kilometres -- commercially viable.

The country's main refinery, owned by the Bahrain Petroleum Company (Bapco), is also taking steps to upgrade its operations by installing a new blending facility at its complex in Sitra. The move should reduce maintenance costs and help improve exports which, together with crude oil, account for almost two-thirds of Bahrain's total exports.

The Gulf Petrochemicals Industries Company (GPIC), which is owned by the government, Banoco and the Saudi Basic Industries Corporation, has also commissioned a new plant at Sitra to produce urea for fertilisers. Capacity will amount to 1,700 tons of granules a year. Most of the output will be exported, and important deals have already been signed with US importers. Revenues are expected to reach...

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