A lot has been reported about the oil and gas exploration in Eastern Africa and
the region being the latest hydrocarbon frontier.
It began a few
years ago with the discoveries of large natural gas deposits offshore Tanzania
and Mozambique. Recoverable reserves have today topped 100 trillion cubic feet
of natural gas (Tanzania and Mozambique sharing 28 & 72 trillion cubic feet
respectively). This is enough to supply the whole world with natural gas supply
for a year. Also, around 2006, 2.5 billion barrels of crude oil were discovered
in the Lake Albert region in western Uganda, in addition to previous finds of
approximately 6 billion barrels of crude in the then Sudan.
According to studies
done by the US Geological Survey, its estimated that the Eastern African region
stretching from Somalia to the Seychelles in the East and down to Madagascar in
the South and West to Mozambique could have as much as 441 trillion cubic feet
of natural gas. This is about 50% more than what Saudi Arabia has in proven
reserves to date. Hence, the frenzy to acquire exploration blocks in Eastern
Africa.
With a little over 2
dozen exploration companies such as Anadarko, Mitsui & Co, Tullow Oil,
Africa Oil, Cove Energy, Ophir Energy, BG already operating in the region and
more established multinationals like ENI, Statoil and Total also catching up
with recent forays in exploration activity. The region is a beehive in
Exploration and Production (E&P) investment.
However, the region
seems not to have been ready for oil and gas E&P. With tens of billion of
USD dollars coming into the region to develop the sector a few challenges have
cropped up.
1. Lack of established
legislative and policy frameworks to manage the sector. This has led to
governments awarding E&P contracts in unclear circumstances, with profit
share from the oil and gas revenues not very clear to the public. This has
encouraged the next challenge:
2. Corruption, because
exploration contracts are awarded in an opaque manner corruption is bound to
flourish as the awarding authorities could decide to privately benefit from
highly demanded exploration blocks, at the expense of their countries and
people.
3. Lack of skilled
manpower. Oil and gas exploration and drilling is a specialized skills set that
requires highly trained engineers and technicians in addition to specialist
supply chain and operational staff. These take years to train and orient.
4. Another challenge is
infrastructure, as this oil and gas is being drilled offshore and in remote
onshore sites, the closest major towns are ill equipped to process this bounty.
In the next few years we should expect more refineries, pipelines and Liquefied
Natural Gas(LNG) plants to convert natural gas into liquid form so as to
transport it to markets overseas in large sea bound tankers. We should also see
gas powered plants that burn the gas to produce electricity in eastern and
southern African countries. This will necessitate the laying of gas pipelines
to transport this product cheaply. The South African market is ripe for gas
powered plants because it currently relies 88% on dirty coal fired plants that
are heavy polluters. Natural gas is said to be more environmentally friendly.
Airports and sea ports will also be required to transport personnel, equipment
and supplies that are required in the development of oil and gas fields.
Because of the
discoveries of natural gas to the South of Kenya, the Government of Kenya has
been issuing exploration blocks at break neck speed since late 2011. In the
past one week Kenya has issued 7 of the 12 remaining exploration blocks
available. With ENI of Italy signing on 3 blocks and the four other blocks
going to Total, ERHC Energy, Rift Energy and Pacific Seaboard
Investments. Of the remaining 5 blocks Statoil and a Qatar based company are in
negotiations with the government.
This has led the Somalia
Transitional Government (STG) to protest as some of the off shore blocks that
were allocated are in disputed territorial waters between Kenya and Somalia.
According to the Kenyan Government the convention of boundaries in
international water is due East from the point of the on land boundary, this is
the agreed convention that governs the offshore boundaries on the eastern
Africa coast. However, the STG claims that the border should be perpendicular
to the coastline therefore precipitating the dispute.
Disputes related to oil
and gas in the Sudan’s has led to armed confrontations between the north and
southern neighbors, that has led to a shutdown of the flow oil from the oil
wells in the border region of Heglig (South Kordofan state). This resulted in
the drying up of the South’s oil revenue that was 96% of its budget. It has
since negotiated with Kenya to build an alternative pipeline through Kenya to
the port town of Lamu to export its crude oil.
The North has fared
slightly better with a reduced capacity of 115,000 bpd. In a bid to increase
revenue Sudan(North) has signed oil E&P sharing deals with foreign
companies for 9 blocks worth US$ 1 billion, in the hope of bringing on-stream
production worth a minimum of 65,000 bpd by end of 2012. This is to offset
economic woes that were precipitated by the country loosing three quarters of
its oil revenues when the South split from it in 2011.
In Uganda after the
discovery of oil through the exploration initiatives of Tullow oil in the Lake
Albert region. The country is set to start production of 2.4 billion barrels of
crude at a cost of US$10 billion, albeit on a small scale to begin with,
by 2014. This is after a protracted legal and policy battle between its
government and Tullow Oil. An agreeable E&P production sharing agreement
was finally reached in early 2012 that led to Farm out deal where Tullow sold
part of its stake in the oil fields to China’s CNOOC and Total to enable the
company obtain resources to produce crude while cashing in on its earlier
exploration initiatives.
The Kenyan discovery in
Turkana, Northern Kenya is still under validation after Tullow Oil stopped
drilling at the Ngamia 1 well and is moving its rig to the Twiga 1 site in the
same vicinity as it also prepares to drill in Ethiopia where it hopes to find more
oil. The commercial viability of the Ngamia 1 find look promising according to
Tullow’s website.
The drilling for oil the
semi-autonomous region of Puntland in Somalia has been reported but the news on
the on goings there are hard to come by, Africa Oil is the company drilling
there.
The
petro-dollar cheetah economies of Eastern Africa are on their starting blocks.
If the challenges mentioned above are not adequately addressed, the resource
curse, which has afflicted African countries in the west, is bound to ensue. We
hope and pray for the best.
