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Tuesday, 28 August 2012

Industry conferences, summits, conventions

With a burgeoning energy industry especially in the oil and gas sector in Eastern Africa, the number of conferences/summits that seek to bring stakeholders together to disseminate the latest news, learn the newest trends and purvey current information are on the rise.

These conferences give an opportunity for industry players to network, advertise their goods and services to the sector & media.

However, what is the impact of these conferences, who benefits most from them and what is their tangible intrinsic value to those who participate? The delegate’s fee for an individual at these conferences is anywhere upward of US$1300 per person. Sponsorship fees range above USD 10,000 allowing corporate participants visibility.

The East African Community (EAC) has in the past advertised a consultancy tender to evaluate the impact of East African Petroleum Conferences. After all is said and done going by the increase of these conferences, their relevance cannot be underestimated and here are my top picks in terms of the upcoming conferences in the next 3 months.

My favourite conferences in no particular order:

3rd Annual Africa GAS & LNG Summit 2012
4th & 5th September 2012
Maputo, Mozambique

The East Africa Oil & Gas Summit 2012 
13th & 14th November 2012
The Hotel Intercontinental 
Nairobi, Kenya
East Africa Oil & Gas Summit 2012 
15th & 16th November 2012
Nairobi, Kenya

East Africa Gas Forum
5th – 7th September 2012
Dar es Salam, Tanzania

East African Power Industry Convention
10th – 13th September 2012
Dar es Salam, Tanzania

Tanzania Mining,Energy/Oil & Gas and Infrastructure Indaba.
24th - 26th October 2012
Arusha International conference centre, Tanzania

1st East Africa Upstream Summit 2012
25 -26th October 2012
Nairobi, Kenya

Wednesday, 15 August 2012

Kenya and South Sudan sign pipeline deal in the wake of oil transit deal between the Sudans

Last week the governments of Kenya and South Sudan signed an agreement to commence the construction of an oil pipeline from the oil fields of South Sudan through to the Kenyan port town of Lamu on the Indian Ocean. Construction is set to begin in early 2013 and end in 2015. This was after an initial memorandum of understanding was signed between the two counties in the wake of hostilities between the Republics of Sudan and South Sudan in January 2012.

The genesis of the hostilities that resulted in a short armed confrontation in January 2012 is that when South Sudan broke away from the North with independence on 9th July 2011 it took with it three quarters of the oil reserves of the former joint country. However, being land locked it had only one route of exporting its crude oil through pipelines that run through Sudan to export terminals in Port Sudan.

Due to disagreements on pricing of the transit fee, Juba suspended production of crude at the onset of the conflict. Khartoum demanded US$36 per barrel from Juba to export the oil while the latter offered a little over US$1 on the basis that the figure was close to international averages. Juba also accused Khartoum of seizing some oil assets and diverting oil through secret pipelines to make up the unpaid fees.

After many months of bitter negotiations the chief mediator Mr. Thabo Mbeki (former president of South Africa) announced that both sides had reached a compromise agreement on the oil. This was after undue pressure from regional neighbors such as Ethiopia, Kenya and Uganda in addition to western powers such as the United States and the EU and the biggest beneficiary of the oil, China.

The discontinuing of the oil production has led to undue economic hardships in both countries with the government in Juba loosing 95% of its budget revenues. Experts from the Bretton Woods institutions are saying that the country would have run out of foreign exchange between the end of August and October 2012.  On the other hand Khartoum has been reeling from the effects of a sharp drop in oil revenues which has manifested itself in various forms; such as a sharp rise in inflation, spiraling high fuel prices and fuel shortages in addition to higher food costs. This led the government to announce biting austerity measures that have resulted into sometimes violent demonstrations in Khartoum for that first time in over a decade from a public that had become accustomed to a comfortable life funded by petro dollars.

Details of the oil deal are sketchy with Sudanese officials stating that Juba will export oil at a fee of US$25 per barrel while the South Sudanese government stating that they will pay US$9.48 per barrel and an additional US$3 billion one off lump sum as an unprecedented budget assistance to the North. The fee to be paid (cumulative US$11) is the highest rate in the world and the government of South Sudan is understandably looking at alternatives.

As it signed the oil transit deal with Khartoum it also signed the new pipeline construction deal with Kenya. The agreement with the North is set to end in 2015 when the South is hoping to have constructed alternative pipelines through Kenya and probably another through Ethiopia and Djibouti.

The South Sudanese Kenyan pipeline project will be funded by South Sudan and jointly managed by the two countries and ensures that the pipeline passes through Kenya’s LAPSSET corridor. LAPSSET is an alternative transport corridor in Northern Kenya that connects the port town of Lamu to South Sudan and Ethiopia. The LAPSSET projects championed by the government of Kenya under its Vision 2030 mission are valued at US$23 billion and include a planned port, a refinery, the pipeline, roads, airports and resort cities in Kenya’s underdeveloped north.

The pipeline is also planned to export Kenya’s recently discovered oil from the northern oil fields of Turkana where this pipeline is set to pass through. There are also unconfirmed reports of negotiations to build a branch of the pipeline to the oil fields in the Lake Albert region of north western Uganda.

Along the pipeline will run a fiber optic communications cable that will connect South Sudan to the world.

The intrigues around this pipeline continue.

Wednesday, 8 August 2012

Wind Power in Kenya why all the delays?

Lake Turkana Wind Power (LTWP) when completed is envisaged to be the largest wind farm in Africa with a capacity to produce 300 Megawatts (MW) of electricity in the Turkana region of Kenya. This is the same region where oil has recently been discovered in March 2012 by Anglo Irish company Tullow Oil.

The project is co-financed by the Spanish Government in collaboration with other international lenders and the Government of Kenya at a cost of US$ 1 billion. The African Development Bank (ADB) is the lead arranger of debt financing with Standard Bank of South Africa and NedBank Capital of South Africa as co-arrangers.

This project has been on the drawing board for over 6 years and has been hit by several major hurdles along the way in the form of lack of a clear renewable energy policy in the beginning, to a lack of investment guarantees. Then there is the issue of missing basic infrastructure in the Turkana region of north western Kenya, a region that lacks basic amenities such as tarmacked roads, electricity and piped water. The community that lives in this area is mainly nomadic who rare livestock and fish in the Lake Turkana.

This has led the LTWP Company into lengthy negotiations with both government and potential investors to get the project going. The LTWP consortium now comprises KP&P Africa B.V. and Aldwych International as co-developers, Norwegian Investment Fund for Developing Countries (Norfund), Industrial Development Corporation of South Africa (IDC), Industrial Fund for Developing Countries (IFU) and Wind Power A.S. (Vestas).

The government finally came up with a Renewable Energy feed in tariff (FiT) policy in early 2010. The tariffs were subsequently reviewed higher in 2011 as it was seen that that the low tariffs were leading to under investment in the renewable energy sector even as the resources (raw material) lay in abundance.

The current FiT rates are US$12 cents a kilowatt-hour of electricity for wind power and US$20 cents a kilowatt-hour of electricity for solar are now attractive while the tariff for thermal is a maximum of 14 cents per kilowatt-hour.
Even after the FiT policy made investing more enticing another barrier came up, these were investment guarantees. Foreign direct investors usually require assurances that their investment and return on investment will be protected from a wide array of risks ranging from expropriation, political risk, foreign exchange risk to commercial risk among others. They want to know that when they invest in an area especially in a region like Africa that is deemed as a high risk frontier market, that at the end of the day their investment is safe.
The situation has been made worse by the government of Kenya suspension of sovereign risk guarantees for energy projects as it fights to contain an escalation of foreign debt. I believe this was forced on the government after it began receiving budgetary support aid from the World Bank post the global financial crisis in 2009. In a recent advert to attract investment in the Geothermal sector this line was inscribed “Investors are notified that the Government of Kenya will not provide sovereign guarantees relating to this investment and therefore they should seek other alternatives such as MIGA (World Bank) and other forms of insurance”. The government is at the moment looking at the World Bank to structure guarantees for large projects. However, the situation has been made better by the recent discovery of oil within its borders. Oil revenues always raise a country’s credit attractiveness and give investors added confidence.
Despite all these challenges the company recently awarded a contract to Civicon, the largest construction company in the region a US$ 300 million tender to build transmission lines and access roads. Under the contract the company will rehabilitate 204 Kms of access roads and another 109 kms within the site. This will take 15 months to complete, paving the way for the delivery of 365 Vestas wind turbines and Siemens transformers to the site.
Also the Kenya Electricity Transmission Company Ltd (Ketraco) has started construction of a double circuit 400kv, 428km high voltage transmission line to deliver electricity from the site. This transmission line will connect the site to the Suswa substation in central Kenya and will be funded by the Spanish Government and undertaken by Spanish company Isolax.
Aldwych, an Africa focused power company, will oversee the construction and operations of the power plant on behalf of LTWP while Vestas will run the plant under contract with LTWP.
The electricity will be bought at a fixed rate by Kenya Power over period of 20 years as per a signed Power Purchase agreement.(PPA).
As we await this project to commence, KENGEN, Kenya’s national power producer already has 5.1MW wind farm in the Ngong Hills area just south west of Nairobi. In January 2012, GE Energy a subsidiary of the American multinational GE announced it was setting up a 100MW wind farm (Kipeto Energy) in the Ngong area at a cost of US$ 300m. This project’s unit costs are much less as it doesn’t have the same infrastructural challenges as LTWP.
Other major wind farms planned include Aeolus (Kinangop and Ngong Hills) and Isiolo Wind farm that is in the process of verifying its carbon credits under the UNFCCC’s Clean Development Mechanism(CDM) with Standard Bank of South Africa as consultants. In addition there are 3 other planned wind farms in the wind rich Marsabit area in North Eastern Kenya. Marsabit awaits the World Bank funded high voltage transmission line from Ethiopia to Kenya to pass through it for these projects to be considered viable. (Read my previous post: Construction of a 1,000Km power line between Ethiopia and Kenya to commence soon)
With clear policy guidelines and strategy in the renewable energy sector these projects would have been up and running several years ago, these would have also lowered the hurdles currently being encountered and instead pushed forward Kenya’s drive towards cleaner cheaper energy.

Wednesday, 1 August 2012

Eni hits additional gas offshore Mozambique

Eni the Italian oil & gas multinational has said it has discovered more gas offshore Mozambique in addition to the discoveries it had already made in the recent past.

According to a press release this morning, the company said it had made a new and important natural gas discovery offshore Mozambique.
The new discovery adds at least 282 billion cubic meters of natural gas to their discoveries. The location where this find resides on is Area 4 of the Mamba North East 2 exploration field.
This adds to the recoverable reserves already discovered of 72 trillion cubic feet of natural gas in Mozambique.

I believe there is more to come as studies previously done by the US Geological Survey, estimate there are over 400 trillion cubic feet of natural gas off shore Eastern Africa.

Lets watch and see....