West Africa vs. East Africa: The battle for oil and gas supremacy
Over ten years ago, the buzz in the oil and gas sector was West Africa. Deals were being struck in Sao Tome and Principe, Chad, Equatorial Guinea, and Ghana. Nigeria retained its position as the Africa’s numero uno in hydrocarbon resource production. The projection then by analysts was that West Africa will receive over $120 billion in hydrocarbon revenues by 2013. As it turned out, it was an underestimation.
Now, the attention is shifting to East Africa. Recent discoveries in Mozambique, Kenya, Tanzania and Uganda have turned the focus on the region. Massive investments have followed the discoveries in the region too. In 2012, more than 50 exploration wells were completed in East Africa, which is more than half of conventional oil and gas resources found worldwide.
It’s now crunch time in the East African countries. Uganda has just signed memoranda of understanding with international oil companies like Total, CNOOC and Tullow covering oil field development, refinery and an export pipeline through Kenya. While Tanzania and Kenya are pushing through with hydrocarbon legislation, Tullow was forced to suspend exploration briefly in Kenya due to local protests. Amid corruption concerns, Mozambique is trudging on with its gas potential with some analysts estimating that government could receive nearly $400 billion in gas revenues over the next decade.
How is West Africa bracing up for the challenge?
West Africa Region accounts for a third of the world’s new oil discoveries, especially in the Nigeria’s Niger Delta basin and the Gulf of Guinea. According to the US Geological Survey, the West African Coastal Province has an estimated 3 200 million barrels of oil. Oil exploration off the coast of West Africa has surged since 2007 when Tullow Oil found the Jubilee field in Ghana, one of the continent’s biggest recent finds. New finds have been made in Liberia and Sierra Leone, while Mauritania’s discoveries over the last decade remain to be replicated. Niger has now become a producer and Mali awaits discovery of commercial hydrocarbons.
There has also been a burst of exploration activity in the neighbouring countries of Sierra Leone, Liberia and Gabon with the hope of finding Jubilee-type giants in the Cretaceous fan formations and pre-salt structures. In Guinea, Tullow is undertaking a seismic survey looking at a potential reserve of 10 billion barrels of oil, and Simba is exploring for oil in Guinea, Ghana, Mali, and Liberia. Cote d’Ivoire has been through a number of political changes and a civil war but Lukoil are on the verge of investing about $400-million in exploration activities in a prospect there.
In 2012, Anadarko and Eni both announced new oil finds. Anadarko’s new oil finds were off coasts of Liberia and Sierra Leone while Eni made the first oil discovery in the Offshore Cape Three Points (OCTP) block, located in the Tano Basin offshore Ghana, about 50 km off the coast of Ghana.
In 2013, Panoro announced that it had made its second oil discovery offshore Gabon with estimated resources at 28 million barrels of oil. Liberia granted rights to Exxon Mobil and its partner Canadian Overseas Petroleum Limited to develop an offshore oil block. Cairn Energy bought rights to search for crude in the waters off Senegal. China National Petroleum Company (CNPC), the only foreign producer in Niger, entered a joint exploration pact with Taiwan’s CPC to hunt for oil in Niger’s Agadem block
Nigeria remains Africa’s number one crude oil producer and holds the largest natural gas reserves on the continent, and was the world’s fourth leading exporter of liquefied natural gas (LNG) in 2012. Nigeria’s crude oil production could hit an all-time high of 2.75 million barrels per day if two major deepwater projects, Mobil’s Erha North and Total’s Egina, come online and add 350,000 barrels of oil per day to current output levels. However, the delay in passing the Petroleum Industry Bill (PIB) has resulted in less investment in new projects as there has not been a licensing round since 2007, mainly because of regulatory uncertainty. The regulatory uncertainty has also slowed the development of natural gas projects as the PIB is expected to introduce new fiscal terms to govern the natural gas sector.
Can East Africa overtake West Africa?
There are three countries that could drive East Africa to emerge as the world’s next oil and gas hotspot; Kenya, Mozambique and Tanzania.
The LNG project in Mozambique is arguably the most advanced and biggest of the projects currently underway and, with Asian gas markets being as they are, the most likely to reach its full potential.
Mozambique’s major gas discoveries have been making headlines for the best part of four years now. The two main exploration areas in the offshore Rovuma basin – Area 1 operated by Anadarko Petroleum and Area 4 operated by Eni – have yielded a combined total of nearly 200 trillion cubic feet in original-gas-in-place estimates since 2010.
The target market will clearly be Asia, where many countries have gas shortages, either right now or on the horizon, such as China, India, Japan and South Korea. The main obstacle that Mozambique LNG plans could face is the competition from the United States and Canada to feed exactly the same gas hungry markets. Many LNG terminals in these two countries are now making their way through the various approval processes, looking to also take advantage of the very high gas prices in these Asian countries as quickly as possible.
Recently, Kenya announced the country’s fourth consecutive discovery of oil by Tullow Oil and Africa Oil adding that drilling revealed oil in the Auwerwer and Upper Lokone sandstone reservoirs, bringing their total discoveries in Kenya to an estimated 300 million barrels. The companies had previously announced a major discovery in Turkana after beginning exploration in late 2012.
The Turkana discovery has led to major international interest in Kenya’s remaining oil exploration licences, including from France’s Total, China National Offshore Oil Corporation, ExxonMobil and Chevron, though no other companies have yet announced commercially viable discoveries. Kenya has 46 blocks, of which 44 are licensed to 23 exploration companies. The government plans to create and offer seven new blocks in the near future.
Tanzania produces small volumes of natural gas for domestic consumption, but the country has the potential to become a liquefied natural gas (LNG) exporter in the future. Tanzania does not produce crude oil, and there has not been a commercial oil discovery in the country recently. The BG Group, in partnership with Ophir Energy, and Statoil, in partnership with ExxonMobil, has made several offshore natural gas discoveries since 2010, totaling 25 to 30 trillion cubic feet of recoverable gas resources.
Frank Uzuegbunam