SHADOWANGEL
JF-Expert Member
- Sep 15, 2014
- 528
- 348
Some of the most promising prospects in all of Africa today are no doubt to be found on the East African oil frontier. Up to the very recent past, oil and gas in East Africa has mostly been unknown in the oil and gas industry.
It is only in recent years that almost all countries in East Africa are proving to be a new oil and gas frontier. The areas that have attracted the most attention are oil discoveries made in onshore areas of Kenya and Uganda, and significant gas discoveries made in the Rovuma Basin off the south-east African coastlline in Mozambique and Tanzania.
The largest issue that the East African area will face to develop these promising areas is the current low and volatile oil price market. Oil prices took a dive from $110 in late 2014 going to as low as $28 in January 2016 and are now hovering around $40-50.
The volatility as well as low oil price makes it difficult and much less attractive for oil and gas companies to drill high impact, high risk, or high cost exploration wells. Not to mention the significant amounts of investments required to build the proper infrastructure required to develop these areas. This has only added to already existing risks that are normally present in these areas such as uncertainty about economic policies due to inexperienced law makers.
In the case of Kenya, as discoveries have been made in onshore areas, it is relatively cheap to drill additional wells compared to offshore exploration meaning that Kenya would still be attractive. This explains why Tullow oil company has decided to continue activities in Kenya, although reducing its activity for offshore areas in other parts of Africa.
As for Uganda, substantial oil discoveries made in 2006 changed the game. It took reserve estimations of Uganda from 0 to 2.5 billion barrels of oil. What followed was an understandable long process to development in part due to Uganda being a new player in oil and gas, as well as time needed to build new infrastructure.
And then you have Mozambique and Tanzania. Considering the new finds made in both countries are gas finds, there is a need to build LNG plants to commercialise the gas resources. In the case of Mozambique this requires significant investments of up to $54 billion (!).
The scale of investment gives an indication of just how much profits are expected. The companies developing the area Anadarko and its partners, started development in 2014 and are currently expecting annual returns of around 12% once the project is underway in 2022. The project is still continuing despite the current oil volatility, in part because the Mozambique government introduced additional laws making the investment more attractive for developers.
On the other hand, Tanzania has been slower with the development of their LNG plant. They have only recently, at the start of 2016 finalised the land acquisition for their LNG plant. Companies involved in the development include Shell, Statoil, Exxon Mobil and Ophir Energy. The aim for Tanzania is to start up the LNG plant in 2020, although delays are making that seem less and less probable. The positive side of this is that just the building of the LNG plant is expected to increase economic growth in Tanzania by 2% per year, so one only has to imagine how much growth would be expected once the plant is built.
And let us not forget, that East Africa is still one of the least explored areas in the entire world, meaning that this is surely just the beginning.
THE PROMISING FUTURE OF EAST AFRICAN IN OIL AND GAS
It is only in recent years that almost all countries in East Africa are proving to be a new oil and gas frontier. The areas that have attracted the most attention are oil discoveries made in onshore areas of Kenya and Uganda, and significant gas discoveries made in the Rovuma Basin off the south-east African coastlline in Mozambique and Tanzania.
The largest issue that the East African area will face to develop these promising areas is the current low and volatile oil price market. Oil prices took a dive from $110 in late 2014 going to as low as $28 in January 2016 and are now hovering around $40-50.
The volatility as well as low oil price makes it difficult and much less attractive for oil and gas companies to drill high impact, high risk, or high cost exploration wells. Not to mention the significant amounts of investments required to build the proper infrastructure required to develop these areas. This has only added to already existing risks that are normally present in these areas such as uncertainty about economic policies due to inexperienced law makers.
In the case of Kenya, as discoveries have been made in onshore areas, it is relatively cheap to drill additional wells compared to offshore exploration meaning that Kenya would still be attractive. This explains why Tullow oil company has decided to continue activities in Kenya, although reducing its activity for offshore areas in other parts of Africa.
As for Uganda, substantial oil discoveries made in 2006 changed the game. It took reserve estimations of Uganda from 0 to 2.5 billion barrels of oil. What followed was an understandable long process to development in part due to Uganda being a new player in oil and gas, as well as time needed to build new infrastructure.
And then you have Mozambique and Tanzania. Considering the new finds made in both countries are gas finds, there is a need to build LNG plants to commercialise the gas resources. In the case of Mozambique this requires significant investments of up to $54 billion (!).
The scale of investment gives an indication of just how much profits are expected. The companies developing the area Anadarko and its partners, started development in 2014 and are currently expecting annual returns of around 12% once the project is underway in 2022. The project is still continuing despite the current oil volatility, in part because the Mozambique government introduced additional laws making the investment more attractive for developers.
On the other hand, Tanzania has been slower with the development of their LNG plant. They have only recently, at the start of 2016 finalised the land acquisition for their LNG plant. Companies involved in the development include Shell, Statoil, Exxon Mobil and Ophir Energy. The aim for Tanzania is to start up the LNG plant in 2020, although delays are making that seem less and less probable. The positive side of this is that just the building of the LNG plant is expected to increase economic growth in Tanzania by 2% per year, so one only has to imagine how much growth would be expected once the plant is built.
And let us not forget, that East Africa is still one of the least explored areas in the entire world, meaning that this is surely just the beginning.
THE PROMISING FUTURE OF EAST AFRICAN IN OIL AND GAS
