East Africa: A New Oil Frontier Is Born

A combination of recent discoveries and the development of oil fields in Uganda have triggered a surge of interest in East Africa’s oil and gas potential. The independent oil companies that originally opened up the region are being followed by bigger companies, including the UK’s BG Group, Total of France and China National Offshore Oil Corporation (CNOOC). Sizeable oil and gas reserves have now been discovered that have the potential to revolutionise the region’s energy prospects.

BG Group of the UK has discovered gas with all three exploration wells that it has drilled off the southeast coast of Tanzania since buying into the acreage last May.

The Pweza, Chewa and Chaza wells have all been drilled in deepwater in the northern part of the Ruvuma Basin and the Mafia Deep Offshore Basin held by BG (60%) and Ophir Energy (40%).

BG Group chief executive Frank Chapman said: “This is an encouraging start to our campaign in Tanzania. We have a large acreage position to explore and an extensive exploration programme will be needed to assess the full potential of this new play.” New drilling will begin before the end of this year.

In September, the Chinese government agreed to provide Tanzania with a $1.06bn loan to construct new gas sector infrastructure, including a new gas pipeline from Mtwara in the far south of the country to Dar es Salaam. A new gas processing plant will also be built at Mtwara to handle gas, presumably from the BG finds. The pipeline appears to rule out the joint development of gas reserves on the Tanzanian-Mozambican border, for the foreseeable future at least.

The minister of energy and minerals, William Ngeleja, said: “This is a must project for the future of this country: we have secured financing from the Chinese. Some people have been misleading the public by saying the Chinese own this project, but the truth is that it is government owned. The Chinese are financiers and the project will boost gas supply as well as reducing or ending the power supply problem in the country.”

Construction, due to start next year, will be overseen by state-owned Tanzania Petroleum Development Corporation and the China Petroleum and Technology Development Company (CPTDC), an offshoot of the China National Petroleum Corporation (CNPC).

Despite the construction of some gas-fired power generating capacity in Tanzania in recent years, Tanzania remains prone to power shortages and is currently enforcing periodic power cuts. The completion of the new pipeline could encourage the construction of a new cross-border pipeline from Dar es Salaam to Kenya. The project to supply Kenyan thermal power plants was originally proposed in 2008 but the lack of available gas seems to have held up development.

Total has taken a 40% stake in five exploration blocks off the coast of Kenya, alongside partners Anadarko (50%) and Cove Energy (10%). Exploratory drilling in the area is expected to begin next year. Cove chief executive John Craven said: “The addition of a company of the calibre of Total to our Kenyan deepwater partnership marks an industry acknowledgement of the significant exploration potential in these blocks.”

Marc Blaizot, Total’s senior vice-president of exploration, said that the acquisition was “part of a bold exploration strategy that consists of acquiring large stakes in high-potential frontier plays”. He added: “Recent discoveries in offshore Mozambique and Tanzania offer a very promising outlook for these Kenyan permits.”

Total is also now involved in Uganda, as a result of its purchase of one-third shares in blocks 1, 2 and 3A in the Lake Albert Rift Basin from Tullow Oil in March. Tullow, Total and CNOOC now hold equal one-third shares in the blocks that contain most of the oil reserves discovered in Uganda to date. The consortium expects to produce at least 200,000 b/d and “potentially much more”. More exploration wells are being drilled in order to establish the full extent of the discoveries. All of the 13 wells drilled in the year to the end of July discovered hydrocarbons and only one well drilled since the programme began in 2005 has failed to uncover oil or gas.

Juba takes control

Given South Sudan’s eagerness to build ties with Anglophone East Africa, it seems apt to consider the world’s newest country as part of the Eastern Africa region.

The Juba government has now begun the long process of taking control of the oil fields lying on its territory and so far seems content to allow existing operators to retain their licences. However, it has announced that it will review existing contracts to ensure transparency and new oil industry legislation is expected to be introduced in the near future.

At least two thirds of total Sudanese oil production is located in the newly independent part of the country, suggesting domestic output in excess of 300,000 b/d but even the government of South Sudan admits that exact figures are difficult to pinpoint because of opacity in the industry to date.

Angelina Teny, the adviser to the Ministry of Energy and mines on petroleum matters, told journalists: “We could say that about 50% of oil resources that were going to the North are southern assets and I can say that a greater part of this is coming to us now. Our resources are being managed from the South, although not totally but at least the companies are now beginning to move southwards.”
Teny added that Juba was keen to ensure the development of an oil refinery in South Sudan. She said: “Presently, we are importing oil products, but again it encourages us to think very fast in building a refinery to address domestic needs. That is being discussed and the government is very serious about it.”

A huge refinery with production capacity of 200,000 b/d has been mooted, while the government of Uganda also hopes to oversee the construction of a similar sized plant on its territory. If developed, the two facilities would be able to supply huge swathes of Eastern Africa with petrol, diesel and other refined petroleum products, possibly reducing fuel costs in the process. At present, most of the region is reliant on importing fuel from the coast at great cost. Refineries in South Sudan and Uganda should encourage improvements in the road network.