East Africa will become a global LNG player
The region will become a global player on the LNG market
East Africa is on the point of realising its promise of being the next big liquefied natural gas (LNG) exporting region. Anadarko and Eni have agreed to start building an export project based on their offshore resources in Mozambique. Statoil and BG, meanwhile, say their reserves in Tanzania are sufficient to merit an LNG development.
Add to that an encouraging gas discovery made by an Apache Corporation-led group in Kenya and the prospects for a rapid injection of export earnings looks bright for a poor region that badly needs the economic boost. Some industry estimates suggest that Mozambique and Tanzania between them could be home to more than 200 trillion cubic feet (cf) of gas, rivalling LNG export hub Australia. More than 100 trillion cf of gas has already been discovered in the two African countries.
Development plans in Mozambique are the most advanced. ICF International, a consultancy, believes that the projects proposed for the country have the potential to boost Mozambique’s GDP by as much as $18.7 billion. In 2011, the country’s GDP was $12.8bn.
Anadarko and Eni – operators, respectively, of the contiguous Area 1 and Area 4 licence areas in Mozambique’s Rovuma basin – plan to make a final investment decision on a four-train LNG facility near Palma on the Cabo Delgado coast in the north of the country by the end of this year. Shipments of LNG could begin in 2018. The plan is to feed gas to the plant from subsea production facilities, made practicable by the relatively shallow depths in the gasfields, which lie mainly in around 1,000 metres to 1,500 metres of water. If that goes well, the companies could add six more trains later, boosting output to around 50m tonnes a year.
Finalising an agreement on the project remains complex, as Anadarko’s Prosperidade field that will provide the lion’s share of gas for the plant extends into Eni’s area, where the field extension is known as Mamba. So the two consortia involved need to agree on how to unitise and coordinate development of their assets. Both Anadarko and Eni have also discovered producible fields that lie entirely within their own areas and so do not need to be unitised. Efforts are now under way to underpin the development with fresh investment and gas-sales contracts. In March, the Area 1 group confirmed it was looking for buyers for a 20% stake in its licence, comprising 10% from Anadarko – the sale of which would leave the firm with 26.5% – and the entire 10% belonging to Indian telecommunications firm Videocon.
A consortium of India’s ONGC Videsh and Oil India has been in talks to take the 20% stake, offering up to $5bn for it, according to a report in India’s Business Standard. Anadarko said in March it had also been talking with Japanese firms over sales from the project and that it had held talks with 20 companies in 10 countries. Mozambican government officials have also said Anadarko has been in talks with ExxonMobil and Shell, though the companies have not confirmed this.
Meanwhile, Eni has agreed to sell a 20% stake in Area 4 to China National Petroleum Corporation for $4.2bn. The sale, which would leave Eni with a 50% stake in the block, has yet to receive government approval and is likely to attract substantial capital gains tax under new legislation in force in Mozambique since the start of 2013. Eurasia Group analysts have estimated the tax could amount to as much as $1.4bn, though the figure could be reduced through negotiations.
Elsewhere in the Rovuma basin, Statoil announced in April that it had sold a 25% stake in two yet-to-be-drilled blocks to Japan’s Inpex for an undisclosed amount. The deal leaves the Norwegian firm as operator with 40%, while Tullow Oil has 25% and Mozambique’s state energy company Empresa Nacional de Hidrocarbonetos has 10%. Statoil plans to drill its first two exploration wells on the blocks before the middle of the year.
Tanzania’s hopes of following Mozambique into the LNG export market have taken a step nearer realisation, following a commitment by Tim Dodson, Statoil’s head of exploration, to push on with plans to build an LNG plant there in partnership with BG Group, which could take around seven years to develop.
In March, Dodson said the firms would recommend a site for a two–train LNG facility to take gas from the BG-operated Block 1 and the Statoil-operated Block 2 areas. After four discoveries within a year, Block 2 is estimated to have more than 10 trillion cf of gas reserves. Three blocks operated by BG in Tanzania, including Block 1, are estimated by the company also to hold more than 10 trillion cf of recoverable gas.
A gas discovery by an Apache-led group late last year suggests Kenya may also become an important player in East African LNG development, though offshore oil and gas exploration there is still in its early stages. The Mbawa-1 well, drilled offshore Malindi, hit 52 metres of gas pay in three zones, but failed to find oil. The licence group comprises operator Apache (50%), Origin Energy (20%), Tullow Oil (15%) and Australia’s Pancontinental Oil & Gas (15%). The consortium has since been analysing data from the well to decide on a future drilling programme.