A Review of the Nigerian Energy Industry

Oil & gas in East Africa: The strides of a new frontier

South Sudan security forces guard the Petrodar oil facility in Paloich
South Sudan security forces guard the Petrodar oil facility in Paloich

Chijioke K. Mama

09 February 2015, Sweetcrude, Lagos – As the conversation continues about the commercial viability of discoveries in East Africa, the nations that will soon join the league of oil producers in Africa continue to fan their optimism. Kenya, Tanzania and Uganda are top of the list among hopefuls. However, the dynamics of East Africa’s geology and geography is somewhat complex. British firm Tullow’s discovery in Kenya is onshore. Despite uncertainties about the economics of production, full production might take many more years. The peculiar challenges presented by the geography of East Africa are best illustrated by juxtaposition with Ghana’s emergence as an oil producing country.

Ghana, in West Africa, took a record three and a halve years from discovery in the Jubilee field to first oil. The magic was that Ghana leveraged the fully developed infrastructure in the Gulf of Guinea, where oil and gas operations has been going on for decades. In nearby Nigeria, as well as, Angola, oil and gas infrastructure has been in place and could be easily assessed. Floating, production, Storage and Offloading (FPSO) vessels, as well as, existing networks of subsea pipelines meant that a significant amount of the challenge for a new entrant has been overcome. Additionally the Jubilee field is an offshore field and did not also present the challenge of developing completely new onshore production support systems that would be the case; were the fields to be onshore.

These advantages that enabled Ghana to quickly become an oil producing country, cannot be attributed to the nations in East Africa, where new finds has been made. Analysts believe that the terrain is uniquely rugged and presents a longer path for the players. Many notable IOCs are already present in these areas, where exploration continues alongside plans for the possible development of the existing fields. Like all other regions in the world, progress can be expected to be delayed by bureaucratic procedures, placed by the governments of affected nations. This will be made more conspicuous by the possible absence of experience in modern extractive industry governance and institutional management of the oil and gas industry. Nevertheless, some steps have been taken in the forward direction.

In spite of decades of exploration activities both offshore and onshore in Kenya, (involving most of the super majors; Exxon, Total, and Chevron) significant finds were not made in Kenya until Tullow’s announcement in 2012. Debates about commercial viability continue, however that has not deterred further developments. A recent report by Bloomberg illustrated an optimistic Kenya, expectant and excited that its oil reserves will double to 1 billion barrels as well drilling climbs. There are also reports about ongoing government plans to build an export pipeline. Presently very notable players in the global Oil and Gas industry are involve in the efforts to lead Kenya to full production; BG Group, Eni SpA and Anadarko Petroleum Corp. Realistic estimates are pointing towards the end of the decade for Kenya’s first oil

Kampala and its neighbor Kenya are recruiting contractors to construct an oil pipeline scheduled to be completed by 2018. Uganda has an estimated 6.5 billion barrels of oil in place and a recoverable crude potential of 1.4 billion barrels, according to its energy ministry. In recognition of the huge infrastructural developments required to bring Uganda’s oil on stream, the government has increasingly emphasized the bundling of facilities development agreement with exploration license provision. A local refinery will be required to ensure sufficient domestic production (of needed petroleum products) and a good network of pipelines that will ensure the smooth movement of products to the export market terminals. Uganda hopes to start production by 2017, according to a recent statement (reported by Reuters) by its Minister of Energy and Mineral Development, Irene Muloni. It’s also targeting to export about 140,000 bpd from a total production of 200,000bpd.

Tanzania’s huge gas deposits, first discovered in 2010 in the Indian Ocean has gained the interest of many players in the Oil and Gas Industry. Current estimates puts the gas reserves around 50 trillion cubic feet (tcf) with huge potentials for growth as more exploration projects are commissioned and completed. However, many analysts have pointed to a lack of clarity in policies that govern activities in the gas industry, as well as, a reasonable lack of transparency that could prove disastrous for a nascent industry. In November 2014, two officials of the state-owned company that represents Tanzania in its partnerships with IOCs were arrested over refusal to comply with certain demands made by lawmakers. Incidences like this have potential to hinder the timely and smooth advancement of the industry by way of delaying investments and project execution.

Although these nations possess challenging geographies and geologies, they cannot be denied there rightful place in the future of oil and gas production in Africa. Once most of these fields come on stream, they will significantly distort the dynamics of oil and gas production and marketing on the African continent. These flows will come on stream to the revenue enhancing advantage of the nations that holds the reserves. There will be yet some regional concerns by other oil producing nations in Africa, as well as non-oil producing neighbors as to the extent to which these events impacts on them positively or negatively. As Africa’s new frontier market trudges on, with both forward and backward steps, the continent looks on to the possible sum of the games.

*Chijoke K. MAMA is a Senior Oil and Gas Analyst in Lagos, Nigeria. Chijioke.mama@yahoo.com | 070-6101-3333
Bloomberg | Reuters |Financial Times (FT)

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