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The East African : Dec 12th 2015
ICT LANDSCAPE Six trends to look out for in 2016 Page 36 BUSINESS DECEMBER 12-18,2015 OIL AND GAS FLOWS Firms hold off investment decisions as red tape delays oil projects in EA Region’s oil and gas p≥oduce≥s will not enjoy bene of thei≥ finds befo≥e 2020 By KENNEDY SENELWA Special Correspondent money from the export oil and natural gas befo due to lengthy gove procedures, lack of prod facilities, and high tran and export costs. The industry’s glo E standard lead time t start production is fiv years for oil and at least seven years for gas from the time a commercial discovery is made. East Africa’s hopes of earning from these resources sooner have been further dented b the decline in global o prices. “New exploration slow down as prices fa companies increasingly caution while invest frontier markets with industries, poor infrastructure and long lead times,” said South Africa-based financial consulting firm RisCura. Uganda, Kenya and Tanzania large hydrocarbon boast finds. Uganda has 6.5 billion barrels of oil in the Albertine basin while Kenya reported six million barrels of oil in the South Lokichar basin in the northwest. Tanzania has found about 55.1 trillion cubic feet of gas offshore. These finds have attracted several prospecting and production companies, including Tullow Oil, BG Group, Statoil, Ophir Energy Plc, ExxonMobil and the China National Offshore Oil Corporation. Tullow, which has exploration interests in Kenya and Uganda, is expected to make final investment ast Africa’s oil pr are unlikely to start EAST AFRICAN OIL BASINS UGANDA: In 2006, Uganda discovered commercial hydrocarbon deposits in the Albertine Rift basin that straddles its border with DR Congo. Experts say production could last 20 to 30 years. ALBERTINE BASIN ETHIOPIA Addis Ababa SOUTHERN RIFT BASIN RIFT VALLEY BASIN UGANDA Hoima OGADEN BASIN KENYA Kampala Nairobi KENYA: Tullow and Africa Oil have discovered about 600 million barrels of oil in the South Lokichar basin since announcing the country’s first crude find in March 2012. Data from northern Kenya indicates the figure is set to rise. Lamu LAMU BASIN Mombasa TANZANIA Dodoma Dar es Salaam Songo Songo TANZANIA: The country has made large discoveries of natural gas off its southern coast. It has 46.5 trillion cubic feet of natural gas reserves, up from 42.7 tcf, and expects exploration off the southern coast will result in more finds. RUVU BASIN Offshore Basin Onshore Basin Oil Gas Port ROVUMA BASIN MOZAMBIQUE Nacala e said oil companies are ly to hold off final investment sions to cut costs and watch es. Tullow and Africa Oil decisions for both countries by 2017 on commercial oil production. The company’s chief executive Aidan Heavey conceded that 2015 has been a difficult year across the industry. Global oil prices declined from $100 per barrel in mid2014 to about $40 early this year, before rising to about $50. This forced exploration firms in the region to reduce their capital expenditure. “Sustained low prices are likely to take a toll of gas production and downstream refining, as uncertainties affect the viability of liquefied natural gas (LNG) projects, delaying investment in the region,” said RisCura’s private equity analyst Adam Bennot. New exploration may slow down as prices fall and companies increasingly apply caution while investing in frontier markets.” Corporation are soon expected to submit the South Lokichar field development plan to the Kenya government for approval in order to move to the production stage. “Tullow and its partners plan to submit the field development plan in 2016,” said Tullow Kenya’s communications officer Peterson Thiong’o. Total and Tullow are still waiting for oil production licences from the Ugandan government. Kampala has issued a production licence to China National Offshore Oil Corporation. The award of the production licences is expected soon as they were awaiting the inauguration of the National Petroleum Authority and National Oil Company board, which happened on October 23. “We anticipate that it will take at least three years to constute the requisite upstream and midstream infrastructure. Like all infrastructure projects, these are best case schedule estimates and the timelines may shift when critical variables change,” said Tullow Uganda corporate communications manager Cathy Adengo. Uganda is yet to decide on the rout of the crude oil export pipeline. There are three routes: The northern route from Hoima in the west through Lokichar to Lamu on the Kenyan Coast; the central route from Hoima through Kampala to Mombasa; and the southern route from Hoima through northern Tanzania to Tanga port. The route Uganda selects is expected to have a direct bearing on the structure of crude oil production in the South Lokichar basin. Natural gas contracts remain heavily indexed to oil, and the fall in global oil prices poses a significant risk to gas production projects. Oversupply on the oil market continues to put downward pressure on prices. “This trend is unlikely to be reversed in the near future, with the Brent crude price estimated at between $50 and $65 per barrel over the next five years,” said Mr Bennot, adding that an oil price of $70-$80 per barrel would be needed for gas projects to break even. The free fall of global oil prices is forcing companies to reevaluate their growth strategy in East Africa. BG Group, Statoil, Ophir Energy Plc and ExxonMobil have vast natural gas interests offshore southern Tanzania, but they have not completed final investment decisions to pave the way for production, as Dar es Salaam has delayed approvals for the gas plant site. “We have submitted our proposal to the government. If an LNG plant is sanctioned, we will announce it in due course,” said BG’s external communications manager Kim Blomley. BG, Ophir, Statoil and ExxonMobil will jointly build the plant to process offshore gas for export as LNG. It will have two processing units with an output of five million tonnes per annum each, and is estimated to cost about $30 billion. Tanzania was expected in to approve a site for BG Group, Statoil, Ophir Energy Plc and ExxonMobil to build an onshore gas liquefaction and terminal export of LNG in 2014. The Tanzanian government POWER DEAL Rwanda, US firm sign deal to generate 55MW from methane Page 38 35 is expected to spend about $6 million on acquisition of land for construction of the LNG terminal, which has been delayed by legal and regulatory processes. In October 2014, Dar approved a policy giving the domestic market the priority in gas supply. Parliament recently passed the Tanzania Extractive Industries (Transparency and Accountability) Bill and the Oil and Gas Revenue Management Bill and Petroleum Bill, 2015. “The delays will hand a strategic advantage to other major LNG developments looking to lock in long-term supply contracts. Such a delay will result in opportunity cost to Tanzania’s economy,” said Standard Bank Group director of oil and gas Charlie Houston.
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