Will East Africa Find Oil Amid Challenges?

In East Africa, one of the world’s least-developed regions where much of the population lives on less than $2 per day, the development of oil and gas can provide a major boost to the economy. Historically, the sector has been a key driver of economic growth and is once again attracting investor interest as international energy prices recover.

The African Energy Chamber (AEC) forecast 2019 to be vital for the advancement of new E&P development projects across Africa in the hydrocarbons market, anticipating the region to become the world’s hottest oil and gas frontier. The AEC further stated that these opportunities come with a new set of dynamics and challenges that also could influence the future of the industry, from presidential elections to megaproject developments amid intensifying international competition.

Licensing auctions
Kenya’s Ministry of Petroleum and Mining has opened the bidding round for firms to tender their interest in conducting 3-D seismic surveys over the shallow water of the Lamu Basin to promote the area for petroleum exploration and development. The Petroleum Ministry said recently in a statement that the contracted bidding firms will be expected to gather and process additional 3-D seismic data and offer support to the ministry in planning and organizing a licensing round for the blocks scheduled for 2021.

Speaking at a forum ahead of the East African Petroleum and Exhibition Conference 2019, Kenya’s Ministry of Petroleum and Mining officials expressed confidence over the level and intensity of commercial energy use as a key indicator of economic growth and development in the region.

The Petroleum Act 2017 is encouraging investments in oil and gas by complying with local content requirements, which include upstream operations, locally manufactured goods and employment opportunities.

“There is a need for upskilling the workforce with the right skill sets as we develop the sector and create job opportunities,” Andrew Kamau, Kenya’s principal secretary at the State Department of Petroleum, said in a statement.

He added that the government of Kenya is looking to develop the South Lokichar Basin in a phased approach toward oil production. “We are currently in the first phase where we have studied the economic benefit by looking at the recoverable reserves,” Kamau said.

In an effort to develop its hydrocarbons amid political instabilities, Somalia began inviting bids for 15 blocks across various basins under the country’s offshore licensing round earlier this year. According to Abdirashid Mohamed Ahmed, minister of Petroleum and Mineral Resources, the licensing round was first announced in Cape Town last November. Spectrum Geo acquired and processed the 2-D seismic datasets over the offshore areas offered. The results suggest Somalia’s offshore hydrocarbon resources could be the largest anywhere in East Africa, or even across Africa as a whole, according to a statement by Karar Shukri Doomey, director general at the Ministry.

Somalia passed a petroleum sector law on May 20, paving the way for exploration in its waters that could potentially transform the country’s economy if hydrocarbons are discovered.

The new legislation allows for the creation of institutions to oversee the sector and for revenue sharing between the central government and federal states, among other objectives, the ministry of Petroleum and Mineral Resources said in a statement.

Natural gas development
In 2017 the Mozambique government approved Eni’s development plans for its Coral floating LNG (FLNG) development. The plan incorporates the drilling and completion of six subsea wells and the construction and installation of the Coral FLNG, securing Mozambique’s future as an LNG exporter, the Mozambique Resources Post reported.

Later that year, the government granted two concessions to Anadarko Petroleum, allowing the company to design, build and operate marine facilities for a 12.88-MMmt/year LNG project in northern Mozambique to extract gas from an offshore area where Anadarko Petroleum and its partners have discovered approximately 2,124 Bcm (75 Tcf) of gas. Given the complexity of the projects, production is not expected until 2022.

Recently Anadarko Petroleum was acquired by Occidental Petroleum in one of the biggest oil deals of the decade. Occidental Petroleum is expected to sell Anadarko’s African assets, including the LNG project in Mozambique, to Total for $8.8 billion.

In May of this year, the government of Mozambique approved the development plan for the Rovuma LNG project led by Exxon Mobil and Eni. Two LNG trains are planned with a combined annual capacity of more than 15 MMtons/year, which will produce, liquefy and market natural gas from three reservoirs offshore Mozambique.

However, the ongoing violence including recent attacks on Anadarko Petroleum workers that killed one worker and injured two others, is a great challenge facing the LNG projects. The Mozambican court sentenced 40 people for involvement in violence on foreign oil contractors working at the development site of Mozambique LNG export terminal. About 120 people are estimated to have died in insurgent attacks in the same Cabo Delgado province in recent months. The violence poses a threat to smooth operations of international oil companies operating in the province and could potentially disrupt project time lines.

Tanzania holds an estimated 1,642 Bcm (58 Tcf) of natural gas reserves that could potentially transform the country’s economy if utilized effectively, as reported by The East African. Tanzania’s Energy Ministry and energy experts from Uganda are planning oil exploration activities throughout various parts of Tanzania.

The energy and mineral sector has been clouded with uncertainty, suspicion and vague contracts that have prevented the country from developing the resources as expected. Since 2015, the E&P sector has witnessed a series of events ranging from amending laws to the firing and charging of government officials suspected of being involved in shady deals, the report stated.

Challenges ahead
Some of the major challenges facing the East African offshore oil and gas exploration market are political instability, insecurity, lack of infrastructure and marine boundary disputes. These factors contribute in hampering East Africa’s exploration ambitions at a time when the region expected an increase in production from its deep and ultradeepwater investment projects.

For example, Madagascar was set to begin a licensing round putting 44 concessions on offer until May, none of which had ever been tendered or explored. However, reports confirm that new President Andry Rajoelina, who was sworn into office in January, suspended the offshore licensing round until further notice.

Uganda’s oil production also has been pushed forward to 2022 after missing the country’s target of 2011, according to Energy Minister Irene Muloni. Lack of refining facilities and proper pipeline infrastructure have been cited as the main causes for the delay.

According to a report by Deloitte, digitalization is set to disrupt Africa’s oil and gas sector, where 30% of production stems from legacy fields. The sub-Saharan Africa portfolio of digitally behind assets are at risk of becoming obsolete if digitalization is not embraced, the report stated.