Small players will ‘contribute to East Africa’s oil and gas growth’

oil shale-nestor galina flickrIf oil and gas discoveries are made in East Africa, it will be 10 to 15 years before the explorers see revenues. (Image source: Nestor Galina/Flickr)Smaller oil and gas explorers, willing to take financial and operational risks, will lead the development of East Africa’s oil and gas industry, according to executives at the East Africa Oil & Gas Summit (EAOGS) held recently in London

The attendees said that the region has emerged as a significant prospect for the export of LNG because of the size of natural gas discoveries there and its proximity to Asia’s major LNG consumers.

The US Geological Survey has estimated that more gas lies off the shores of Kenya, Tanzania and Mozambique than off Nigeria, Africa’s biggest energy producer.

However, high development costs and low profit margins in the gas sector worldwide have made large oil and gas companies more hesitant to commit to risky and expensive investments, Reuters reported.

This reluctance paves the way for smaller explorers, such as Tullow Oil and Ophir Energy, who typically focus their efforts on one region or country in the hope of maximising any returns.

Willy Olsen, former advisor to Statoil, said, “The oil and gas industry is worried about costs. Oil companies are reducing their investments and putting projects on hold.

If they make oil and gas discoveries in East Africa it will be 10 to 15 years before they see revenues. So the focus will be on small and medium-sized companies and few big players.”

Around 5.1 trillion cubic metres of gas has been found in Mozambique’s Rovuma Basin, according to Jose Branquinho, resource assessment director at Mozambique’s National Petroleum Institute. This would be enough to supply Germany, UK, France and Italy for some 18 years, he added.

Miles Donnelly, commercial director at oil and gas exploration firm Bahari Resources, noted, “The Mozambique discoveries have changed the world — that’s why people are still interested in East Africa. They are on a scale which could be comparable to Qatar, which is world’s largest LNG exporter.”

Companies currently exploring for gas in the region include a mix of smaller and larger players. In Mozambique Anadarko, Buzi Hydrocarbon, Eni, Petronas and Sasol are active. In Tanzania, UK’s BG Group and Ophir Energy, have been at the forefront of exploration, while ExxonMobil and Statoil have also found gas.

Taipan Resources, an oil exploration company focused on Africa with a US$50mn market capitalisation, is expected to start drilling for oil in northeast Kenya next year.

According to Max Birley, chief executive of Canada-listed Taipan Resources, smaller companies get on with things and have a big role to play.

“We may not have big pockets but we employ bright people who are aggressive about exploration and we drill wells where some of the majors won’t,” he added.

 

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