Offshore Energy 2013: LNG Plays Positive Role in East African Economy

For the first time, Offshore Energy Exhibition and Conference 2013 looked at the developments in East Africa. The region holds great potential for natural gas extraction. In a short period of time, interest in the region has grown as seismic data, infrastructure and the political environment are improving. Organized in cooperation with the Netherlands Africa Business Council, this session discussed East Africa’s potential, business opportunities as well as lessons learned by first movers.

On October 16 expert speakers including Robert Hawkins (Director of Project Management, Fugro), Fabrizio Giordano (Senior Business Advisor, Heerema Marine Contractors), Luca Franza (Researcher, Clingendael International Energy Programme), Lars Petersen (Medical Director, International SOS) and Bob van der Bijl (Managing Director ,Netherlands Africa Business Council), gave their views on the opportunities and challenges in the region.

The session was chaired by Martijn Minderhoud, a consultant and previous senior manager at Shell Exploration and Production. Fabrizio Giordano gave insights about Heerema Marine Contractors business in the region and their involvement in the so-called “Dutch Round Table Oil & Gas East Africa”, an initiative of the Netherlands Africa Business Council and the Dutch oil & gas industry. He also spoke about the current development of ‘Area 1’, offshore Mozambique and its potential to be one of the world’s largest LNG producing hubs. He shared the company’s experiences on recently terminated four-year-long project in Angola.

Other speakers in the session included Robert Hawkins, who talked about his experiences, logistic, technical and operational and environmental aspects of deepwater projects in East Africa.

Lars Petersen, an expert in general medicine, tropical and infectious medicine and travel medicine and international health, focused on medical issues in East Africa and how to deal with them.

Another speaker was Luca Franza, who recently published a report on the potential of East Africa and gas producing region titled “Gas in East Africa: Assessing the Potential for Various Stakeholders.” At this session he presented the findings of the report focusing on the reserves and the policies of the resource holders.

He looked at the broader market developments and prospects for LNG exports. “Mozambique and Tanzania rightfully perceive the recent gas discoveries to be a unique opportunity for socio-economic development. However, the gas industry and governments must operate carefully so as not to repeat the mistakes made by other African countries, which have been unable to translate their resource endowments into long-lasting and more widely spread prosperity.”

“For a long time, East Africa was virtually ignored by international gas players. Only Mozambique has any experience as a gas-exporting country. Mozambique and Tanzania are now the frontrunners in prospective gas developments, while Kenya has yet to find enough gas to justify investment in production.

“Estimates suggest that East Africa’s reserve base could theoretically support up to 16-20 LNG trains with a capacity of 5 million tons/year (MTPA) each, equivalent to an output of 80-100 MTPA. However, the actual number of proposed trains is about half as many, and it is already quite optimistic to forecast the construction of 4 trains by the end of this decade.

“Mozambique clearly has an edge over Tanzania on LNG production and commercialization prospects, thanks to its more aggressive investment schedule. As operators of Areas 1 and 4, Anadarko and Eni signed a preliminary agreement in December 2012 for the joint exploitation of the Prosperidade-Mamba giant field.”

“In March 2013, Statoil’s discovery of an additional 110-170 Bern offshore Tanzania cleared the air of doubts about the viability of Block 2. The new findings pave the way for a joint development between the Norwegian company and BG Group, also favored by the Tanzanian government. The two companies are planning to team up for the construction of a 2-train LNG plant in a location that is yet to be determined.”

International investors view LNG as the principal monetization option, and consultants are particularly positive about the profitability and competitiveness of East African LNG. This holds true especially in comparison to the new Australian supply coming on stream by the end of this decade, which represents the bulk of Asia’s new imports. Australian LNG projects are being hit by cost overruns owing to the strength of the currency, the shortage of affordable labor and stringent environmental regulation. According to Credit Suisse, LNG schemes in East Africa would cost around $2,000/ton, compared to $3,000-4,000 in Australia.

Franza concluded LNG is the best monetization option from a field development perspective. And it can play a very positive role in stimulating the local economy. LNG ensures the highest government revenues among all the possible monetization options. Another advantage is that LNG brings in capital more quickly than other monetization options and finally, LNG also has very good potential in terms of job creation in the region.

[mappress]

October 23, 2013