Eco (Atlantic) Oil & Gas Plc

Eco Atlantic Featured

Take a map of Africa, stick a pin in it at random, and the chances are you’ll hit an emerging oil and gas province. Until relatively recently, “Africa’s oil industry” meant Nigeria and Angola and the producers in North Africa such as Algeria and Libya, but now it’s hard to keep up with the number of new plays emerging across the continent – at all points of the compass.

In the west, Ghana’s Jubilee oil discovery has been turned into a major producing field in just a few years and other West African countries are hoping to follow suit, with oil discoveries already made in Côte d’Ivoire, Sierra Leone and Liberia. They are also attracting big names – Lukoil and Chevron both have substantial acreage offshore West Africa – showing that this frontier exploration is no longer the reserve of small independents hoping to strike it lucky.

On the other side of the continent, the huge gas finds offshore Mozambique and Tanzania are set to transform the countries’ economies, turning them into key LNG exporters by the end of the decade. The majors have started moving into East Africa in search of oil too. In Uganda, Total and CNOOC have spent a small fortune gaining access to the new oil province, buying equal stakes in three major blocks from the UK’s Tullow Oil. And the likes of Statoil and ExxonMobil are also active in Tanzania, while BG Group has already made big finds in the country’s offshore.

Further up the coast, interest is growing in some of the more unlikely potential oil-producing countries such as Kenya, Ethiopia, Eritrea and Somalia, while down at the foot of the continent, South Africa is also set for an unprecedented boom in offshore oil and gas exploration, with record levels of licenses now in place and a first deepwater well being lined up, potentially for next year.

But while oil and gas discoveries present huge opportunities for African countries there are considerable hurdles to monetizing these finds. One of the region’s main developmental challenges remains a shortage of infrastructure.

Countries along the East African coastline have a distinct advantage with direct links to Asia and plans to build an LNG terminal in Mozambique mean exports to the Asian market could begin by 2018. But serious investment in infrastructure is needed to develop the fields and move the gas to global markets.

Security issues, such as cross-border conflicts and piracy, can also deter investment. It is an issue that continues to dog Nigeria’s long-established oil industry, while Libya, despite the rapid recovery in oil production following the civil war, remains politically volatile. And unless the fragile peace between the two Sudans can hold, international oil companies are unlikely to resume exploration work there.

In addition, across the continent governments tend to be less trusted than in many other parts of the world. Corruption Watch’s Corruption Perceptions Index 2011 shows Africa as a sea of red, indicating relatively high levels of corruption (rather than a possession of the British Empire, as it used to do in the old days). Somalia ranked last out of 182 countries, while the vast majority of African nations were placed in the bottom half of the index.

On top of that, companies often have to contend with archaic regulations, contract delays, and the shifting of fiscal and licensing terms. Uganda’s energy industry has already been dogged by protracted negotiations and delays in the production timetable. Kenya has yet to establish a gas policy and has requested help from the World Bank in drafting the rules.

Further delays in implementing favourable policies could see oil companies’ patience wearing thin. What they want is the commitment from governments that their projects are the high priority. They are getting this to varying degrees, and whatever happens, it seems that Africa – which contributed about 10% of world oil production and just 6% of natural gas output in 2011 – is destined to take a more prominent role in the global industry over the coming years and decades.

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Source: Africa’s 21st Century Scramble