Kenya’s mineral wealth profile rises with the discovery of gas
What you need to know:
The discovery comes barely five months after a British oil explorer Tullow struck oil in Turkana County near Kenya’s border with South Sudan, raising optimism over its economic prospects.
Tullow Oil Plc, a partner in the consortium that is searching for oil in the block described the discovery at Mbawa-1 as an encouraging start to the group’s East African exploration campaign.
Kenya’s profile as a mineral-rich country rose a notch higher on Monday with the discovery of natural gas reserves off the coast of Malindi.
A consortium of companies searching for minerals off the Kenyan coast said it had discovered 52 metres of natural gas reserves on Mbawa-1 well — giving East Africa’s largest economy its first ever gas find.
The discovery comes barely five months after a British oil explorer Tullow struck oil in Turkana County near Kenya’s border with South Sudan, raising optimism over its economic prospects.
The consortium of companies exploring for oil and gas on the off-shore Block L8 is led by America’s Apache Corporation, which owns the majority 50 per cent stake.
Other partners include Origin Energy Limited (20 per cent), Tullow Kenya BV (15 per cent) and Pancontinental Oil and Gas of Australia (15 per cent). Barry Rushworth, the chief executive of Pancontinental announced the discovery of the gas two days after the company stopped trading in its shares on the Australian Securities Exchange (ASX), pending the announcement.
“While we have not finished operations in Mbawa -1, this gas discovery is very promising and it is the first ever substantive hydrocarbon discovery offshore Kenya,” he said.
“We are delighted to prove that there is a working hydrocarbon system offshore Kenya and work continues to evaluate the size of the discovery,” said Mr Rushworth.
The gas find was made at a depth of 2,553 meters and its operators said they intend to continue drilling to the depth of 3,275 meters, more in the hope of finding oil.
Tullow Oil Plc, a partner in the consortium that is searching for oil in the block described the discovery at Mbawa-1 as an encouraging start to the group’s East African exploration campaign.
“This is the first hydrocarbon discovery offshore Kenya and the drilling remains on course to test for any deeper oil potential within this gas prone region” Angus McCoss, the exploration director of Tullow Oil Plc, said.
Analysts said although neighbouring Tanzania and Mozambique have struck and developed vast reserves of natural gas on the same coastline, a more lucrative production sharing contract (PSC) for investors could help drive interest on Kenyan blocks and boost the potential of its gas find.
Deutsche Bank said in a recent research note that excluding State back-in rights, the Tanzania government’s share of revenues from a generic offshore development is close to 60 per cent, compared to Kenya’s 40 per cent.
This means investors working on Kenyan off-shore exploration blocks stand to earn more from such ventures than their counterparts in Tanzania.
“We believe that compared to its East African neighbours Tanzania and Mozambique, Kenya’s terms are more generous to the contractor,” the research note says. Kenya’s overall competitiveness against Tanzania would however depend on the size of the gas of the gas find, the bank warned.
“Any discoveries would have to be of such scale and high quality to negate Tanzania’s head start to offer a significantly lower break-even price and potential price concessions to buyers,” analysts at Deutsche Bank said.
Other analysts said the discovery of economically-viable reserves of natural gas could help Kenya attract part of the huge investments arising from the global shift towards cleaner sources of energy.
“Discovery of natural is particularly good news for Kenya because a lot of investors are today keen on putting their money in cleaner and sustainable sources of energy,” said Mwendia Nyaga, a consultant on petroleum issues.
Though more expensive to produce and ship to the market, the future of natural gas remains bright because of its low pricing compared to oil and its friendliness to the environment. Natural gas has relatively high hydrogen content and burns about 50 per cent cleaner than coal and roughly 30 per cent cleaner than oil, industry data shows.
The higher the hydrogen content in fuel, the cleaner it is.
US energy giant, Exxon, estimates that natural gas will overtake coal to become the second largest fuel source by 2025. Neighbouring Tanzania has more recently witnessed a massive inflow of foreign investment into its budding natural gas industry to the envy of its East African neighbours.
The gas is already being used to generate electricity and to power industries – a development that is expected to significantly reduce the cost of energy to manufacturers and raise the country’s clean energy credentials.
Further south, Mozambique is also getting similar attention from foreign investors eyeing its large deposits of the gas estimated to be more than 60 trillion cubic feet.
Tanzania in July announced it would raise royalties on gas production from the present 12.5 per cent to an unspecified level after it sharply revised its estimate of recoverable natural gas reserves to 28.74 trillion cubic feet (tcf) up from 10 trillion. Tanzania’s Ministry of Energy has indicated that at least 18 global energy companies have spent nearly $920 million on oil and gas exploration in the country so far.
The World Bank estimates that natural gas will earn Tanzania between $2 billion and $3 billion annually, a number that Kenya must be watching closely. The US Geological Survey estimates that more than 250 trillion cubic feet of natural gas may lie off Kenya, Tanzania and Mozambique coastline.
The survey estimated that discoveries announced this year alone may hold enough gas to supply major European economies for at least one year.
The gas find puts Kenya in a good position to follow in the footsteps of South Africa, Africa’s economic powerhouse, which has made a major leap towards exploitation of natural gas to cut its reliance on coal.
Last week South Africa said it had lifted a moratorium on shale gas (a form of natural gas) exploration in the Karoo region despite the raging controversy over the method used to extract it.
Reuters quoted Collins Chabane, a minister in the President’s office, as having said that the Cabinet lifted the moratorium, imposed in April last year, after a study eased safety concerns over the “fracking” technique that has come under heavy criticism from environmentalists.
Fracking, or hydraulic fracturing, involves pumping of pressurised water, chemicals and sand under-ground to release gas trapped in rock formations.
