I will share in this column a presentation I made last week on the latest status of oil and gas investments in the region.
When global oil prices went below $30 per barrel in 2014, the industry across the world slowed down as investors adopted break-even economics. Many investors rationalised their assets through delayed investments, strategic acquisitions, mergers, joint ventures and even abandonment.
However, during this downturn the industry has achieved cost-efficiencies through improved operations and new technologies and this is helping during the recovery stage.
The oil prices have now recovered around $80 which marks the end of a typical five-year oil supply/price/investment cycle which has historically happened and which will invariably repeat itself. High prices prompt increased investments which produce more oil that leads to price collapse and reduced investments.
In our region many oil and gas investments have changed hands but have mostly survived the five years, and are now at varying stages of recovery with companies heading towards final investment decisions for first oil or gas.
Uganda appears to have made the most progress during a difficult market environment explained mostly by an expanded presence of well capitalised investors like Total and CNOOC; a satisfactory finalisation of legal, regulatory and institutional frameworks; and of course a high level of government focus and stewardship.
The most significant breakthrough for Uganda has been the crude oil pipeline through Tanzania, a project that has progressed fairly quickly and is now awaiting commercial and investment decisions.
Significant progress has also been made towards final investment decisions on crude oil production development which targets 120,000 barrels per day first oil in 2021/22.
The refinery project has attracted equity participation by General Electric of USA and its Italian partners with construction expected to commence in 2022 for a 2025 completion. Plans and commitments for service infrastructure (roads and a new airport) to support oil production, export pipeline, and refinery are progressing steadily.
Kenya has recently witnessed increased activities by the Lokichar oil basin joint venture (Tullow, Africa Oil and Total) with FEED (front end engineering design) studies for oil production development and the export pipeline through Lamu progressing in parallel.
A final investment decision is expected next year for an initial 60-80,000 barrels per day (bpd) first oil production and export by 2022/23. However the Upstream Petroleum Law is yet to be issued, thus holding up work on enabling legal, regulatory and institutional frameworks.
The only other activity in Kenya is the exploratory drilling by Zalala on Pate Island in Block L4 in Lamu County which is in a gas-prone basin. If commercial quantities of natural gas are found, they are expected to go into power generation.
Tanzania has about 57 trillion cubic feet (tcf) of natural gas reserves in the southeast offshore areas. Although the country has legal, regulatory, and institutional framework in place, the processes for facilitating LNG export projects investment commitments have been slow prompting a blue-chip investor ExxonMobil to plan an exit. The LNG project construction is expected to commence in 2022 with first LNG exports in 2025
However Tanzanian has a success story in commercialisation of natural gas into power generation and industrial consumption in Dar es Salaam region using gas piped from the southeast. Natural gas currently contributes 44 per cent of a total 1500 mega watt(MW) national power generation after replacing expensive imported fuel oil.
Mozambique with about 180 tcf of natural gas reserves in the north-eastern Rovuma Basin adjacent to Tanzania gas discoveries, has registered the fastest developments with major global investors ( ENI, Anadarko, ExxonMobil) having committed investment decisions for LNG projects for first exports by 2022/23
The story of South Sudan is one of hope that the recent peace deal can allow the country to quickly go back to the original 350,000 bpd production at independence in 2011. Production is currently down to 120,000 bpd. The investors are ready to step up investments and production provided that political stability is sustained.
It is a positive investment oil and gas investment outlook for the region as long as reasonably high oil prices persist and governments facilitate the investments.