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September 23, 2017

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Two East African nations to join world gas giants

LONDON--To East Africa's assets of spectacular wildlife, abundant land and shimmering beaches you can now add gas — so much gas it could transform global energy flows along with some of the world's poorest countries.

Finds announced just last week off Tanzania and Mozambique are estimated to hold enough gas to supply France, Germany, Britain and Italy for at least a year — possibly much more.

These and other discoveries in eastern Africa in the past year have sent shares in small explorers soaring, prompted takeover battles and rattled gas producers in other regions.

They are already starting debate about how the resource wealth can bring better living standards rather than exacerbating corruption and distorting eastern Africa's relatively diverse economies just as they are taking off.

East Africa has been emerging as an oil-producing region in recent years, although discoveries in Uganda and most recently Kenya have so far been smaller than in West Africa's giants.

The excitement over oil has been overtaken by the largely offshore gas discoveries stretching along eastern Africa's Indian Ocean coast from Kenya to Mozambique.

"It's a thrill a minute. The news is coming hard and fast," said Nick Cooper, CEO of explorer Ophir Energy, whose share price has more than doubled in four months.

Ophir's partner, British gas producer BG Group, announced a major discovery off Tanzania this week. U.S. explorer Anadarko Petroleum and Italian oil group Eni announced even bigger finds off Mozambique.

Anadarko estimates its reserves off northern Mozambique at 50 trillion cubic feet (1.4 trillion cubic meters) — almost as much as Libya's proven gas reserves. It is planning production from 2018.

Eni says its neighboring exploration block may have 52 trillion cubic feet of gas. Across the border, BG, Ophir, Exxon Mobil and Statoil say they may have 20 trillion cubic feet.

The 253 trillion cubic feet that the U.S. Geological Survey now estimates may lie off Kenya, Tanzania and Mozambique compares to 186 trillion cubic feet for Nigeria, Africa's biggest energy producer.

Demand is low from eastern Africa's small, if fast-growing, economies so the vast majority of the gas would be available for freezing into liquefied natural gas (LNG) to supply an expanding global market for a fuel that burns more cleanly than coal.

"We can help vault Mozambique into being one of the world's three largest LNG exporters," Anadarko Chief Executive Jim Hackett told an Eni company magazine.

According to Reuters calculations, Mozambique could be vying with Algeria as the world's sixth largest exporter of gas by any means by the middle of next decade.

"There could be 12 trains and still gas left over for GTL," Philip Wolfe, head of oil and gas at investment bank UBS, said. GTL, or gas-to-liquids, technology converts gas to motor fuels.

Twelve trains — the term for the facilities that turn natural gas into freezing liquid — could pump 60 million tons a year. Japan, the world's biggest importer of the fuel, used about 78 million tons last year.

In eastern Africa's favor are the lower costs of building the multi-billion dollar plants needed than in countries such as Australia.

Eastern Africa is seen as politically stable compared to much of the Middle East and many other parts of Africa — although the Somali pirates haunting the Indian Ocean could be a worry for large shipments of explosive fuel.

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