After decades of waiting throughout the twentieth century, the features of a new petroleum industry in East Africa, a region comprising 21 countries, have started to emerge. So far, five East African nations have established petroleum prospects, namely Mozambique, Tanzania, Uganda, Kenya and Madagascar. There are two main factors behind the delay in the development of the petroleum industry in most of these countries: local and regional unrest, raising the fears of the international oil companies; and the difficulty of prospecting for petroleum in the deep seas surrounding the region, which meant that companies had to wait for the right technology for exploration and production to be developed, in addition to the economics of these projects in light of prevailing prices. The main reason behind the growing interest in this region recently is the size of the reserves discovered, especially natural gas, in marine areas in particular. The only country where petroleum was discovered early on was Sudan, in onshore areas, in the 1980s. Yet commercial production of crude oil in Sudan was delayed for years because of the civil war, and frequent interruptions in its supplies recently because of the secession of South Sudan and ensuing disputes over transit fees, not to mention border disputes between the north and the south. In Kenya, despite the limited discoveries made there, this country is seeking to become an important conduit for oil and gas exports from East Africa, to take advantage of transit fees. Recently as well, petroleum discoveries were made in Somalia. Meanwhile, a liquefied gas (LNG) industry is set to commence in Mozambique and then Tanzania. It is worth noting that the natural gas reserves in Mozambique amount to 75 trillion cubic feet, and were discovered by US company Anadarko and Italian company ENI. The two companies initiated a joint venture for the construction of an LNG plant for exports in the future. The gas reserves in Tanzania, meanwhile, are about 20 trillion cubic feet. There are plans to build a gas liquefaction plant there as well. Energy companies operating in the country include the UK's BG, Norway's Statoil, the U.S.'s ExxonMobil, Ophir Energy, which has 18 concessions in Africa, and Aminex, which operates in East Africa. Between 2006 and 2011, 18 oil and gas fields were discovered in Uganda. There are plans for the construction of a local refinery and export pipelines through Kenya. The oil companies operating in Uganda include Tullow, which has extensive interests in Africa, France's Total, and China's CNOOC. Clearly, companies operating in East Africa come from various countries, and many have partnered up to share risks, and of course profits. Natural gas in East Africa is characterized by several features, including the fact that it is located mainly offshore, requiring costly technology, and the fact that the gas has to be liquefied for export, as local and regional markets are relatively small, with the exception of South Africa – despite the possibility of building pipelines to the latter which can use natural gas instead of coal for its energy needs. The export of LNG from East Africa is not expected to begin before the beginning of next decade. This means that there will be strong competition with the gas exports from Qatar, which has a productive capacity of approx. 77 million tons annually; most of Qatar's gas goes to Asian markets in addition to some countries in Europe. It is worth mentioning that one key characteristic of Qatari gas is its ready availability and the flexibility of the main two Qatari producers (QatarGas and RasGas) in terms of exports and market access, given their more than two-decade-long experience. More competition still will come from Australia, where huge gas discoveries were made, prompting plants to build a large number of LNG plants. However, Australian gas exports will face the problem of higher production costs, due to relatively high wages in Australia. But more importantly, East African, Qatari, and Australian gas will compete over the same markets in Asia. Although Asian consumption of energy, particularly natural gas, has been rising, the increase in gas supplies will inevitably impact competition, especially in regards to gas prices. The entry of East African gas to the global markets will coincide with the start of shale gas exports from the United States to the same markets, including to Europe, but also to Asian countries. This does not only mean competition in the markets, but also changes to pricing formulas, as the price of US shale gas varies from other types of gas. Japan, for instance, has begun modifying the pricing equations used for its gas imports. But the factors above are challenges, not obstacles to gas exports from East Africa and Australia. This means that national and international companies must adopt more flexible policies and strategies, and accept pricing equations that are more advantageous for consuming countries than to producing countries. As for profits for producing companies, they will depend on capital and production costs, and their competitiveness. While huge gas reserves are available in East Africa, the same cannot be said about oil reserves so far, which do not pose a real challenge to oil exports to neighboring countries. Oil and gas discoveries in East Africa reinforce the view which holds that the petroleum age will continue for a long time yet, despite extensive and increasing consumption of the fuel. Indeed, discoveries in East Africa have coincided with the shale hydrocarbon revolution, and drilling in the North Pole, not to mention the constant new discoveries made in the oil producing countries themselves. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
