WB urges Uganda to guard against volatile oil prices

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imagesThe World Bank has asked governments of Uganda, Kenya and Tanzania to develop insurance measures to guard against fluctuating oil prices as they prepare to begin production.

Prices of oil and gas usually affect the cost of goods and services at both national and international markets.
Uganda has both oil and gas deposits, Kenya has oil, while Tanzania has large deposits of gas and the three East African countries are preparing to begin producing for local and international markets.

Addressing participants at a regional conference on oil and gas in Entebbe recently, the World Bank Senior Economist Uganda country office, Dr Jean -Pascal Nganou, said oil and gas prices will always fluctuate and countries should be prepared to handle the consequences.

The conference was organised by Friedrich-Ebert-Stiftung.
He said in case of price dip by diversifying their by economies instead of aligning every development agenda to oil and gas revenue.

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“Oil and gas prices will always fluctuate, consequently, oil and gas producers should develop by themselves and for themselves a good insurance mechanism against sudden drops in world prices,” Dr Nganou said.

He added: “Saving part of future oil revenue is the most adequate response to that type of problem. Several governments have opted for a variety of oil revenue saving mechanisms.
“Uganda, Tanzania and Kenya should review these mechanisms, analyse the results achieved, and make their own choices based on realistic assessment of their own situation, needs and risks.”

The World Bank produces periodic reports on world commodity price focus. In the latest report, the bank raises hope that there is going to be a pick-up in oil prices in the international market.

In this regard, Dr Nganou said: “Our commodity price specialists believe that the price of oil will rise again and most of the projections in Uganda are based on international crude oil price of $90 (Shs319,500) per barrel. We may be right, we may be wrong and this is one of the lessons for a good management of future oil revenue.”

Other challenges
Other than oil prices, East African countries are also faced with the problem of poor infrastructure, which affects the development of the private sector. The infrastructure includes power, roads, railways which East Africa must deal with to realise tangible development.

“Countries like Uganda, Kenya and Tanzania need to repair, and expand their economic infrastructure which at present is a major obstacle to private sector development,” the World Bank senior economist Uganda country office, Dr Jean -Pascal Nganou, said.

He said improved transport, power and water supply services are essential to stimulate urban and rural growth and improve the condition of the population.

The resident director Friedrich-Ebert-Stiftung, Ms Mareike Le Pelley, said oil and gas exploration is not an end in itself for the development process.

“The East African region has had high GDP growth rate but other social indicators like income distribution, unemployment and concept of inclusive development have not yet taken root in the region,” she said.

Tpdc To Start Search For Oil Lake Tanganyika Using Low flying Aircraft

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Dar es Salaam — Tanzania Petroleum Development Corporation (TPDC) will start an advanced search for oil in Lake Tanganyika, the state-owned firm said at the weekend.

From its first stages of surveys across Lake Tanganyika waters, TPDC believes the area from Kigoma Rural, Kigoma Ujiji, Uvinza and Mpanda Rural contains abundant oil resources.

The belief stems from the fact that neighbouring Uganda has already discovered oil in Lake Albert which has the same environment as that of Lake Tanganyika.

Also Read:Managing citizens expectation on Tanzania gas sector

TPDC said in a statement at the weekend that it is deploying a non-invasive Airborne Gravity Gradiometry Survey (AGGS) over Lake Tanganyika North Block in the five districts between November, 2015 (this month) and January, 2016.

“The objective of the survey is to acquire high resolution gravity and magnetic data to map subsurface structural geological framework, thickness and extent of the sedimentary rocks over Lake Tanganyika rift basin,” the TPDC managing director, Dr James Mataragio, said in a statement at the weekend.

Gravity gradiometry refers to a study and measurement of variations in the acceleration due to gravity. Gravity gradiometry is used by oil and mineral prospectors to measure the density of the subsurface effectively and the rate of change of rock properties.

From this information it is possible to build a picture of subsurface anomalies which can then be used to more accurately target oil, gas and mineral deposits.

According to Dr Mataragio it is expected that the AGGS data will assist in planning for another survey that will finally identify potential areas associated with hydrocarbon deposition and subsequently identifying drilling targets.

TPDC is funding the entire project using its own development funds.

The survey campaign will be conducted using a low-flying special aircraft which will be flying between the altitude 80 and 100m above the ground at a speed of 220 kms/hour.

The survey will be flown during the day light time. “We would like to apologise for any inconvenience that may be caused by the presence of the aircraft around survey areas,” he said

Oil production set to promote Tanzania

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Tanzania, with its oil seeps, seismic and other data shows strong hydrocarbon potential in its upstream oil industry sector. However, only 20 ‘wildcat’ exploration and eight development wells have been drilled so far in a 222,000 km2 area and therefore, the country could be classified as under-explored.

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 It is therefore, telling that Dr David Mestres Ridge, the CEO of Swala Energy Tanzania noted in a key address to the company’s shareholders meeting held in Dar es Salaam recently that, “though Tanzania is currently poorly placed on the African and global map among the top oil and gas producers, the situation should change in a decade if the offshore gas is produced”.

The global oil production has tripled in 50 years with the biggest increase being in Europe and Eurasia and the Middle East. The bulk of oil production has been from the Middle East and the neighbouring countries, followed by North America and Europe and Eurasia (with most gas deposits and production being found in the Russian Federation).

The Middle East produces most oil but it’s third in gas production. Africa’s prospects, though comparatively mediocre in terms of oil/gas production, has been ably represented by Nigeria, Angola and Algeria but soon, as Dr Ridge noted, Tanzania might also stand out to be counted among the Africa’s greats in oil and gas production. Barely two decades ago, there was evidently little enthusiasm by oil exploration and production companies to venture into East Africa.

However, in recent years, there has been a new-found interest in the region’s oil sector-an interest that has sparked jostling for exploration ‘blocks’ by scores of potential investors in the industry. Among those investors is Swala Energy Tanzania, a locally-owned oil and gas company that has been listed on the Dar Es Salaam Stock Exchange (DSE). Swala’s current exploration blocks are in Pangani in the north-eastern coast of Tanzania and the Kilosa-Kilombero basin in Morogoro region, the latter of which the company will start drilling in 2016.

The attendant exploration activities have led to some new ‘finds’ within the region and has whetted further interest by oil companies to keep a keener eye in the region. Among the finds, Uganda leads the pack.

It recently discovered 4 billion barrels of oil, followed by Kenya with 600 million barrels, an admittedly sizable combined quantity in a region that had been neglected for a long time. Tanzania on the other hand, has held sway in gas production and boasts such vast deposits that, as Dr Ridge notes, “…if poured all over the country, they could cover the whole country to a height of 1.5 metres”!

Dr Ridge foresees a bright future for the oil sector in East Africa in general and in Tanzania in particular and the country could be a regional oil and gas powerhouse if the offshore gas is developed. The recurring unpredictably erratic oil prices have displayed a yellow light to the oil and gas companies, making the investment in the sector a potentially risk-prone undertaking.

The prices have been determined by overriding factors among which are: lower prices in North America due to abundance of shale gas, medium prices in Europe supplied mainly by gas from the Russian Federation and higher prices pushed by the Fukushima nuclear disaster in Japan a couple of years ago. The price slump climaxed between 2014 and 2015 with a drastic fall from over $120 per barrel to the current $ 50 per barrel.

“The implications of the collapse of the prices has meant less revenues from oil production and therefore, countries will have to tighten their belts while projects that were previously viable and competitive at lower prices will no longer be feasible,” says Dr Ridge. Though it might be cheaper to produce oil/gas in East Africa, Dr Ridge sees a major challenge in transportation to the market once the production starts.

This is because most of the closer markets are already being supplied by the existing producers for example Latin America is supplied by Bolivia, Nigeria supplies Europe, Brazil and Japan, Russia too send gas to Europe and it’s soon expanding to China and Japan. With the congested market, Dr Ridge sees East Africa’s option, as a late entrant to the fray, will have to send its commodity to Japan.

“It’s probably going to be cheaper to produce oil and gas in East Africa but its distance from the markets will mean more expensive transportation costs,” notes Dr Ridge and adds that besides the distance, there will still be competition particularly from Australia, Qatar and Russia.

Tanzanian pipeline isn’t commercially viable, CEO Hill says

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Export-route decision necessary to get industry off the ground Tanzanian pipeline isn't commercially viable, CEO Hill says

Export-route decision necessary to get industry off the ground
Tanzanian pipeline isn’t commercially viable, CEO Hill says

 

East Africa’s race to export its first oil will eventually be a tie between neighbors Kenya and Uganda because both need to share a pipeline rather than compete for different routes, a producer in the region said.

“The only sensible route for the pipeline is a joint pipeline” running through both countries, Africa Oil Corp. Chief Executive Officer Keith Hill said by phone from Calgary.

The company this week sold stakes in some East Africa assets to Maersk Oil & Gas A/S.

Agreement on an export route is necessary to get the countries’ oil industries off the ground: While crude was discovered in Uganda in 2006 and four years later in Kenya, both are still in the planning stage of commercial development.

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One option is to send the oil through the Lokichar basin in northern Kenya. Another is to run a line via southern Kenya and the capital, Nairobi. A third is to pipe the oil through Tanzania.

“I don’t believe the Tanzanian pipeline is commercially viable,” Hill said on Monday, without elaborating.

Uganda, which last month signed a memorandum of understanding with Tanzania and oil producer Total SA to study a possible pipeline through the coastal nation, has repeatedly said the eventual shipment route must be the cheapest to develop. Kenya has estimated the cost of the proposed northern line at about 400 billion shillings ($3.9 billion).

Joint Ventures

A pipeline to the Indian Ocean would allow Africa Oil, together with larger partner Tullow Oil Plc, to start exports from joint ventures. Tullow has found oil in both countries, with Uganda estimating finds at 6.5 billion barrels and Kenya at 600 million barrels.

Maersk Oil said Monday it will acquire half of Africa Oil’s shares in three onshore exploration licenses in Kenya and two in Ethiopia for as much as $845 million.

The deal shows companies are willing to invest in East African discoveries even before a pipeline route is decided. It drove Tullow shares up 4.5 percent.

Oil-industry development has slowed in East Africa over the past year as slumping energy prices forced companies to cut costs and trim budgets. Brent crude has tumbled more than 40 percent to about $47 a barrel in the past 12 months amid a global supply glut.

“People have finally decided the oil price has hit bottom and we will see more deals being done in the next three to six months as people start to feel a little bit more stability,” Hill said. “There is no way on earth we can satisfy world demand below $75 a barrel long-term.”

Swala Energy Fast-Track Drilling Plan in Tanzania

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Swala Energy has engaged a drilling support contractor in Tanzania

Swala Energy (ASX:SWE) has accelerated its onshore oil and gas development plans in  Tanzania by engaging a drilling support contractor ahead of further exploration at the Kilosa-Kilombero and Pangani licences.

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Swala’s subsidiary operator at the properties, Swala Oil and Gas (Tanzania), has awarded the Drill Support Team contract for the 2016 drilling campaign to the Tanzanian subsidiary of AWT International (Asia), a Singapore-headquartered firm offering subsurface, subsea and surface facilities engineering services and contracting solutions to the oil and gas industry.

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The Drill Support Team will effectively act as Swala Tanzania’s drilling management team, tasked with designing the wells, implementing the planning required ahead of the wells, including the ordering of long-lead items, and primarily to engage with rig contractors (and operators) in the area to determine the optimal rig sequencing and the design and cost of the wells.

The award allows drill planning to begin immediately and sets up Swala to achieve its 2016 drilling objectives.

The Kilosa-Kilombero licence has three deep basins – Kidatu, Kilosa and Kilombero.  The Pangani licence has one – the Moshi basin.

The two projects are considered geologically related to structures which host at least 2 billion barrels of oil.

Seismic work carried out in 2013 identified a large-scale structure in the Kilosa basin, measuring some 40-50 square kilometres in extent. More importantly, it identified the “Kito” prospect in the Kilombero basin, where initial analysis suggested structural trapping analogous to that seen in Uganda (where more than 4 billion barrels of oil have been discovered to date) and Kenya (more than 600 million barrels).

A second seismic survey in 2014, concentrating on the Kilombero basin, slightly increased the size of the Kito prospect and identified a further six leads and prospects that contribute to the basin’s potential upside.

The 17,156-square-kilometre Pangani licence, meanwhile, has demonstrated the existence of in Moshi of a fault-bounded basin some 25 kilometres wide with sedimentary fill of between 2,000 -3,000 metres.  The company is still reviewing the 2014 seismic data and focusing on the Kikuletwa lead, to the west of the basin.

Tanzania: TPDC hints at grand ambitions for Natural Gas Master Plan

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 developments appear to be on hold for now, our East Africa Politics & Security report points out that Tanzania still appears to have some ambitious plans for the country’s gas future.

With the slowing interest from oil companies, the Tanzania Petroleum Development Corporation (TPDC) appears to be taking the lead in the sector, but there are still issues which need to be resolved in the industry to help build confidence that the ambitions can be fulfilled.

TPDC has spoken of its extensive ambitions for the use of natural gas, serving domestic and regional markets, yet in the absence of any firm plans the ambitions do not create any greater certainty. Regionally,

Tanzania sees natural gas markets in most of its neighbouring countries. Addressing the Kenyan parliament on 6 October during an official visit, President Jakaya Kikwete said that Tanzania and Kenya are ‘discussing ways to extend the natural gas pipeline to Kenya’.

Speaking to the state daily newspaper Habari Leo the following week, TPDC’s Director of Gas Processing, Transport and Distribution, Wellington Hudson spoke of serving markets in the Democratic Republic of Congo, Rwanda, Burundi and Uganda, as well as Kenya.

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He further told Habari Leo that an investor has agreed to finance a pipeline to Bagamoyo, to service tourist hotels, with the possibility of an extension to Tanga in the north, and Mwanza in the north-west.

The prospect of a natural gas pipeline running parallel to a crude oil export pipeline from Uganda is also enticing to TPDC, which confirmed to Habari Leo that it is in talks with Total to develop such a project. Exploiting Tanzania’s deep sea gas resources will depend on having a feasible Natural Gas Utilisation Master Plan (NGUMP) in place.

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The document has been in preparation since at least 2011, with no sign of it being finalised soon. The NGUMP is critical to allow investors to make a final decision to invest on the LNG plant, as it will determine the domestic market obligation to be demanded by government.

Currently the Statoil Production Sharing Agreement stipulates that 10% be reserved for domestic use, a figure which is also likely to be found in the BG agreement. BG in particular has argued strongly over the past two years that realistic domestic needs can be served by onshore and near shore reserves. They also argue that the feasibility of the LNG plant will be strengthened if their domestic obligation is set at zero.

Industry Insight: Is East Africa’s gas asset boom about to go bust?

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Recent oil and gas discoveries across East Africa, most notably in Mozambique and Tanzania, have seen the region emerge as a new player in the global oil and gas industry.

As exciting as the huge gas fields in East Africa are, the strong decline in oil prices and expectations for an L-shaped recovery with low prices over the coming years, are increasingly challenging the economic viability of the industry in this region.

The discoveries were expected to drive billions of dollars in annual investment to the region over the next decade.

Read:Interesting-business-opportunities-in-tanzania-oil-and-natural-gas-sectors-for-local-entrepreneurs

According to BMI estimates, the finds in the last few years are more than that of any other region in the world, and the discoveries are expected to continue for the next few years. However, falling global oil prices are threatening the commercial viability of many of these gas prospects.
Gas opportunity

The Indian Ocean, off the coast of Mozambique and Tanzania, is proving to be a rich hunting ground for natural gas exploration. According to US Geological Survey estimates, the combined gas reserves of Mozambique and Tanzania could be as high as 250 trillion cubic feet.

In Mozambique alone, proven gas reserves have increased dramatically from a mere 4.6 trillion cubic feet in 2013 to 98.8 trillion cubic feet as of mid-2015. Given continued offshore discoveries and the size of discoveries to date, continued growth in proven gas reserves is likely to continue into the foreseeable future.

New exploration on more frontier blocks, however, will likely be slowed as oil and gas prices fall and companies apply increasing caution to investing in frontier markets with nascent industries, poor infrastructure and long lead times.
Driving down prices

As liquefied natural gas (LNG) contracts remain heavily indexed to oil, the fall in global oil prices poses significant downside risk to gas production projects. Persistent oversupply in the oil market continues to put downward pressure on oil prices.

This trend of lower prices is unlikely to reverse in the near future with future prices estimating the average Brent crude oil price to range between $50-65/bbl over the next five years. Industry research estimates that an oil price of $70-80/bbl would be needed for the LNG gas projects just to break even.

Sustained lower oil prices are likely to take a heavy toll on the development of upstream gas production and downstream refining projects in the region, as pricing uncertainties affect the commercial viability of LNG projects, delaying investment in the region.

This will likely see companies hold off on Final Investment Decisions (FID) as they attempt to overhaul projects to cut costs and wait for more certainty on the direction of prices.

In Mozambique, for example, both Eni and Andarko have yet to reach a FID on their respective LNG projects. The lower price environment will likely force these companies to secure more off-take agreements before reaching FID.

Furthermore, it is unclear whether these projects would be economically viable at current pricing levels, and given expectations for a slow recovery in oil prices over the coming years, we could see further uncertainty and delays in reaching FID.
Evaluating strategy

The free fall of global oil prices is forcing companies to re-evaluate their growth strategy in the region. Anadarko CEO, Al Walker told investors that it is “unlikely that we will have the kind of margins that we have seen historically that would encourage us to go back into a growth mode.”

In Tanzania, the situation is just as precarious. Gas output will depend on construction of an LNG export terminal; however the project partners – BG Group, Ophir Energy, Statoil and ExxonMobil – have yet to reach FID, due to pricing uncertainties and a range of legal and regulatory hurdles.

Downstream refining projects are also in jeopardy. According to a Sasol report, Sasol, Eni and ENH have announced a partnership to look into a feasibility study for a large-scale gas-to-liquids (GTL) facility in Mozambique.

However, key to the progression of a GTL project in Mozambique will be the cost of the gas feedstock and the long-term outlook for oil prices. Central to GTL economics is the price spread between natural gas and oil.

On a positive note, both Mozambique and Tanzania are expected to experience positive gas consumption growth as their respective governments look to increase the use of natural gas in domestic power generation. However, as in the case of Nigeria, there is a risk that each government may fix domestic gas prices, which could hinder investment in the region. Interestingly, Nigeria recently raised local gas prices to stimulate investment and plug persistent local shortages.

prepared by  Adam Bennot is a private equity Analyst at RisCura, a global, independent financial analytics provider and investment consultant. He is responsible performing valuations of companies held by private equity funds and funds of funds in Africa. 

Uk, German To Prepare Local People for Jobs in East Africa Oil and Gas Sector

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Nairobi — THE United Kingdom and German have designed an initiative aimed equipping local populations with skills needed to seize job opportunities in the oil and gas sector in East Africa and Mozambique.

The initiative by the UK’s Department for International Development (DFID-Kenya) and the German Ministry for Economic Cooperation and Development (BMZ), dubbed Skills for Oil and Gas Africa (SOGA) will focus on Kenya, Uganda Tanzania and Mozambique.

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The five year project (2015-2019) implemented by GIZ and co-funded by UK aid (£25 million) is expected to help 32 000 local people to get sustainable jobs in the sector over the period.

Hendrik Linneweber – GIZ Country Director for Kenya said the recent oil and gas discoveries in Kenya and Eastern African countries offered an unprecedented opportunity for economic growth and development.

“In the next two years, the oil and gas Industry will have a huge demand of technical skills and there is an urgent need to qualify and prepare these people for future jobs,” Linneweber.

Head of DFID Kenya, Lisa Phillips, said the UK, through DFID, was committed to ensuring efforts to promote economic development in East Africa wer sustainable and long-lasting.

“SOGA will assist the private sector and partner governments in preparing their workforce for upcoming opportunities and will ensure that any jobs which are created by the Oil & Gas Industry are open and accessible to local people,” she said.

An inception phase of the programme was conducted between January and September 2015 in the four countries with the aim of identifying common areas for partnership and collaboration with the private sector and government which would be integrated in the implementation of the programme and national system.

The will work closely with the private sector and government to deliver support to training institutions, establishing business enterprise development centres and assist local people to win contracts to supply goods and services to the oil and gas industry.

Kenya undeterred by plan to build oil pipeline through Tanzania

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Kenya has shrugged off fears over a decision by neighbouring Uganda to consider building a crude oil pipeline through Tanzania.

Kenya brushed aside concerns that Uganda’s plan, if it proves cheaper than the alternatives, would scuttle its infrastructural plans for its own oil pipeline.

Acting Transport Cabinet Secretary James Macharia told the Nation on Wednesday that while Kenya is “keenly keeping a close watch on the unfolding events in Uganda”, it would go ahead with its own infrastructural plans “undeterred”.

“We are going according to our own plans. Nothing has changed,” said Mr Macharia in Nairobi.

Last month, it emerged that Kenya’s prospects of a crude oil pipeline through Hoima-Lokichar-Lamu could be crushed after Uganda signed an agreement with Tanzania to explore the Tanga route.

Uganda, Tanzania, the Tanzania Petroleum Development Corporation and Total E&P Uganda signed a memorandum of understanding (MoU) outlining new pipeline arrangements.

The MoU also invited other interested parties, such as Kenya, to assess and develop the Tanga route, creating a base for developing a crude export pipeline from Hoima to Tanzania’s Tanga port.

If Uganda goes ahead to construct the pipeline through Tanzania, it will deal a major blow to Kenya’s Lamu Port-South Sudan-Ethiopia Transport corridor (Lapsset) project.

“We are simply evaluating the least-cost pipeline route through the East African coast, our plans focus on ensuring our crude oil has value,” Uganda’s Ministry of Energy and Mineral Development Permanent Secretary Fred Kabagambe-Kaliisa was quoted as saying in Ugandan media.

But in Nairobi, Mr Macharia said while Kenya was keenly awaiting the decision from planned talks between President Uhuru Kenyatta and his Ugandan counterpart Yoweri Museveni on the way forward, Kenya’s plans would not be derailed.

“In the last summit which was a few weeks ago, the matter was discussed and what was decided was that the two head of states (Mr Uhuru and Mr Museveni) would hold bilateral talks and chart the way forward.

“Either way we are looking into options which will protect our national interests. There is no cause for concern,” said Mr Macharia.

During his presidential visit to Uganda in August, President Kenyatta said Kenya and Uganda had settled on the northern route for the Sh400 billion crude oil pipeline that would transport oil from Albertine to Lokichar in Turkana County.

Tanzania:Mnazi Bay Operational Update – First Payment Received

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Wentworth – the Oslo Stock Exchange and AIM listed independent, East Africa-focused oil and gas company – is pleased to provide an operational update following first delivery of gas to the pipeline project from its assets near Mnazi Bay, Tanzania.
Deliveries of gas

Further to the company’s announcement on 20 August 2015 that gas deliveries to the new transnational pipeline had commenced, the gas production facilities at Madimba, the Mtwara to Dar es Salaam pipeline and the Kinyerezi Gas Receiving

Facility have now been fully commissioned and are operational. Mnazi Bay Gas is currently being used to generate power in Dar es Salaam at the existing Ubungo-II and Symbian power plants, as well as at the new Kinyerezi-I power plant.

Production volumes into the pipeline are currently at 33 million ft3/d from three wells on a restricted flow basis, and are expected to reach 80 million ft3/d once all of the generators at these three power plants are fully operational, which is expected in 4Q15.

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Three of the five existing gas wells at Mnazi Bay have been successfully brought on-stream with well performance in line with expectations. The fourth well is expected to be tied in during the month of November 2015 and the fifth well is expected to be tied in and ready to produce into the new pipeline in 1Q16.
Sales and payments

Sales gas volumes of 1032 million ft3 were delivered to the new pipeline during October 2015 (an average of 33 million ft3/d) and a gross payment of US$3.8 million to the Mnazi Bay Joint Venture Partners has been received from the buyer of the gas, Tanzania Petroleum Development Corporation (TPDC).

Under the Gas Sales Agreement signed on 12 September 2014, the sale price has been set at US$3 per million BTU, approximately US$3.07 per thousand ft3, rising in line with the US CPI industrial index commencing in 2016.
Geoff Bury, Managing Director, commented:

“We are pleased with the progress that has been made by the Government during the start-up and commissioning phases and we are delighted about how well the new pipeline system is working. We, along with our Joint Venture Partners, feel confident that our existing wells will be capable of delivering the initial target production volumes of 80 million ft3/d while we expect the Government owned power plants to be ready to take the full amount of these volumes during the last quarter of 2015. The Mnazi Bay Concession gas plays a vital role in reducing the cost and improving the reliability of power generation in Tanzania.