East Africa may not be yet in the reference sources of hydrocarbons, but the finding of oil and gas there in the last few years promises to attract more attention to that region. It is certainly celebrated for the potential it holds for the overall development these resources can bring with them.

The discovery of oil in Uganda in 2006 at an estimated six billion barrels (some say only three million barrels) has raised so much interest in what is previously considered a high risk, very expensive and poor region in hydrocarbons. The Lake Albert oil field is expected to start production soon which may reach 200,000 barrels a day in five years’ time.

The discovery by Tullow Oil was so successful that China’s CNOOC and France’s Total soon farmed in by paying $2.9 billion (Dh10.6 billion), indicating that additional increase in reserves is significant. The resolution of border problems between Uganda and the Democratic Republic of the Congo is most important for the two countries for further exploration. The two countries have a “joint production zone” agreement but they have yet to agree on the delineation of borders.

To move Uganda oil, the country is considering a small refinery in Kampala as well as a pipeline to the port of Mombasa or Lamu on the Indian Ocean. Mombasa’s 60,000 barrels-a-day refinery may become the first buyer of the crude. With South Sudan also considering a pipeline to Kenya, some observers are suggesting the two projects may be integrated to reduce cost.

Naturally, Kenya has attracted oil companies not only because of its ports and strategic location but also because the government is keen not to be left out of the exploration effort. Companies have signed production sharing agreements in 2010 in at least five blocks covering the Turkana Rift Basin where Tullow began drilling its first well in January this year and later reported an important find. Other companies may start drilling early next year after completing a 3D seismic survey.

Encouraging results

Further north in Somali Puntland, two exploration wells are already drilled and the initial results are encouraging. Some production is even promised very shortly. All of Somalia and its offshore may become attractive once the security and political situation normalises there, if it ever does.

But the more significant finds are further south in the deep waters of Mozambique and Tanzania.

This time, natural gas is the prize where Cove Energy reported the discovery of a field off Mozambique containing an estimated 15 to 30 trillion cubic feet (tcf) of gas. A battle ensued between Shell and Thailand’s state-owned energy company PTT Exploration and Production to buy Cove’s interest at some $2 billion.

Another gas find was made in 2010 and 2011 by Anadarko also offshore Mozambique and probably containing up to 30 tcf in what is now known as Prosperidade field. Eni discovery is said to be very close to that of Anadarko and containing an estimated recoverable reserves of 30 tcf while further drilling may add another 10 tcf. Therefore, the whole of the Prosperidade field is likely to finally have 70 to 100 tcf and the two operators may eventually unify the two sections of the field.

Just across the border in Tanzania, other gas finds were discovered onshore and offshore to the tune of 30 tcf overall. While BG Group and Ophir are working in the Rovuma Delta, Statoil and Exxon Mobil are busy offshore. Statoil says that the estimated 5 tcf of natural gas in Tanzania’s Zafarani field is likely to be revised upward.

Joint projects

The offshore fields of Tanzania and Mozambique are close enough to suggest that joint projects to utilise the gas are a likely option. Because the local demand for gas is limited, the obvious solution is export to Asian markets by liquefying the gas in large and expensive LNG plants. China, India, and Thailand interests are obvious here. Substantial investment is needed in infrastructure of roads, railways, ports and so on if gas development is to proceed unhindered. The Chinese government provided Tanzania with over a billion-dollar loan to construct new infrastructure.

In the heat of the rush for oil and gas development in East Africa, there is a need for regulation and transparency of the agreements signed with international oil companies. Due respect for the environment and local people habitations must take priority in these developments and discussion among countries might yield common approach with the oil companies and reduce the cost of infrastructure.

The Economist puts all this as “Eastern El Dorado” but if economic development in Eastern Africa is to be fuelled by oil and gas development, it is hoped that these countries also pursue balanced development in other sectors.

— The writer is former head of the Energy Studies Department in Opec Secretariat in Vienna.