BG to sell one key Tanzanian gas site to finance offshore projects

Offshore oil and gas exploration platforms in the Indian Ocean. Tanzania’s natural gas deposits are now estimated at 50.5 trillion cubic feet. Photo/FILE  

 

By PAUL REDFERN Special Correspondent

In Summary

• UK-based oil and gas exploration company BG is reportedly about to sell one of its key gas fields in Tanzania, amid growing indications that large oil companies such as BP and Shell are taking an active interest in East African hydrocarbon sites.
• Tanzania’s gas and liquefied natural gas projects are expected to come on stream in 2019, with Kenya and Ethiopia expected to begin commercialisation of their oil deposits over the next six to seven years.

UK-based oil and gas exploration company BG is reportedly about to sell one of its key gas fields in Tanzania, amid growing indications that large oil companies such as BP and Shell are taking an active interest in East African hydrocarbon sites.

BG has not commented publicly on its decision to sell its entire stake in its Block 3 site in Tanzania, but a series of profit warnings and the resignation of chief executive Chris Finlayson earlier this year have led the company to consider easing its current cash flow problems.

The company’s website says that both BG and Ophir have so far invested over $1 billion in exploration in Tanzania, and it also holds stakes in exploration sites in Kenya.

BG put out a press release last week saying it was “studying a potential multibillion-dollar investment to develop natural gas offshore Tanzania for domestic use and for export to markets around the world.”

It added that if developed, “this project would involve extracting gas trapped deep below the seabed and transporting it via a pipeline along the ocean floor to an onshore plant.”

Such a project would, however, be expensive and is believed to be behind the company’s decision to sell off one of its three stakes in Tanzania.

Ophir, which shares ownership of all three blocks with BG, last year raised around $1.3 billion when it sold a 20 per cent stake in Tanzanian holdings to Pavillion Energy.

The Sunday Times on August 24 reported that both Shell and BP had expressed growing interest in hydrocarbon finds in Tanzania and Kenya.

It noted that the three Tanzanian fields BG jointly owns “will be very expensive to develop, particularly the power that would be needed for a gas liquefaction plant.” But both Shell and BP have the resources and expertise to develop such sites.

BG currently has a 60 per cent stake in all three Tanzanian fields.

A recent report put out by Standard Bank said that East African oil and gas discoveries “are poised to fundamentally transform the economies of the region as the fuel resources usher in new investment in road, rail, power and industrial infrastructure.”

Uganda, Kenya, South Sudan, Ethiopia, Tanzania and Mozambique have emerged as one of the most prolific oil and gas exploration regions in the world over the past 10 years, said Simon Ashby-Rudd, the London-based global head of oil and gas at Standard Bank, Africa’s biggest lender.

One of the biggest indicators that the region is likely to experience an oil and gas-led boom in the next half decade is the fact that several projects in East Africa are likely to come on stream at similar times. 

Tanzania’s gas and liquefied natural gas projects are expected to come on stream in 2019, with Kenya and Ethiopia expected to begin commercialisation of their oil deposits over the next six to seven years.

READ: Dar’s natural gas cache reaches 51 trillion cubic feet

Uganda is set to begin oil production by 2018/19, while South Sudan is already producing.

Plans are now underway to construct an oil pipeline linking Uganda’s oil fields to the coastal port of Lamu in Kenya.

In February this year, Uganda signed a memorandum of understanding with oil companies operating in the country to facilitate the development of an oil refinery in the country as well as a pipeline that enables crude reserves to be exported.

“A pipeline would really kick-start economic growth in the region as it would usher in additional investments in the necessary infrastructure, which in turn will enable further investment in industrial operations,” said Mr Ashby-Rudd.

“Oil thus becomes the catalyst for an economic transformation across the region. An oil pipeline could become the backbone on which an entire infrastructure corridor could be constructed.”

He added that Uganda’s efforts to link its oil reserves to the coast to facilitate exports could be replicated by other land-locked nations in Africa. 

This would allow additional infrastructure corridors to be developed as a means of harnessing the economic potential of Central and East African nations such as the Democratic Republic of Congo and Tanzania.

Burgeoning economic growth in East Africa is also likely to result in increasing demand for fuel within the region, which imported a collective $10 billion of fuel and petroleum products in 2012.

Standard Bank expects total demand for petroleum products in East Africa to triple by 2030, with Kenya likely to remain the largest market in the region, which the bank estimates will record compound annual growth rates of between 5 and 7 per cent over the next half decade.