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					 OIL AND GAS
 Special Report




MAGIC 10M BARRE
ELS WITHIN REACH
 The current high price of crude oil, which is likely to be sustained in the face of increasing demand from countries
 such as China, has injected new life into African oil exploration and production.
    It is now economically feasible to drill into difficult-to-get-at reserves and to explore areas once considered
 financially risky. It will not be long before African production reaches the 10m barrels per day mark.
    At the same time, efforts to convert gas, now uselessly flared, into a valuable commercial commodity, are
 beginning to pay dividends. This trend, coupled with growing demand for gas both from Europe and domestically on
 the continent, points to a sector that in time might eclipse oil in importance.
    This African Business Special Report on the African Oil and Gas sector was compiled by Associate Editor Neil Ford.
            OIL AND GAS
           Special Report




AFRICA HEADING
TOWARDS MAGIC
10M BARRELS MARK
                                                                                                                     As global oil prices go higher and
                                                                                                                      higher, exploration goes deeper
                                                                                                                        and reaches further off-shore.




I
      t is a truism to argue that the current    risk are suddenly looking a lot more attrac-         healthy production on their onshore and
      high price of oil divides African states   tive. As a result, both established and aspiring     shallow water fields. Nigerian production ca-
      into winners and losers. Providing they    oil producers could soon benefit from an             pacity has already edged up from around 2m
      have well structured production agree-     injection of new exploration finance from oil        barrels a day (b/d) to just under 2.5m b/d. Ed-
ments, major oil producers are obviously         companies keen to make the most of the oil           mund Daukoru, the presidential advisor on
reaping the benefits in terms of higher in-      boom and also flush with cash following two          petroleum and energy matters, indicated in
come, while net importers are facing increas-    years of very high revenues.                         June that this figure would rise to just under
ing fuel import bills.                              Speaking at the 9th UNCTAD Africa Oil             3m b/d by the end of next year, confirming
   Yet the era of the $50 barrel could have      and Gas Trade and Finance Conference in              that the oil industry is on track to meet the
a third effect on the continent that will be     the Mozambican capital Maputo, the direc-            federal government’s target of lifting produc-
welcomed by all governments – increased          tor general of the World Petroleum Council,          tion capacity to 4m b/d by 2010.
investment in exploration. Some known oil        Pierce Riemer, commented: “It is my feeling             Such claims do not seem to be government
fields have not been developed because pro-      that there is a new shift towards Africa, with       bravado, given that Shell’s Bonga field will
duction costs were prohibitively high at a       a lot of projects... especially if you look at the   soon yield between 200,000 b/d and 250,000
time when oil prices fluctuated between $15      healthy price of oil. Things are looking a lot       b/d, while a similar volume will come from
and $20 a barrel. Yet development may now        more promising than they did in the past.”           Total’s Akpo field by the end of next year.
be economically viable if oil companies are      The continent as a whole produced a record              Over the same period, Angola will cement
confident that prices will average $40 or more   8m barrels per day last year, just under 10%         its position as Sub-Saharan Africa’s second
during the production life of such fields.       of the global total and this figure looks set to     biggest producer. Several massive deepwater
   At the same time, prospective areas that      rise significantly over the next decade.             developments will soon come to fruition,
have received little investment because they        The development of deepwater fields in            most of which will contribute around 250,000
were considered too marginal or too high a       Nigeria and Angola will complement already           b/d to national production by 2010, taking


                                                                                                      African Business | August/September 2005
             OIL AND GAS
            Special Report

total output to 2m b/d.                               Libya’s rapprochement with the interna-                                 be surprising if total African oil production
   A list of Angola’s block operators reads like   tional community should trigger greatly in-                                reached 13m b/d within ten years.
a who’s who of the international oil and gas       creased investment in that country; while
industry, indicating the attractiveness of the     the end of Sudan’s long running north-south                                Boost for non-traditional areas
country’s offshore prospects.                      civil war may encourage the majors to return                               Areas with established production will attract
   At the same time, production on the Chev-       to a country that is already heading towards                               the lion’s share of investment but exploration
ronTexaco operated fields in the Cabinda en-       output of 750,000 b/d within a few years.                                  efforts in less traditional oil and gas produc-
clave, which provides over 50% of the coun-        Throw in additional production from new                                    ing areas are also likely to be stepped up. Off-
try’s current oil output, is expected to rise      oil powers, such as Chad, Equatorial Guinea                                shore acreage down the entire Indian Ocean
still further.                                     and São Tomé and Príncipe, and it would not                                coastline is already being opened up, while




SAO TOME
SO NEAR, YET SO FAR
F
       ive more production sharing agree-          Table 1: Nigeria –São Tomé and Príncipe JDZ 2004 licensing round results

       ments (PSAs) have been signed for           Block and company                                        Signature bonus      Equity                Position
                                                   Block 2                                                  $71 million
       acreage on the joint development zone       Devon/Pioneer/ERHC (including existing Rights)                                65%                   Operator
                                                   Equator Exploration/ONGC Videsh                                               15%
       (JDZ) shared by Nigeria and São Tomé        A. & Hartman                                                                  10%
and Príncipe.                                      Foby Engineering                                                              5%
                                                   Momo Oil & Gas/SOJITZ/IMT Int./NISSHO IWAI                                    5%
   Hopes were high that exploration efforts        Block 3                                                  $40 million
                                                   Anadarko                                                                      51%                   Operator
could begin soon after the JDZ was created,        Devon/ERHC (including existing rights)                                        25%
but a combination of political problems in         DNO/EER                                                                       10%
                                                   Equinox Oil & Gas/Equinox & Energy Limitada/Petrochina                        10%
São Tomé and contractual difficulties held         Ophir/Broadlink                                                               4%
                                                   Block 4                                                  $90 million
up the process for some time. Now, however,        Noble/ERHC (including existing rights)                                        60%                   Operator
it is hoped that the search for oil can begin in   Conoil                                                                        20%
                                                   Hercules/Centurion                                                            10%
earnest, adding yet one more element to the        Godsonic Oil and Gas                                                          5%
Gulf of Guinea oil boom.                           Overt/Addax
                                                   Block 5                                                  $37 million
                                                                                                                                 5%

   The JDZ was created in order to enable oil      ICC/OEOC Consortium                                                           75%                   Operator
                                                   ERHC (Existing Rights)                                                        15%
exploration in an area that is claimed by both     Sahara/Denham/WoodGroup                                                       10%
Nigeria and São Tomé and Príncipe.                 Block 6
                                                   Filthim-Huzod Oil & Gas/DNO ASA/EER/SINOPEC
                                                                                                            $45 million
                                                                                                                                 85%                   Operator
   Following his election victory in 1999,         ERHC (Existing Rights)                                                        15%.

Nigeria's President Olusegun Obasanjo was          Source: Nigeria –São Tomé Joint Development Authority

keen to solve the various Gulf of Guinea
maritime boundary disputes that were hold-         Príncipe possesses a great deal of deepwater                               most of the acreage on offer.
ing up exploration in the region.                  maritime territory that will attract oil sector in-                           Just one bid was accepted. Block 1, which
   Oil companies are particularly but under-       terest – but it was decided to licence JDZ acre-                           lies next to sizeable Nigerian fields beyond the
standably reluctant to invest in acreage with      age in the first instance in order to make the                             JDZ boundary, was awarded to a consortium
uncertain sovereignty and Obasanjo saw the         most of Nigeria’s experience in the industry.                              of ChevronTexaco (51%), ExxonMobil (40%)
settlement of boundary disputes as an excel-          Although earlier deals between previous                                 and Dangote Energy Equity Resources (9%),
lent method of providing yet more impetus          São Toméan governments and smaller oil                                     which is owned by Nigerian and Norwegian
to the burgeoning oil sector in Central and        companies hindered the licensing process,                                  interests. The PSA for Block 1 was not signed
West Africa. While boundary delimitation           the Lagos based joint development zone au-                                 until earlier this year but brought with it a
has been possible in some areas, São Tomé          thority (JDA) offered nine blocks in a licens-                             signature bonus of $123m, which will provide
and Abuja were unable to reach a settlement        ing round that was launched in April 2003.                                 a massive boost to the São Toméan economy.
and so the two governments opted to set up a          A total of 33 bids were submitted but most                              Blocks 2, 3, 4, 5 and 6 were offered in a second
JDZ for an initial period of 45 years. During      of these came from smaller, independent                                    licensing round, which was launched towards
that time, revenues will be shared in a ratio of   firms and were rejected, possibly because the                              the end of 2004. Yet again, a large number of
60:40 between the two governments.                 signature bonuses on offer were too low but                                bids were received from smaller companies
   As a result of its position at the heart of     perhaps also because the two governments                                   but this time the JDA decided to award PSAs.
the Gulf of Guinea and because its islands are     believed that the bidders lacked the technical                                The results of the round, which were an-
strung out over a wide area, São Tomé and          expertise and financial muscle to make the                                 nounced on 1 June and which are listed in


                                                                                                                              African Business | August/September 2005
select onshore areas, such as the Lake Malawi       tries like China and India interested. People         gion, the Songo Songo gas to power project
Basin, are being mentioned by oil executives        have left it alone for the last 30 years, but now     in Tanzania has seen the first commercial
that have largely left such areas alone for         they are coming back.”                                exploitation of hydrocarbon reserves in East
many years. The managing director of Brit-             The vast majority of wells are drilled with-       Africa, while the Pande and Temane fields in
ish-based MDOIL, Chris Matchette-Downes,            in 100km of an existing productive well,              Mozambique are being developed in order to
told delegates at the Maputo conference: “For       so eastern Africa has largely been ignored.           feed South Africa’s synthetic fuels industry.
many years, East Africa has been left aban-         However, a series of developments over the            An increasing number of companies are tak-
doned and stranded. East Africa was always          past five years mean that the area is no longer       ing up acreage offshore Tanzania and it will
seen as ‘the other side of the fish pond’. Well,    quite as isolated. Apart from the development         be interesting to follow developments over
the other side of the fish pond now has coun-       of Sudanese oil fields in the north of the re-        the next few years. g



the table, revealed that an existing agreement                                                            further unsettling an already unstable politi-
between Environmental Remedial Holding                                                                    cal system on the islands.
Corporation (ERHC) and São Tomé had had                                                                       Prime minister Damião Vaz d’Almeida
a great influence on the awards.                                                                          resigned after the PSAs were announced,
   ERHC, which is owned by Nigerian busi-                                                                 complaining that parliament had not been
nessman Emeka Offor but which is registered                                                               consulted by President Fradique de Menezes,
in the US, has little deepwater experience but                                                            although the civil service strike in the country
has been awarded stakes in all five blocks. The                                                           also played a role in his decision. The country
company was named joint operator of block                                                                 has now had six prime ministers in the past
4 with a 60% stake and received between 15%                                                               four years, and there are real fears that the po-
and 30% equity in the other four blocks.                                                                  litical instability could continue. São Tomé and
   Established oil and gas companies that                                                                 Príncipe’s national cohesion has been seriously
were awarded stakes in the various blocks           The partnership between Presidents Obasanjo (l) and   damaged by the short-lived, bloodless coup of
                                                    Menezes promises transparency and accountability in
include Anadarko, Conoil, Devon Energy,             the oil sector.
                                                                                                          July 2003.
ONGC Videsh of India and Pioneer Oil and                                                                      While unofficial estimates put the size of
Gas. Several lesser known companies, such as        agree on the basis of technical information           the oil reserves in the JDZ at 8bn barrels, the
Filtim Huzod of Nigeria, International Com-         and they have made recommendations on                 truth is that nobody really knows because
merce and Communications – registered in            local participation.”                                 of the lack of both preliminary exploration
the Cayman Islands – and Oil Exploration               Speaking to President de Menezes of Sao            work and drilling in the area. The eventual
Consortium, based in the US also secured eq-        Tomé, he added: “We want people either                figure could be a great deal higher, whilst it is
uity. The awards were approved by both the          sponsored by citizens of your country or              also just possible that nothing will be found.
Nigerian and São Toméan governments.                citizens of Nigeria who can be part of the ex-            Nevertheless, oil sector investment is having
                                                    ercise in order to learn. The way things have         a massive impact on the São Toméan economy
Lesson for rest of Africa?                          been done is sufficiently satisfactory for all of     with or without actual oil. São Tomé’s share
The Nigerian government tried to ensure that        us to feel proud that we have done the best.”         of the Block 1 signature bonus will be $49.4m
local companies were involved in developing            The Nigerian government has promised               and will be paid during the course of this year,
the JDZ’s presumed hydrocarbon wealth.              that this and all future JDZ licensing rounds         while a further $113.2m will be provided by
President Obasanjo commented: “The results          will be transparent and accountable.                  the bonuses on blocks 2-6. Annual GDP in the
of this 2004 licensing round, which runs into          President de Menezes tried to explain the          country stands at little more than $50m, so this
2005, have been analysed by our ministers           earlier delays. He said: “You will understand         injection of money will have a big impact, for
and advisers. They have come together to            that our worries and questions we have often          better or for worse. In many ways it seems odd
                                                    raised for clarification were only and shall          that so few established oil companies have
                                                    always be questions and clarifications. We just       been interested in the JDZ acreage over the
                                                    wanted to know as a curious younger brother           course of two licensing rounds.
                                                    why our bigger brother is doing this because              The success of so many small Nigerian firms
                                                    we are younger in this industry. Nigeria is           could be an indication of political favouritism
                                                    older and more experienced. We are just ask-          at work but it is also possible that it is a genu-
                                                    ing you why not the other way; nothing what-          ine attempt by Abuja to promote the develop-
                                                    soever apart from curiosity and anxiety.”             ment of a domestic oil sector, which finds it
                                                       He described the decision to split revenues        difficult to make headway against the financial
                                                    60:40 as “a novelty and a lesson for the rest         and technical strength of the majors.
                                                    of Africa”.                                               Only time will tell whether all successful
                                                       Despite the new PSAs, there are fears that a       bidders have the ability to make the most
                                                    combination of the licensing process and the          of the acreage they have secured, but it is to
The Sao Tome archipelago’s economy will be trans-
                                                    expected influx of large amounts of money             be hoped for São Tomé’s sake that they have
formed by JDZ oil revenues                          into the São Toméan government coffers are            been well chosen. g


African Business | August/September 2005                                                                                                                 31
               OIL AND GAS
             Special Report




GAS
DESTINATION EUROPE
                                                   an international consortium put together to        Nigerian gas to its own supplies to the EU as
                                                   back the project, however, remains to be seen.     part of the current climate of international
                                                      Two pipelines already connect Algeria to        cooperation in Africa. It may also be in Al-
                                                   the EU: the 850bn cubic feet a year (bcf/y) ca-    geria’s interests to provide as great a volume
                                                   pacity Enrico Mattei pipeline connects Hassi       of natural gas as possible in order to compete
                                                   R’Mel in Algeria with Italy, while the 285 bcf/y   with higher Russian production volumes.
                                                   Pedro Duran Farel line transports gas through
                                                   Morocco to Spain. Another pipeline linking         Great opportunity for gas
                                                   Algeria and Italy has been mooted, while a         African gas producers have a huge opportuni-
                                                   second line to Spain is expected to be opera-      ty in front of them in the form of the growing
                                                   tional by the end of 2006. The $1.3bn Medgaz       EU market. When the TSGP memorandum
                                                   sub-sea pipeline project is being developed        of understanding (MoU) was signed, former
                                                   by a consortium including Cepsa of Spain,          special adviser to the Nigerian president on
                                                   Sonatrach, BP, Gaz de France and Total.            petroleum and energy affairs, Rilwanu Luk-
Gas piped from the Gulf of Guinea will supply         While Nigeria could be perceived as a           man, said: “The European demand for natu-
EU markets.
                                                   competitor to Algerian production, the Al-         ral gas continues to grow at a significant pace
                                                   giers administration seems content to add          demonstrating the need for clean burning



W
             hile piping natural gas directly                                                         fuel for power generation, industrial fuels
             from West Africa to Europe or even                                                       and residential markets and the project can
             further afield was long considered                                                       deliver this much needed gas supply”.
             impossible, the development of the                                                          A combination of Algerian and Nigerian
gas sector in the region has focused upon                                                             piped gas, plus North African and Gulf of
LNG exports. However, mainly as a result of                                                           Guinea LNG could make a major contribu-
Algeria’s successful gas sector and improving                                                         tion to satisfying that demand. It is impor-
pipeline infrastructure, the first possibility                                                        tant, however, to note that there is enough
of direct exports from Nigeria to the EU has                                                          room in the market for both Russia and the
appeared on the horizon. The 4,000km Trans-                                                           other major gas producers without African
Saharan Gas Pipeline (TSGP) project has been                                                          producers weakening their bargaining power
designed to link Nigerian gas fields with the                                                         by working against each other. The TSGP will
existing Algerian pipeline network.                                                                   mainly aid Nigeria, it is true; but it should
   The pipeline would pass through Niger                                                              also help to put Gulf of Guinea gas on the
on the way to Beni Saf on the Algerian coast.      As the technology becomes more sophisticated,      map. After decades of flaring and waste, the
                                                   gas is playing a more important role in the
The Algerian and Nigerian governments              global energy mix.                                 region needs all the publicity it can get. g
have signed a cooperation agreement on the
project, while Sonatrach and NNPC signed a         BIG TWO OFFER NEW ACREAGE
separate joint venture agreement to undertake      Sub-Saharan Africa’s two biggest oil producers are holding licensing rounds this year.
a feasibility study into the scheme. Speaking in   According to Alfredo Rafael, the head of licensing and exploration development at the
June, Nigeria’s presidential advisor on petro-     Angolan Ministry of Petroleum, 23 onshore blocks in Angola’s Kwanza Basin will be offered
                                                   by the end of this year.
leum and energy matters, Edmund Daukoru,
                                                      The acreage is unlikely to attract the same level of interest as the country’s offshore blocks
said that the results of the study were expected   and so is likely to be targeted by independents. Rafael emphasised that consortia including
during the first half of next year.                Angolan interests, or sourcing a significant proportion of their requirements within the country,
   Financing is the main obstacle to getting the   are likely to be looked on favourably.
project off the ground, as the cost of construc-      The bidding period for Nigeria’s licensing round was due to close in August and the country’s
tion alone is estimated at up to $7bn, but at      presidential advisor on petroleum and energy matters, Edmund Daukoru, insisted that
face value the project is feasible, given the      transparency will be foremost in the bidding and assessment process. He said: “We have invited
                                                   the energy departments of the UK, Norway and Brazil to come as observers to ensure that the
growing EU market and the rising volume of         process is absolutely transparent.”
proven gas reserves in Nigeria and the rest of        A total of 60 blocks have been offered and Daukoru has indicated that 150 companies
the Gulf of Guinea. Whether political agree-       expressed an interest in bidding during the prequalification process. Starting in London, a series
ment can be reached by all relevant parties and    of promotional meetings have been held in key oil cities to drum up support for the round.


                                                                                                      African Business | August/September 2005
             OIL AND GAS
            Special Report




NIGERIA TO RANK THIRD
IN LNG PRODUCTION
A
          wareness of the value of the Gulf         Table 1: Proven gas reserves – Africa in context (in million cubic metres)

          of Guinea’s gas reserves has steadily     Rank
                                                    1.
                                                                   Country
                                                                   Russia
                                                                                              end 1980
                                                                                              na
                                                                                                                   end 1990
                                                                                                                   na
                                                                                                                                 end 2000
                                                                                                                                 46,700,000
                                                                                                                                               end 2003
                                                                                                                                               48,000,000
                                                                                                                                                             end 2004
                                                                                                                                                             48,000,000
                                                                                                                                                                           % of total
                                                                                                                                                                           26.74%
          grown over the past few years. Origi-     2.             Iran                       14,101,000           17,003,000    26,600,000    27,570,000    27,500,000    15.32%
                                                    3.             Qatar                      2,800,000            4,615,000     14,443,000    25,783,000    25,783,000    14.36%
          nally considered a useful by-product      4.             Saudi Arabia               3,183,230            5,222,700     6,301,000     6,754,000     6,754,000     3.76%
of the oil sector that could be flared if it was    5.             United Arab Emirates       2,370,000            5,623,000     6,060,000     6,060,000     6,060,000     3.38%
                                                    6.             USA                        5,572,588            4,741,688     4,967,956     5,293,232     5,293,232     2.95%
inconvenient, governments and oil compa-            7.             Nigeria                    1,161,140            2,840,000     4,106,000     4,997,000     4,997,000     2.78%
                                                    8.             Algeria                    3,721,000            3,300,000     4,523,000     4,545,000     4,545,000     2.53%
nies alike began to study the ways in which it      9.             Venezuela                  1,262,410            3,429,000     4,152,418     4,219,000     4,219,000     2.35%
could be developed for both export and local        10.            Iraq                       777,400              3,107,000     3,109,000     3,170,000     3,170,000     1.77%
                                                    19.            Egypt                      84,000               379,000       1,433,000     1,724,800     1,854,160     1.03%
consumption.                                        23.            Libya                      685,000              1,208,000     1,314,000     1,491,000     1,491,000     0.83%
                                                                   World                      83,826,768           131,000,588   160,761,384   179,207,302   179,528,741   100%
   Until relatively recently, however, little
                                                    Source: BP Statistical Review of World Energy 2005
progress had been made, partly because of the
geographical isolation of the area from the         Demand for gas to rise                                                       other governing or advisory bodies hope to
main power markets, but mostly as a result          At the same time, European demand for gas is                                 replace much of the EU’s coal and oil-fired
of political inertia in many West and Central       likely to rise rapidly over the coming decade.                               generating capacity with gas, mainly on envi-
African states.                                     The gas transportation pipeline networks of                                  ronmental grounds.
   Today, the huge gas and electricity markets      EU member states are being integrated, so that                                  This policy is having a particular impact on
of the European Union are being opened up           gas, for example, piped from Algeria to Spain                                the new accession states and on those countries
to greater competition but can Africa’s gas         could eventually be sold anywhere in the EU.                                 that hope to join, as they have traditionally re-
producers make the most of the opportuni-              This makes it easier for countries which                                  lied on less environmentally friendly methods
ties which are being offered?                       currently rely on coal-fired, nuclear or hydro-                              of power production and must meet stringent
   Political elites in Nigeria, Angola and the      electric power to switch more of their gener-                                pollution guidelines before accession.
other hydrocarbon powers of the Gulf of             ating capacity over to gas-fired production.                                    Algeria already supplies 25% of the EU’s
Guinea have long been consumed by their             The European Commission and the Union’s                                      gas imports, while Egypt and Libya have both
desire to maximise the production and ex-                                                                                        recently signed major contracts to supply
port of crude oil. Not only has this obsession                                                                                   southern European states but many non-Af-
blinded them to the opportunities afforded                                                                                       rican gas producers are also keen to satisfy the
by other likely headline making sectors, such                                                                                    growing European demand for gas.
as agriculture and timber processing, but it                                                                                        Russia is the EU’s biggest supplier, while
has also obscured the potential profits to be                                                                                    Oman and Trinidad and Tobago supply liq-
made from the gas industry.                                                                                                      uefied natural gas (LNG) and the North Sea
   Gas fields were left undeveloped while most                                                                                   states of Norway, the UK and the Netherlands
of the associated natural gas lying on oil fields                                                                                provide a great deal of more local production.
was flared or re-injected, with relatively little                                                                                   Nigeria has also become an important sup-
being produced for export or processing.                                                                                         plier of LNG to the EU thanks to the out-
   The growing realisation that one of the                                                                                       put of the Nigerian Liquefied Natural Gas
region’s most valuable resources was literally                                                                                   (NLNG) Bonny Island plant. One of the
going up in smoke, coupled with internation-                                                                                     biggest investment projects ever undertaken
al pressure to reduce the environmental dam-                                                                                     in sub-Saharan Africa, the plant’s first three
age being inflicted by flaring led to a rethink.                                                                                 production trains are already operational,
The Nigerian government, in particular, has                                                                                      while two further trains are expected to come
legislated on the issue and since 2000 Abuja                                                                                     on stream this year and a sixth is planned for
has stood by its demand that oil companies                                                                                       2007. Although the plant is currently fed by
cease all flaring by 2008 or face legal action.                                                                                  gas from dedicated gas fields, associated gas
   It takes several years to develop projects                                                                                    should eventually make up at least 50% of its
which can consume or transport gas, so the                                                                                       feedstock. The NLNG consortium comprises
oil majors that dominate the Nigerian hy-                                                                                        Shell, with a 25.6% stake, Nigerian National
drocarbon sector are currently investing in a                                                                                    Petroleum Corporation (NNPC) (49%), To-
                                                    The West Africa Gas Pipeline is swinging into
number of major schemes in order to meet            the construction phase, promoting regional
                                                                                                                                 tal (15%) and Eni-Agip (10.4%). By the end
the deadline.                                       economic integration.                                                        of this year, Nigeria should be the world’s


                                                                                                                                 African Business | August/September 2005
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              OIL AND GAS
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   third biggest LNG producer and annual              Table 2: Natural gas production - Main African gas powers in context (in million cubic metres)
                                                      Rank             Country                   1980                1990                  2000        2003        2004        % of total
production capacity will total 17m tonnes of          1.               Russia                    na                  597,900               545,000     578,600     589,100     21.89%
LNG, 2.3m tonnes of liquefied petroleum gas           2.               USA                       557,500             513,200               550,600     549,600     542,900     20.17%
                                                      3.               Canada                    74,800              108,900               183,200     182,700     182,800     6.79%
(LPG) and 1m tonnes of condensate.                    4.               United Kingdom            34,800              45,500                108,400     102,900     95,900      3.56%
                                                      5.               Iran                      7,100               23,200                60,200      81,500      85,500      3.18%
   Yet even once the Bonny Island plant is            6.               Algeria                   14,200              49,300                84,400      82,800      82,000      3.05%
fully operational, it will not consume nearly         7.               Norway                    25,100              25,500                49,700      73,100      78,500      2.92%
                                                      8.               Indonesia                 18,500              45,400                68,500      72,800      73,300      2.72%
enough natural gas to enable flaring to be            9.               Netherlands               76,600              60,600                57,300      58,400      68,800      2.56%
                                                      10.              Saudi Arabia              9,700               33,500                49,800      60,100      64,000      2.38%
brought to an end and a raft of additional            23.              Egypt                     1,800               6,800                 18,300      25,000      26,800      1.00%
major projects are required to complement it.         25.              Nigeria                   1,700               4,000                 12,500      19,200      20,600      0.77%
                                                      41.              Libya                     4,800               5,600                 5,400       6,400       7,000       0.26%
Several other LNG schemes are in the process                           World                     1,456,700           2,000,000             2,433,200   2,617,100   2,691,600   100%
of being developed but most capacity will not         Source: BP Statistical Review of World Energy June 2005

be operational by 2008. Moreover, the sheer                                                                                              mains eager to attract independent power pro-
size of Nigeria’s associated and non-associated                                                                                          ducers (IPPs) into the country, improvements
reserves indicates that it is in the best interests                                                                                      in the distribution and transmission sectors
of the country to develop as large a gas sector                                                                                          are required if Nigeria is to be able to make the
as possible: it is even possible, although un-                                                                                           most of increased generating capacity.
likely, that the sector could eventually generate
more revenue than oil exports.                                                                                                           Significant production
   Nigeria’s known reserves of natural gas                                                                                               in Gulf of Guinea
stand at 124 trillion cubic feet, the ninth big-                                                                                         The well-publicised West African Gas Pipe-
gest in the world.                                                                                                                       line (WAGP) project to distribute gas from
   As Table 2 demonstrates, Nigeria was ranked                                                                                           Nigeria to its West African neighbours has
as only the world’s 25th biggest gas producer                                                                                            progressed slowly but now finally appears
at the end of 2004 but production is rising so                                                                                           likely to proceed as a result of the World
quickly that it is expected to quickly move up                                                                                           Bank’s decision to back the scheme.
the table over the next five to 10 years, turning                                                                                           The West African Gas Pipeline Compa-
itself into one of the world’s biggest gas pow-                                                                                          ny (WAPCo) is owned by ChevronTexaco
ers. Table 1 shows that the country already                                                                                              (36.7%), Nigerian National Petroleum Corpo-
has the world’s seventh biggest proven gas                                                                                               ration (NNPC) (25%), Shell Petroleum Devel-
reserves. While Russia, Iran and Qatar are far                                                                                           opment Company of Nigeria Ltd (18%), Volta
ahead of the pack, it is possible that it could                                                                                          River Authority of Ghana (16.3%), Société
move still further up this chart.                                                                                                        Beninoise de Gaz S.A. (2%) and Société Togo-
   The Nigerian government hopes that more                                                                                               laise de Gaz S.A. (2%). Although the project is
domestic gas-fired power generating capacity                                                                                             important as a means of promoting regional
can be installed but the country’s power sec-                                                                                            economic integration and power sector in-
tor is in desperate need of reorganisation and                                                                                           vestment, it will play a minor role in cutting
                                                      Nigeria’s presidential advisor Edmund Daukoru, has
investment, so new plants are unlikely to be          spoken frequently of the need for more domestic gas
                                                                                                                                         Nigerian gas flaring.
completed by 2008. While the government re-           to be harnessed for power generation.                                                 Gas projects elsewhere in the Gulf of Guin-
                                                                                                                                         ea are not on the same scale as in Nigeria
HOW THE NET IMPORTERS FARE                                                                                                               but are none the less significant. The $1.4bn
A succession of African net oil importers have begun to detail the problems posed by                                                     Bioko LNG plant in Equatorial Guinea will
the high oil price. Kenya spent KSh45.95bn ($603m at current exchange rates) on crude                                                    have capacity of 3.4m tonnes a year and will
oil imports last year, up from KSh25.41bn ($333.5m) the year before, while many other
                                                                                                                                         be supplied with gas from the Marathon op-
countries can quote similarly steep increases. Morocco spent MAD 4bn ($532m) on oil
imports during the first three months of 2005 alone, a 51% rise on the MAD 2.68bn figure                                                 erated Alba field. Marathon will develop the
recorded during the first quarter of 2004.                                                                                               plant alongside state oil company Compañía
   Despite some increase in the volume of oil imported, the rapid rise in barrel prices                                                  Nacional de Petróleos de Guinea Ecuatorial
underlies these increases. Yet there is little correlation between the rising cost of crude                                              (GE Petrol), in addition to partners Mitsui
oil and refined petroleum products and economic performance. Economies like Uganda,                                                      and Marubeni, both of Japan. The UK’s BG
Tanzania and Mozambique that have performed well over the past few years continue to                                                     Group has agreed to purchase the plant’s en-
thrive despite importing all of their oil requirements.
   However, there is no doubt that higher oil prices put yet more pressure on beleaguered                                                tire output for 17 years for sale in the US.
countries that are struggling to make ends meet. Beyond East Africa, however, other                                                         A large LNG facility is also to be built near
countries are hoping to cash in on the oil boom by making discoveries of their own.                                                      Soyo, in the north of Angola. The project con-
   Ghana has long produced oil but has never quite been able to move towards establishing                                                sortium is led by ChevronTexaco (32%) and
itself as an important producer. Successive discoveries over the past 30 years have been                                                 includes Sonangol (20%), BP (12%), Exxon-
heralded as the breakthrough that the country had been looking for but none have been                                                    Mobil (12%), Norsk Hydro (12%) and Total
able to satisfy even the country’s own needs.
   However, several of the oil and gas fields in the Tano Basin that were regarded as
                                                                                                                                         (12%). Gas is to be collected from offshore gas
marginal in the past could now be re-evaluated in the light of the oil price surge. The Ghana                                            gathering facilities and piped to a single train
National Petroleum Company (GNPC) is currently negotiating with a range of smaller oil                                                   plant with production capacity of 4m tonnes
companies in the hope of securing development.                                                                                           a year. g


                                                                                                                                         African Business | August/September 2005
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