A Scramble to Exploit Africa’s Significant Gas Reserves

As reported in a recent Financial Times article, with Europe concerned over Russia’s political motives in exploiting its energy wealth and big international companies shut out or deterred from investing in the Middle East, many eyes have turned to Africa in the hope of securing future supplies of gas. However, as companies scramble to gain access to both Africa’s oil & gas (the continent holds roughly 8 per cent of global gas reserves), many of the African national petroleum operators are becoming more aggressive in their requirements for exploration. As the article notes:

“…Traditionally, African gas supply to Europe has come from north African countries, notably via pipelines from Algeria and Libya, just across the Mediterranean.

But the creation of a global gas market through the development of liquefied natural gas (LNG) technology and shipping in the past 15 years has also opened up the possibility of north American and Asian countries sourcing gas from Nigeria, Egypt and Algeria.

With international gas markets set to tighten as demand for power generation and industrial raw materials in emerging markets soars, Africa’s gas reserves are likely to become even more prized….

…The continent already has some of the world’s biggest LNG plants, notably in Nigeria, where the Nigeria Liquefied Natural Gas project, Africa’s largest capital project, is about to complete its sixth phase to boost annual production to 22m tonnes.Angola, the continent’s fastest growing oil producer is also one of only two countries last year to sanction a new LNG terminal…

…In a supply-tight environment, some African governments have realised they can use the climate of scarcity to push for higher returns from their natural resources.

Algeria, Africa’s largest gas producer, has rattled many oil and gas executives with new legislation in 2006 that would give Sonatrach, the giant state oil company, rights to take on 51 per cent of any hydrocarbons project.

The government also bared its teeth last year when it pushed Repsol, the Spanish oil company, out of the Gassi Touil LNG project on the grounds that it was delayed and subject to large cost overruns.

Even in Libya, which is keen to emerge as a significant exporter of gas after years of economic isolation, the government has been cautious with the terms it offers multinationals.

Having attracted the Who’s Who of the oil and gas world to bid in a gas-only licensing auction last year, Libya then set the commercial terms so tightly that only a handful of companies won licences. One of the winners was Russia’s Gazprom, which took control of its licences by promising to give Libya 90 per cent of future gas production.

The Russian state-owned company has also sent a shiver down the spine of executives at western multinationals by seeking to forge an agreement with Nigeria.

Such an agreement would give Gazprom control of lucrative new acreage in exchange for investment in Nigerian gas infrastructure.

The sense of greater competition for Africa’s gas reserves has also been made more acute as African producers seek to secure supplies for their own domestic uses.

“The gas story in Africa is not purely an export one any more,” says Jon Marks, editorial director of the specialist magazine, African Energy.

The government of Algeria has raised questions as to whether it needs to pursue a wholly export-orientated strategy, considering the need to fuel its power generation and petrochemical industries.

The rapid rise of Egypt to become the world’s sixth largest LNG producer has also been tempered by a deliberate government policy of earmarking only one-third of reserves for export and subsidising domestic gas prices….”



This entry was posted on Monday, January 28th, 2008 at 10:05 am and is filed under Angola, Egypt, Gazprom, Libya, Libya National Oil Company (NOC), Nigeria, Nigerian Petroleum Company, Russia, Sonangol.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.