Gas Widens African Appeal: Neil Ford on the New Trends in the Oil and Gas Sector in Africa. on the Whole, It Is Good News All the Way, He Reports

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Interest in the African oil and gas sector used to be limited to the continent's main producers. Investment was largely restricted to two areas: the North African hydrocarbon powers of Algeria, Libya and Egypt; and the Gulf of Guinea states of Nigeria, Angola, Congo-Brazzaville and Gabon. Yet in spite of the developing dash for gas and the record oil revenues flowing to most African oil producers on the back of high global prices, the most notable current trend is the greater geographical spread of oil sector investment.

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Some diversification within these two core areas has taken place. Egypt's burgeoning gas sector is compensating for declining oil output, while Tunisia has managed to attract foreign investment into developing gas to power projects.

In West and Central Africa, new fields have been brought on stream in Chad and Equatorial Guinea to compensate for falling production on mature fields in Congo-Brazzaville, Gabon and Cameroon, while Sao Tome & Principe could be the most recent addition to the league of oil producers.

Yet despite the oil industry maxim that new discoveries are rarely made more than 100 miles away from existing, producing oil wells, upstream development is taking place elsewhere. Despite the problems caused by a variety of civil conflicts, Sudan has emerged as a major oil producer in its own right. It is establishing itself as the third biggest oil producer in sub-Saharan Africa and average output of 361,000 barrels a day (b/d) in 2005 is set to double by 2010.

In East Africa, Tanzania and Mozambique are producing economic volumes of gas for the first time. The latter's Pande and Temane fields have principally been developed to supply gas to Sasol's synthetic fuel installations in South Africa, while smaller amounts of gas have been made available within Mozambique for industrial and power sector projects.

The Songo Songo gas project offshore Tanzania is East Africa's first Indian Ocean oil and gas development, and its success has triggered a series of new commitments across the region by foreign oil companies.

Songo Songo gas is piped onshore to processing facilities and then on to Dar es Salaam, where it is used to feed the 180MW Ubungo power plant and the Wazo Hill cement plant. Electricity produced by Ubungo is sold to the Tanzania Electricity Supply Company (Tanesco) under a 20-year power purchase agreement (PPA).

The offshore fields themselves have been developed by EastCoast Energy Corporation (ECE), which was spun out of PanOcean Energy Corporation, a longstanding investor in Tanzania. After fulfilling its contractual obligations to the main Songo Songo customers, ECE is allowed to market its remaining gas production to other customers and it has already extended the gas distribution network in Dar es Salaam in order to pipe gas to two textile companies, Tanzania Chinese Friendship Textiles and Karibu Textile Mills.

Peter Clutterbuck, the chief executive and president of ECE, commented: "This is the right time for EastCoast Energy to expand. Demand in Tanzania for natural gas is strong and we can foresee regional gas demand exceeding the currently producing Songo Songo reserves in future years. In the meantime, we are successfully building gas sales and infrastructure and we have our own seismic exploration programme underway. We recently reprocessed and reinterpreted seismic exploration over the Songo Songo region, boosting our confidence in the area's overall potential."

Further south, South Africa's growing appetite for natural gas has prompted investment beyond Mozambique. Namibia's Kudu gas field is finally being developed, following the takeover of South Africa's Energy Africa by Tullow Oil and Gas of Ireland. Gas will be used to feed an 800MW combined cycle gas turbine power plant. Some output will be used within Namibia in place of imported electricity from South Africa but in the short term, at least, the lion's share of production will be exported to the South African power giant Eskom. …