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East Africa set to be global gas hub

Statoil has struck gas in Tanzania, adding to the slew of discoveries that raise the prospect of East Africa becoming a major gas province.

Statoil has struck gas in Tanzania, adding to the slew of discoveries that raises the prospect of east Africa becoming a major gas provider.

The Tanzanian discovery builds on a rich series of finds in the offshore Rovuma Basin, which is shared with Mozambique, and the area is already shaping up to become an exporting hub.

"We see a market window for significant expansion [of liquefied natural gas exports] between 2020 and 2030," said Giles Farrer, a gas analyst for Wood Mackenzie.

The Norwegian company's second discovery takes its proven reserves in Tanzanian waters to 4 trillion cubic feet (tcf). This follows discoveries of about 6 tcf by the BG Group and Ophir Energy, based in Britain.

Tanzania's discoveries are substantial but dwarfed by those in Mozambique, where Italy's Eni and a consortium that includes Houston's Anadarko has found reservoirs holding up to 80 tcf.

The abundance of gas in the Rovuma Basin has sparked interest in developing export facilities in Mozambique and both Eni and Anadarko are working towards liquefied natural gas (LNG) terminals, which ready natural gas for transport in specialised tankers.

Anadarko is looking to award the initial engineering contract for its export terminal within a month, said Mr Farrer.

The Statoil finds make an export infrastructure commercially viable for the company and Tim Dodson,Statoil's vice president for exploration, said "the results so far mark an important step towards a possible natural gas development in Tanzania".

Exports from both Mozambique and Tanzania would position the region as a global gas hub.

"The gas encounter increases the likelihood of a Tanzanian gas development project, either as a combined LNG project … or as a separate project that could prompt the start of an east African gas hub alongside Mozambique," said Marné Beukes, an energy analyst at IHS Global Insight.

Exploration success in Tanzania has increased optimism in neighbouring Kenya that gas can be found there, too.

Global demand for natural gas is growing, driven byrapidly expanding need for gas in the Asian power-generation sector.

Qatar becoming the world's biggest exporter of LNG, a status it is likely to lose to Australia in the coming years, the shale-gas revolution in the United States and efforts to produce more gas in the Arabian Gulf are adding to supply.

East Africa is likely to further increase supply to the global market over time. But analysts warn of a range of obstacles that face developers of east Africa's rich potential.

"Developing the gas in this new frontier will not be without its challenges, with maritime piracy, a potentially threatening regulatory environment and an uncertain international gas market potentially placing a long-term damper on developments," said Ms Beukes.

Piracy emanating from Somalia is showing no sign of abating and pirates have already displayed an increased appetite for attacking oil tankers.

Tanzania's government has moved to amend contracts signed with foreign energy companies and ignited disputes over revenues.

While prices for LNG are holding up, the long-term implications of a growing supply are unclear.

The production of shale gas in the US has led to a slump in domestic prices and plans are afoot to convert import terminals to export facilities. Australia's increasing role as a gas producer will impact on the market and demand in Asia is likely to take a hit once Japan restarts its nuclear reactors.

The comparatively higher cost of developing offshore reservoirs also limits the impact that east African gas will have on the global LNG markets.

"While it's another potential source of supply, they won't be able to sell it for cheaper than they can develop it," said Mr Farrer.

"We don't see it as creating a big downward momentum on prices."


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