Over the past five years, the United States’ largest independent oil and gas company, Exxon Mobil (NYSE: XOM), has mostly focused its exploratory activities in South America. Last month, the oil major announced that it had made two new discoveries at the Sailfin-1 and Yarrow-1 wells in the Stabroek block offshore Guyana, potentially adding more barrels to one of the most closely watched new oil discoveries. ExxonMobil has now made more than 30 discoveries on the block since 2015, and has ramped up offshore development and production at a pace that far exceeds the industry average. In contrast, Exxon’s exploits in Africa have been few and far between, with its last discovery on the continent coming nearly two decades ago. But Exxon has now announced that it has, together with its partners, discovered hydrocarbons in Block 15 off Angola in the Bavuca South prospect. This was the block’s 18th discovery, but the first since 2003. According to Exxon, the Valaris DS-9 drillship drilled the Bavuca South-1 well 365 km northwest from the coast at Luanda in 1,100 m (3,608 ft) of water, encountering 30 m (98 ft) of good-quality, hydrocarbon-bearing sandstone. Exxon owns a 36% interest in the block, with BP Exploration Angola (24%), ENI Angola Exploration (18%), Equinor Angola Block 15 (12%) and Sonangol P&P (10%) being its partners.
Africa’s Oil & Gas Opportunities
The last big fossil fuel discovery on the continent dates back to 2010 after Texas-based Anadarko Corp. (now a subsidiary of Occidental Petroleum Corp.) and Italian energy giant Eni S.p.A. (NYSE: E) discovered approximately 180 trillion cubic feet of natural gas reserves, equivalent to ~29 billion barrels of oil, in Mozambique’s supergiant offshore basin of Rovuma, immediately catapulting the South African nation to a potential global LNG superpower. As you might expect, there was a stampede by oil and gas majors including ExxonMobil, TotalEnergies (NYSE: TTE), Shell (NYSE: SHEL), and China National Petroleum Corp. (NYSE: SNP)) coming in to stake their claims.
Unfortunately, widespread terrorism and the growing menace of piracy have constantly held back progress with Mozambique fast joining the league of African nations grappling with a ‘resource curse.’ The security crisis in the northern region of Cabo Delgado had displaced hundreds of thousands of people, created a humanitarian crisis and even forced TotalEnergies to declare force majeure on its massive natural gas investment in the country.But the tides have now turned, and Mozambique has managed to get its act together just in time. The country is now poised to ship its first cargo of liquefied natural gas (LNG) overseas in November at a time when Europe is desperately trying to cut energy ties with Russia. Experts have estimated that Mozambique can earn in excess of $100B from its natural gas assets over the next 30 years.
BP has already inked a deal to buy all of the output from Eni’s $7 billion Coral-Sul project--capable of producing 3.4 million metric tons of LNG per year--for the next 20 years. Meanwhile, TotalEnergies has announced plans to resume its massive $20 billion project toward the end of the year, with the terminal expected to churn out 13.1 million tons of LNG annually. In addition, ExxonMobil says it will make a final decision for an even larger project in the near future. Meanwhile, the European Union has planned a five-fold increase in financial support to $15 million to fight militants near Mozambique’s gas projects. The EU has already pledged to provide the country's army with an additional 45 million euros ($45 million) of financial support, and has so far given a SADC mission in the country 2.9 million euros of funding.
On its part, Mozambique has laid out plans to set up a sovereign wealth fund toward the end of 2022, with 50% of the fund’s revenues to be reinjected into the fund while the remaining 50% will go to the government’s budget during the first 20 years of LNG production. Mozambique has the potential to move up the ladder and become a middle-income nation over the next two decades if it plays its cards right.
Vijaya Ramachandran, director for energy and development at the Breakthrough Institute, says Germany and Europe should look to Africa, if they are serious about achieving energy security. Ramachandran notes that the continent is endowed with substantial natural gas reserves and new discoveries in the process of being tapped. Very little of Africa’s gas has been exploited, either for domestic consumption or export.
Algeria is already an established major gas producer with substantial untapped reserves and is connected to Spain with several undersea pipelines. Germany and the EU are already working to expand pipeline capacity connecting Spain with France, from where more Algerian gas could flow to Germany and elsewhere. Libyan gas fields are connected by pipeline to Italy. In both Algeria and Libya, Europe should urgently help tap new fields and increase gas production. New pipelines under discussion currently focus on the Eastern Mediterranean Pipeline Project, which would bring gas from Israel’s offshore gas fields to Europe.
But the biggest African sources lie south of the Sahara--including Nigeria, which has about a third of the continent’s reserves, and Tanzania. Senegal has recently discovered major offshore fields.
Ramachandra says Europe should not ignore these opportunities. For instance, the proposed Trans-Saharan pipeline will bring gas from Nigeria to Algeria via Niger. If the project is completed, the new pipeline will connect to the existing Trans-Mediterranean, Maghreb-Europe, Medgaz, and Galsi pipelines that supply Europe from transmission hubs on Algeria’s Mediterranean coast. The Trans-Saharan pipeline would be more than 2,500 miles long and could supply as much as 30 billion cubic meters of Nigerian gas to Europe per year--equivalent to about two-thirds of Germany’s 2021 imports from Russia (For comparison purposes, the Yamal-Europe pipeline, one of the major routes for Russian gas to Europe, is 2,607-mile-long). On its part, Nigeria is enthusiastic about exporting some of its 200 trillion-cubic-foot reserves of gas, with Nigerian Vice President Yemi Osinbajo arguing in favor of natural gas’ critical role, both as a relatively clean transition fuel and as a driver of economic development and foreign exchange earner.
Unfortunately, the Trans-Saharan pipeline will likely take a decade or more to complete, and LNG shipments to Europe would bring quicker relief.
Unfortunately, Europe’s biggest gas importer, Germany, has not built a single LNG import terminal as part of its policy to make the country dependent on Russian gas and in turn make Russia more dependent on Germany. But there’s hope: Berlin has already renounced its old ways and says it will now build LNG infrastructure.
Luckily for Germany and other stranded EU nations, Ramachandran says LNG loading ports can be built reasonably quickly in Africa, with the Greater Tortue Ahmeyin field, an offshore gas deposit straddling the maritime border between Senegal and Mauritania, a prime example. When the field comes online next year, it will place the two west African nations among Africa’s top gas producers. Floating liquefaction plants above the offshore gas field produce, liquefy, store, and transfer the gas to LNG tankers that ship it directly to importing countries. While the initial production from this field will be small, it is slated to double in a few years, and the field sits within a larger basin of natural gas with substantially greater reserves.
Elsewhere in Africa, too, gas production will continue to expand as projects in Tanzania, Mozambique, and other countries come online in the next few years.
Developing a gas pipeline as big as the Trans-Saharan pipeline will likely present many challenges as it runs through regions plagued by conflict and insurgency. But these kinds of projects could alleviate Europe’s energy crisis while also helping Africa to develop and integrate economically.
By Alex Kimani for Oilprice.com
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