Out-Law News 2 min. read

East Africa becoming ‘investment hotspot for oil and gas’, says report


East Africa is “fast becoming one of the world's most interesting oil and gas hotspots” and can be expected to attract “tens of billions of dollars of investment over the next decade”, according to new research.

The ‘East African Oil & Gas Market 2015-2025’ report by UK-based business intelligence firm Visiongain said the region could see capital expenditure (capex) of $4.19 billion in 2015 alone, including spending on both upstream exploration and development and midstream infrastructure.

“East Africa covers a territory roughly six times the size of the North Sea but fewer than 600 wells have been drilled in the region to date,” the report said.

Reserve estimates have “increased rapidly” with the discovery of both oil and gas deposits in the region over the past five years, the report said. However, “only a small percentage of the region has been properly explored”.

The report said: “The market has changed too, as major international companies are becoming involved alongside smaller companies, thus indicating the industry's confidence in East Africa's immense potential.”

“Mozambique and Tanzania's substantial offshore gas reserves and proximity to Asian demand centres offer the potential for liquefied natural gas (LNG) export by the end of the decade, while Uganda and Kenya present opportunities for commercial oil production even sooner,” the report said.

Kenya’s oil and gas market will see capex of $482 million in 2015, according to the report. “Strong development of both onshore and offshore exploration and production over the next few years, along with midstream spending on pipelines, a refinery and a floating storage and regasification unit will lead to a compound annual growth rate (CAGR) of 36.5% during the first half of the forecast period and spending of $2.285bn in 2020.”

The report said spending “will drop off once commercial production has been achieved, with a CAGR of -21.3% during the second half of the forecast period and capex of $691m in 2025”.

In Ethiopia, upstream exploration and development and midstream capex is expected to rise from $47m in 2015 to $432m in 2025.

In August 2014, the UK Trade & Investment (UKTI) agency said it was encouraging UK firms to take advantage of export opportunities to win new business emerging from Africa’s developing oil and gas industry. UKTI said it would target “major investment projects and smaller and shallow water fields”, with a focus on providing support to firms that have recently acquired major independent oil company assets.

Last October, the World Bank and other international institutions pledged a combined total of more than $8bn in new financial assistance to support infrastructure projects including the development of oil and gas pipelines across all eight countries in the Horn of Africa including Kenya.

According to the World Bank, net foreign direct investment inflows to sub-Saharan Africa increased by 16% to a near-record $43 billion in 2013, boosted by new oil and gas discoveries in many countries including Angola, Mozambique and Tanzania.

Meanwhile, Japan’s government is set to increase financial support for Japanese companies investing in Africa’s mines and minerals sector, the minister of economy, trade and industry (METI) Yoichi Miyazawa has said.

The minister’s comments came after METI hosted the second Japan-Africa ministerial meeting for resources development in Tokyo earlier this year. The meeting coincided with a Japan-Africa mining and resources business seminar, which METI also hosted in cooperation with the Japan Oil, Gas and Metals National Corporation (Jogmec).

Jogmec offers equity capital to Japanese companies as part of the funds that they need for oil and natural gas exploration, asset acquisitions, and natural gas liquefaction projects – the physical conversion of a gas into a liquid state (condensation).

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