Africa's next energy frontier: There have been substantial discoveries of oil and gas in East Africa and the Indian Ocean in the last decade, but the full potential of the region has yet to be realised.

Author:Collins, Tom
Position:Indian Ocean oil and gas - Cover story
 
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When, in February, Somalia's ambassador to Kenya found himself bundled aboard a direct flight to Mogadishu after hasty instruction from the Kenyan government, it was clear that the longstanding Indian Ocean border dispute between Kenyan and Somalia had reached a new low.

With both sides laying claim to a 100,000sq km triangle containing potential offshore oil and gas, the long--standing row--which was taken to the International Court of Justice (ICJ) in 2014 - was triggered once more after Kenya accused Somalia of auctioning off four contested blocks to bidders during a conference in London earlier this year.

While the Mogadishu government strongly denies this claim, Kenya's foreign affairs principal secretary, Macharia Kamau, hit back by saying: "This unparalleled affront and illegal grab at the resources of Kenya will not go unanswered and is tantamount to an act of aggression against the people of Kenya and their resources."

As diplomats and ministers continue to trade blows, accusing one another of undermining national sovereignty and threatening regional stability, the standoff reminds the region of its lucrative hydrocarbon reserves and the high stakes involved in their exploitation.

Substantial discoveries made over the past decade have drawn the focus of large international oil companies (IOCs)--some of whom are beginning to produce at established sites along east Africa's India Ocean seaboard - and have triggered the interest of a flurry of smaller exploration companies and eager parastatals looking to pioneer the next big find.

Africa's Indian Ocean sits directly opposite the Energy--hungry Asian markets of India, Southeast Asia and China. With liquefied gas able to ship directly from source to port across the ocean, the positioning acts as a huge draw for investors looking to minimise their transport overheads and reach their Asian customer base.

With industry experts believing the relatively unexplored region may hold significant oil and gas reserves, the lucrative sector could fast-track development if governments are able to capture, realise and democratise the profits.

Ed Hobey-Hamsher, senior Africa analyst at global risk consultancy Verisk Maplecroft, argues that oil and gas potential in the region is vast. "I don't think anyone wants to be left behind," he says. "It's not an easy place to do business but that certainly doesn't mean that IOCs can afford to overlook it."

Regional potential

Darren Woods, CEO of Texas-based ExxonMobil, the world's largest publicly traded oil company, stunned industry observers last year when he announced plans to spend more than $200bn over the next seven years to increase his firm's production of fossil fuels, along with investing in petrochemicals and refining.

This announcement came against a backdrop of modest capital expenditure in oil and gas by industry majors since the price of crude tanked in 2014. As oil prices tentatively rebound, with Bank of America Merrill Lynch's energy outlook for 2019 expecting Brent crude to settle at around $70 - although the risk of price volatility is high in the context of global trade disruptions - many IOCs are looking to ramp up output and increase profits.

ExxonMobil is banking on increased demand, despite global efforts to diversify the energy mix, and frontier markets like East Africa's Indian Ocean will come to represent an ever-increasing share of industry portfolios, say analysts.

Two substantial discoveries over the last decade --gas in northern Mozambique and oil in Uganda --have directed the industry spotlight towards the East African and Indian Ocean regions, with many believing these finds are just the tip of the iceberg.

Italian oil major ENI along with US explorer Anadarko (which was acquired by Chevron in April for a total cost of $50bn) made a series of discoveries in Mozambique's Rovuma Basin in 2010, in what was billed as the biggest natural gas find in recent decades. With proven reserves of 100 trillion cubic feet (tcf), and resource estimates of 150 tcf, the Rovuma field holds enough gas to supply Germany, Britain, France and Italy for 15 years. If these reserves are exploited effectively, experts predict that Mozambique could become the world's third largest exporter of liquefied natural gas (LNG).

In 2006, Uganda discovered oil in the Albertine Rift Basin near its border...

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