After years of wrangling and indecision, work is finally set to begin on Namibia's Kudu gas project. Uncertainty over the size of the reserves and over plans to market the gas has held up development of the field, which was originally discovered in 1974.
Tullow Oil offshoot, Energy Africa, has agreed a joint development deal with the National Petroleum Corporation of Namibia (NPC) and power company NamPower to develop the 1.3 trillion cubic feet (tcf) field at a cost of $800m, providing much needed revenues to the Namibian government, as well as reliable power production to both Namibia and South Africa.
NamPower, Energy Africa, Texaco, Shell and South African power utility Eskom set up the original consortium to develop the Kudu field in 1997, with the aim of providing power sector feedstock for the South African market.
However, gas fired capacity could not compete with Eskom's cheap coal-fired plants at that time and the South African firm pulled out in 1999. Shell withdrew in 2002, citing the uncommercial size of the reserves, while Chevron Texaco was the last to pull out, at the end of 2003.
Shell, which held a 75% stake in the original consortium, hoped to develop the field for international export, probably in the form of liquefied natural gas (LNG).
However, the reserves are almost certainly too small to justify the construction of an LNG train in the region, without the supply of additional production from other fields. The discovery that the field was smaller than previously thought caused attention to turn towards supplying the local power market.
Energy Africa's takeover by Irish firm Tullow Oil (see African Business August/September) caused some to fear further delays to the scheme, but the buyout actually seems to have acted as a spur to progress, as Tullow sought the quickest possible return on its investment. Moreover, the Irish company's resources have provided the additional investment required to get the project off the ground, although it may take until the end of 2005 before all the required funding is in place.
800MW POWER FOR 20 YEARS
The project was given the go-ahead after the completion of a commercial feasibility study. According to the managing director of Energy Africa, Rhidwaan Gasant, the field contains enough gas to supply an 800MW power plant for more than 20 years.
Energy Africa has taken a 90% stake in the project, while the NPC holds the remaining equity.
Actual construction work...