Oil and Gas markets in East Africa are about to make its mark on the world’s energy markets as exploration activity ramps up.
According to His Excellency Hussein Abdel Dualeh, Somaliland’s Minister of Energy and Water Resources, the region might even become the next Middle East. While that might be a long time coming, there is certainly a lot more hype around the region, especially in Somaliland, a self-declared breakaway government on the horn of Africa next to the Gulf of Aden.
Speaking at the 4th Gulf Intelligence Energy Forum in Abu Dhabi earlier this month, the Minister explained how the surge of exploration and production activity on the Eastern coast of Africa would reshape the Middle East and Africa’s energy landscape.
“Africa is becoming a major player in the world’s oil and gas play,” he said to an audience of state representatives and executives from the region’s leading IOCs and NOCs. The continent’s proven oil reserves topped 130 billion barrels in 2011, approximately 9% of the world’s reserves.
While these numbers may be dominated by production in West and North African countries, the Minister believes that this dynamic is about to change. Discoveries in East Africa, Mozambique, Uganda, Madagascar and recently Kenya will come online soon, “such recent world class oil and gas discoveries in East Africa have triggered a renewed interest from E&P companies who flock to the region to participate in these hydrocarbon riches,” he said.
“These discoveries are just the tip of the iceberg because huge swathes of East African basins are still considered frontier areas that are just starting to open and have seen little or no exploration,” said the Minister. The Horn of Africa region in particular, although surrounded by major discoveries in Sudan, Uganda and Tanzania has been largely ignored until now.
In August 2012, Genel Energy won an exploration licence for two onshore blocks (SL-10-B and SL-13) in Somaliland, with a 75% working interest in both. The two blocks are targeted to have resources of over 1,000 mmbbls. The company also expanded its presence in Somaliland in November 2012, with the acquisition of a 50% participating interest in the Odewayne PSA which covers three additional blocks, targeted to have a resource potential of an additional 1,000 mmbbls.
According to Genel Energy, the company was encouraged by indications such as onshore oil seeps and favourable conditions for hydrocarbons to have accumulated in numerous large tilted fault blocks and sub-basins. Also, the basins of Somaliland were contiguous to Yemen before the opening of the Gulf of Aden in the Oliogocene-Miocene and the company expects similar sedimentary sequences and structural styles in Somaliland.
The growth in oil and gas exploration activity will naturally require investments in infrastructure such as pipelines, LNG trains, processing plants and shipping terminals. “The next decades will see major foreign investment inflows to develop the region’s hydrocarbon resources, this investment is necessary if East Africa is to realize the full commercial and economic advantages of its new found hydrocarbon wealth,” he said.
The limited scale of oil and gas activity in Somaliland at present is mostly a reflection of concerns about stability and the self-declared, internationally un-recognized government’s political uncertainty.
But that hasn’t deterred companies like Genel Energy or Ophir Energy. “The political challenges haven’t really stopped us inking deals with oil and gas companies. Nobody is saying “oh you’re not a recognized country so we cannot sign contracts with you, it’s up to these companies whether or not they want to invest in Somaliland,” said the Minister.
Politics aside, security has also served to deter potential investors in Somaliland. Not only has piracy increased insurance costs, but even oil transportation has been disrupted. In 2008, the Saudi-owned Sirius Star Supertanker, carrying two million barrels of oil was captured by pirates, only to be released for a ransom of approximately $3 million. But the Minister believes that piracy is not the problem it once was.
“We don’t really feel that we have any above ground risks, there’s no war, there’s no crime, no fighting. When you come [to Somaliland] contrary to the stories you hear about the region, it doesn’t really add up, people get converted when they come,” he explained.
