Oil and Natural Gas in East Africa are Bringing the Chinese and other Nations to Africa

Posted by PITHOCRATES - July 1st, 2012

Week in Review

The developed nations are falling in love with East Africa.  Why?  Because they have oil literally oozing out of the ground.  And enormous natural gas deposits are under the waters off Tanzania and Mozambique.  The kind they measure using the word ‘trillion’.  This energy bonanza is drawing the developed nations to East Africa to bring these resources to market.  And into their economies (see Oil and gas are the new African queens by Emily Gosden posted 7/1/2012 on The Telegraph).

“In the space of a few years, East Africa has become a feeding ground for most of the world’s oil majors, which have sniffed our resources of oil and gas on a truly gargantuan scale,” wrote Malcolm Graham-Wood, oil analyst at VSA Capital, in a recent note. And in the world of oil and gas where, as he puts it, “if you find it, they will come”, those gargantuan reserves are the key.

“It’s been known there’s oil here for 100 years,” Laurie Hunter, chief executive of explorer Madagascar Oil says. “It actually seeps out on the surface in places.”

But with exploratory drilling consistently exceeding expectations, the geology of East Africa is proving to be even better than once thought.

FTSE 100 explorer Tullow Oil began drilling by Lake Albert in Uganda in 2006 – the first well there since 1938. It has drilled 45 wells to date; 43 of them have hit hydrocarbons. The company says it believes the Lake Albert rift basin is a “a major hydrocarbon province in its own right”, with resources as high as 1.1bn barrels. French oil major Total and Chinese CNOOC have paid $2.9bn to buy into Tullow’s stakes…

But while the oil discoveries look transformational – for all involved – it is gas that is causing the most excitement. In the balmy waters of the Indian Ocean, off the coasts of Tanzania and Mozambique, gas discoveries are estimated to stand at more than 100 trillion cubic feet (tcf). Potential resources are significantly higher. By way of context, the UK’s entire annual natural gas consumption in 2010 was 3.3tcf…

But it’s not just the geology that makes East Africa so exciting – it’s also the geography. “Conveniently,” Mr Graham-Wood notes, East Africa’s gas “faces the lucrative markets of India and the Far East and is now a truly valuable commodity”.

The gas will be cooled into liquefied natural gas (LNG) so it can be shipped to Asia. Gas consumption jumped 21.5pc in China and 11.6pc in Japan in 2011, according to BP data…

Exploiting the reserves in East Africa is not without its challenges, as Mr Joyner notes from a recent visit to Mozambique. “There are no roads and you have to fly everywhere on dodgy twin-props.”

China has been particularly busy in Africa.  Building a lot of infrastructure.  In an infrastructure-starved continent.  Out of the goodness of their heart.  Unlike the colonial powers of times past.  And I’m sure it’s just coincidental that enormous natural gas reserves are located so close to China.  Just begging to find their way into that Chinese economy.  Where gas consumption has jumped 21.5% in 2011.  No, I’m sure that hasn’t a thing to do with their interest in Africa.  Even though they’re investing in the energy industry in Africa.

As the developed nations buy these resources it should bring money into the private economies of East Africa.  Or create them if they don’t yet exist.  Creating jobs.  A middle class.  And hopefully a stable society.  Complete with all the middle class institutions and the rule of law.  Raising the standard of living for all in East Africa.  By using the revenue from their energy sales to build an infrastructure in an infrastructure-starved continent.  Preferably one that favors their needs and not the Chinese.  Or the other nations flocking to East Africa.

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