East Africa Is At A Breakthrough Moment

<p>Future Energy Partners is committed to supporting its clients to deliver energy excellence for its stakeholders, especially in the context of climate change challenges.&nbsp;</p><p>The concept of &lsquo;stranded&rsquo; oil resources is now front and centre for many people in western countries. However, in the interest of the economic development of East Africa and the people, development of crude oil and natural gas resources needs to happen. However, our position is that these developments need to be done to &lsquo;international standards&rsquo; with due consideration of the impact on affected citizens ensuring that those citizens benefit from these developments.&nbsp; Many will be aware of the delay in the Total operated Mozambique LNG project due to security and stability issues.</p><p>Total, CNOOC, the Uganda National Oil Company(UNOC) and the Governments of Uganda and Tanzania announced that the final investment decision (FID) for the Tilenga, Kingfisher and East African Crude Oil Pipeline (EACOP) projects has now been made.&nbsp; It has taken over a decade of negotiating, ownership changes and new regulation and legislation in both countries to make this happen. Congratulations should be offered to all the parties.&nbsp; This is the &lsquo;end of the beginning&rsquo;.&nbsp; Now the work of drilling well, building pipelines, feeding people, managing waste and hopefully benefiting the people who live in the region who have been affected by this massive project.</p><p>UGANDA</p><p>A newly released analysis of the economic constraints for the much awaited oil development in western Uganda illustrates the fiscal challenges faced by the country.&nbsp;</p><p>The report examines the fiscal benefits to Uganda based on the author&rsquo;s assumptions about oil prices, oil demand, capital expenditure costs, operating costs and the latest estimates of recoverable resources. For some time it has been estimated that ca 1.2-1.5 billion barrels of oil were recoverable from the estimated 6 billion barrels of oil in place.</p><p>So now the country is faced with foreign investors, in this case Total and the Chinese National Offshore Oil Company (CNOOC) who have limited capital, a variety of choices to make about where to invest their capital and new opportunities emerging every day. For example, Total has set upon a strategy to become net carbon neutral by 2050.&nbsp;</p><p>Producing carbon intensive crude oil from the Albertine resources will require offsetting carbon mitigation projects within the project or elsewhere.</p><p>The formation of the country&rsquo;s own national oil company ,Uganda National Oil Company (UNOC), is an important step to grow an indigenous oil industry. However, in order to be able to be a financing partner in the joint ventures, UNOC will need to pay their share of capital and operating costs. The country has recently enrolled in the Extractive Industry Transparency Initiative (EITI) which will make the receipt and use of funds from the oil development more transparent and hopefully enable the country to get the confidence of international investors.</p><p>We have a team of international and local experts to support the Government in implementing the EITI providing valuable lessons learned and capacity building support for the civil servants who will be managing this process going forward.</p><p>A master plan for western Uganda&rsquo;s infrastructure was developed by international planners. They envisioned the Kibaale Industrial Park with a central pump station to send 200,000 barrels of oil per day to the Tanzanian coast at Tanga, a refinery to supply the region with oil products such as jet fuel and petrol, and an international airport all shown on the Master plan here.&nbsp;</p><p>Eventually there is a plan to construct a petrochemical complex also on the site. This is an ambitious undertaking for any country, especially a landlocked country in Africa.&nbsp;</p><p><img src="" width="666" height="943" />&nbsp;</p><p>Uganda&rsquo;s National Environment Management Authority (NEMA) has recently approved Total&rsquo;s environmental report on the Ugandan part of the East African Crude Oil Pipeline (EACOP). Tanzania gave approval to the environment and social impact assessment (ESIA) study on the Tanzanian section in November 2019. Total carried out ESIAs on the EACOP in 2017-18 covering physical, biological and social baseline data, in addition to stakeholder engagement.</p><p>The entire ESIA processes has not been without controversy as Total is being challenged in the Paris courts. Recall that there are at least 4 ESIA&rsquo;s involved in this project- Tilenga and Kingfisher for the upstream facilities, the Kabaale Industrial Park and the EACOP. The next step in the process should involve &lsquo;management plans&rsquo; to implement the findings of the ESIAs. Future Energy Partners and Nexus International</p><p>University supported Plexus Energy to conduct an initial review of the Tilenga management plan.</p><p>Apparently there has been no public consultation in Tanzania for the ESIA process. Tanzanian law does not require these.</p><p>Relocation of land owners and farmers in the impacted areas is a major issue in projects of this nature and how to satisfy all stakeholders within the framework provided by the governments of Uganda and Tanzania. Ten&rsquo;s of thousands of people will be impacted by this project and FID is now done. Is the region ready for this?&nbsp;</p><p>We are considering with Plexus how to address the potential influx of people to the region and how we could support Total.</p><p>The world's appetite for consuming ever increasing amounts of crude oil and natural gas is moderating and even declining in 2020, in this case due to COVID-19. This project needs to move ahead but more compromises will be required.&nbsp;</p><p>KENYA</p><p>This brings up the subject of the Tullow led Kenyan Turkana oil discoveries. They are in danger of being stranded for the longer term.</p><p>Tullow Oil plc ("Tullow") announced that Tullow and its Joint Venture partners had received extensions to their exploration licences for Blocks 10BB and 13T in Kenya to the end of 2021. This follows the approval of the work programme and budget for 2022 by the Ministry of Mines and Petroleum.&nbsp;</p><p>The license extensions should allow the Joint Venture partners to reassess and design an economic project at low oil prices whilst preserving a phased development concept. In parallel, over the coming months, the Joint Venture partners will work closely with the Government of Kenya on land and water agreements, gaining approval of the Environmental and Social Impact Assessments and finalizing the commercial framework for the project. The successful completion of this work will enable the submission of Field Development Plans to the Government of Kenya. That FDP has now been submitted and is being reviewed by the Ministry.</p><p>Given the marginal nature of this project, Tullow&rsquo;s stretched finances and Total&rsquo;s financial commitments on this project and elsewhere, there will be significant hurdles to achieving any form of FID of the scale touted up to now. There are other development options such as focusing the crude supply into the regional market targeting the modular/small scale</p><p>Refineries that are being developed in Uganda at Tororo, and contemplated in South Sudan and Ethiopia Tullow and Total are still aiming to sell at least 50% of their positions but a clean exit would make more sense. Full field development approaching the hoped for 80-100,000 bopd exported through Lamu is a long way off.</p><p>AND FURTHER SOUTH</p><p>Total has recently announced a second major discovery in the deep water offshore South Africa. This time they tested the well (Luiperd- 1X) at rates approaching 10,000 barrels of oil equivalent which sounds OK, but the combination of gas and condensate presents development challenges especially in the offshore environment. There looks to be substantial potential in the surrounding acreage and there is a hungry market in South Africa for new sources of energy to replace their carbon intensive coal usage for power generation.</p><p>Finally in Mozambique, Total and partners were forging ahead with their world scale LNG project. Terrorist activity has disrupted progress and security solutions are being sought but until the local people are able to protect themselves and do so because this project and others will directly benefit them, this area will continue to be dangerous. Developing a local gas industry in Mozambique is &lsquo;on the cards&rsquo; but sending gas to southern Mozambique may not sound like it is good for the people in Capo Delgado.</p><p>Interestingly, gas is the emerging theme in East Africa and building on Tanzania&rsquo;s success to build a local gas industry, there is plenty to go for. Patience will be required as the demand for electricity needs to grow along with supply and power purchase agreements need to be in place to finance these projects. Gas flaring needs to stop, gas to power projects need to be developed and supporting regulation, fiscal terms and understanding capital will be required.</p><p>And don&rsquo;t forget geothermal&hellip;</p><p>The ongoing drilling tender for the Corbetti Geothermal project which is situated in the Oromia region of Ethiopia is moving forward. The company selected at the end of the process will be responsible for drilling three geothermal exploration wells and up to 26 production wells. The development of the Corbetti geothermal project commenced back in 2011. The project has been recognized as a priority flagship project for power development in the East African country and Corbetti Geothermal PLC was the first Independent power producer (IPP) to sign a Power purchase agreement (PPA) with the Ethiopian Electric Power.</p><p>Kenya Electricity Generating Company (KenGen), which is a parastatal company and the largest electric power producer in Kenya that is already drilling for the Tulu Moye (50 MWe) geothermal project in Ethiopia.&nbsp;</p><p><img src="" width="736" height="369" /></p><p>We can address these demanding challenges. Safely and responsibly developing clean, diversified sources of energy such as natural gas with no flaring or fugitive emissions is possible, especially when solar, wind and geothermal can provide local solutions. It sounds like a win win.</p>
KR Expert - Greg Coleman

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