EA energy update

2020 is going to be a pivotal year for energy developments in East Africa.

The most imminent development that is up in the air is in Uganda. Uganda and Total ( and partners) are still negotiating terms for the development of the Albertine Development. The government is still planning for Final Investment Decision (FID) in 2020. A new energy minister has been appointed ( Goretti Kitutu- previously state minister for the environment) replacing the long time minster Irene Muloni. Ms. Muloni has been appointed to be an advisor to the President. It seems that the President is gathering even more control of the negotiations with Total et al. Capital gains tax from the sale of these assets ( firstly Heritage’s sale to Tullow and now Tullow’s sale to Total and CNOOC) have caused delays and confrontations that are still not resolved. Tullow does not have the financial capacity to retain a 33% share of this development given their current financial situation. Not to miss this point but the recent resignation of the Tullow CEO and Exploration Director does not bode well for Tullow’s plans. The Government has offered alternatives to the current capital gains tax stalemate. Total & Partners met with the President in late November to agree on how this would be handled but apparently also asked for a reduction in the government tax take both in the cost recovery treatment and in the share of profit oil. These are significant requests and will further delay FID. Never mind the fact that Total have released most of the contractors and many of their staff have been redeployed. FID is likely to take several months if at all in 2020.

The consequences of the delays to FID have had repercussions on the timing of the Uganda 2nd licence round. Expressions of Interest were originally due by the end of September and now are requested by the end of March. It would seem that there is not much interest until there is more clarity on fiscal terms and signs of FID.

All governments in Africa should recognise that Total ( and CNOOC for that matter) have many global opportunities and Uganda runs the risk of losing their line in the que. Total is forging ahead with their newly acquired stake in the Mozambique LNG project despite the security risks which are prevalent in the northern area of Moz where the onshore terminal is going to be established. Exxon/ENI are expected to approve their LNG project in 2020 adding to the East African pressure on people and governments to manage the activity levels and EXPECTATIONS.

Just to make the point about alternatives, Total and partner Africa Energy Corp. have announced that they are undertaking new marine seismic acquisition programs on Block 11B/12B offshore South Africa. The 2D seismic program has now commenced, and the 3D seismic survey is expected to begin in early January. Seismic operations will continue through April 2020 alongside the next drilling campaign, which is expected to begin in the first quarter of 2020 with the spud of the Luiperd well. The joint venture plans to keep the rig on Block 11B/12B for almost a year and drill up to three exploration wells. Total is expediting this ambitious exploration program with rig mobilization in January. And not to lose sight of what else is going on in the rest of the oil & gas world, Apache and Total have just announced what looks to be a major discovery offshore Suriname building on recent mega successes in Guyana.

In Kenya, the recent management changes in Tullow and Tullow’s plans to reach FID in the 2nd half of the year while at the same time intending to sell some of their 50% working interest to finance their share of the development seem optimistic. The Kenyan government is supporting engineering studies to design the export pipeline but FID of the Turkana discoveries is obviously a key driver of any pipeline financing decision along the LAPSSET route. Recent forays by Al Shabab into Kenya continue to focus attention on the security risk along the LAPSSET corridor. Issues of sensitive environment and proximity to Somalia make Lamu development of the port and export facilities challenging.

Progress on Tanzania’s plans for an LNG project to monestise the ca 40TCF of gas discoveries offshore are not moving quickly. Recent efforts by the government to prepare for project scoping have been delayed. Both Shell and Equinor have been in discussions with the Ministry and Regulator but not much has been decided. Competing with Mozambique’s much larger resource base of over 150 TCF makes Tanzania LNG a late 2020’s project.

Somalia is planning to launch a significant licence round in 2020. The upper house of Somalia’s parliament has now approved a new petroleum law, which aims to provide a regulatory framework that will help to attract investment in exploration by major oil companies. The country currently does not produce any oil but production could transform the economy as seismic data has shown there could be significant oil reserves offshore. The new law will establish revenue sharing between the central government and states and will provide a legal framework for an industry the country hopes will bring jobs after decades of conflict. An independent assessment of the 15 blocks likely to be offered has found there may be 30bn bl of oil in shallow and deepwater, which is easily accessible so long as it remains free of the piracy that afflicted the area in recent memory. It will be above-ground risks—in a country plagued by civil war since the 1980s, followed by piracy and terrorism—at the forefront of decision- makers’ minds at international oil companies (IOCs) when they are deciding whether to become involved.

There is no doubt that the worst is behind Somalia, with piracy under control for the better part of a decade although recent incidents in Mogadishu and in neighbouring Kenya don’t indicate everything is settled. Actual and attempted attacks by Somali pirates peaked at 237 incidents in 2011, according to trade association the ICC International Maritime Bureau, but this fell steeply to just a handful of incidents, if any, each of the last six years.

Ethiopia Natural gas sales to Djibouti is progressing from gas discoveries made many years ago……A $4bn pipeline funded by China’s Poly-GCI is expected to generate $1bn per year in revenue for the Ethiopian gov’t. Gas is developed from fields in the Ogaden region (Hilala and Calub) which is thought to have ca 5 TCF of resource. First gas is expected in 2023 through a floating LNG storage unit after a 750 km pipeline crossing both Ethiopia and Djibouti with capacity eventually of up to 1.8 bcf/d. Total project cost is ca $4.3bn USD a large portion of which is being financed by China Inc.

But not everything going on in East Africa is related to fossil fuels. Infrastructure and renewable energy are also gaining serious investment.

Hydropower in Uganda and Kenya continues to receive significant investment with China providing most of the capital for new projects. Of course seasonal rainfall can provide additional power beyond the norm as is the case in Kenya this season but also as we all know, droughts often have the opposite effect.

The Egyptian company Elsewedy Electric has recently won the contract to build a 20 MWp solar power plant in Southern Sudan. Located near the capital Juba, it will be equipped with a battery storage system.

The solar power plant, which will start construction soon, will be located 20 km from the capital Juba, the capital of Southern Sudan. Elsewedy Electric is responsible for designing, supplying and building the facility on a 25-hectare site. The facility will be able to supply 20 MWp.  To ensure the supply of electricity to the population after sunset, Elsewedy Electric will provide the plant with a 35 MWh battery storage system. The new solar power plant will provide 29 million kWh after its commissioning within 12 months.

It will thus be able to supply 59,000 southern Sudanese households. In addition, the plant would avoid emissions of 10,886.2 tonnes of carbon dioxide per year. The implementation of the project will require an investment of $45 million from the Ministry of Electricity, Dams, Irrigation and Water Resources of South Sudan. It will be supported by funds provided by the African Import and Export Bank (Afreximbank), a pan-African financial institution established under the auspices of the African Development Bank (AfDB).

Rwanda and Tanzania individually signed two mega-infrastructure deals in December.

Tanzania signed an agreement to link its new railway line to Burundi and the DRC, while a similar deal with Rwanda is said to be in its final stages.  The first phase of the joint deal will start in Kigoma and end in Gitega, the capital of Burundi, 240km away. It will then be extended into eastern DRC.  The first phase of Tanzania’s Standard Gauge Railway (SRG), covering 202km from Dar es Salaam to Morogoro, is almost complete.  The second phase will connect Morogoro to the administrative capital of Dodoma, even as the East African country also revamps its old metre-gauge railway to enhance connectivity.  When complete, the new railway line will cover 1,457km, connecting Dar and the Lake Victoria port city of Mwanza.

In May 2018, Rwanda and Tanzania agreed to redesign their joint railway plan, which will start at the Isaka dry port and end in Kigali, to use electric powered trains. The Isaka-Kigali line will cost $2.5bn, with Tanzania paying $1.3bn and Rwanda $1.2bn. Rwanda will then incur additional costs to extend it to Rubavu and Bugesera, where it is constructing its largest international airport.  The deals give Tanzania an upper hand in East Africa, as its Central Corridor blueprint will make its commercial capital of Dar es Salaam the primary route to the sea for the region’s landlocked nations….competing directly with Kenya’s LAPSSET infrastructure corridor.

Uganda’s EACOP oil export route chose the Tanzania route to the sea, abandoning the plan to build an oil pipeline jointly with Kenya. It cited, among other reasons, the costs of land compensation in Kenya.

As East Africa begins a new decade, Kenya’s dwindling position as East Africa’s trade hub will face even more competition from Tanzania and Rwanda.

So to get the year started, Uganda FID is held up by negotiations about terms, Kenya is subject to Tullow’s ability to sell some of their share while Mozambique LNG under Total’s leadership is progressing well.  Licencing of new exploration acreage is being contemplated but the combination of security risk, increasing expectations of government’s ability to extract high taxes and the political uncertainty from upcoming elections make 2020 an interesting year and a PIVOTAL year.

Written by,

Greg Coleman