OTC Session Highlights Potential of East Africa

By Chris Carpenter 8 May 2014

A trio of speakers reviewed the promise of East Africa in the oil and gas industry, especially in liquefied natural gas (LNG), at a breakfast session Thursday at the Offshore Technology Conference in Houston. Each speaker acknowledged developmental risks but stressed that the region’s abundant resources and revenue potential represented a major expansion for the industry as it continues to improve its drive for sustainability in developing nations.

The first speaker, Ana Maria Raquel Alberto of the Republic of Mozambique’s embassy to the United States, outlined several reasons why companies should consider increased investment in her nation. She cited the nation’s “strategic and privileged” location on the Indian Ocean bordering six other nations, as well as its resources of hydropower, natural gas, coal, minerals, and timber. Its role as part of the Southern Africa Development Community makes it part of an entity with a gross domestic product of USD 400 billion, and its common agreements with companies to avoid double taxation demonstrate its desire to encourage investors, Alberto said. She added that Mozambique’s economy is one of the 10 fastest-growing in the world, and a number of major onshore and offshore concessions are already established. Despite the encouraging environment, however, Alberto did discuss the issues faced by many developing nations as they moved into a new technically demanding reality—the training of skilled workers and the creation of a suitable infrastructure. To meet these challenges, Alberto said, Mozambique’s existing resources of coal and liquefied natural gas must come into play, so that these solutions are heavily dependent upon domestic skill and resources.

Next, Scott Munro, McDermott International’s vice president and general manager for North Sea and Africa, described a series of case studies in which his company had moved into frontier regions, had established an infrastructure and workforce, and had created sustainable systems that preserved the environment and employed mostly local personnel. While he granted that McDermott did not have such case studies yet for East Africa, Munro said that several projects were under way that would hopefully result in similar outcomes, with profitability to both local and international stakeholders. Describing Gulf of Mexico initiatives in the 1940s, a project in Indonesia’s Batam Island in the 1970s, and recent Caspian Sea efforts offshore Azerbaijan, Munro said that his company’s goal in frontier-development scenarios is to look at a long-term strategy for development instead of a “project-by-project view” that can leave local communities underserved and economically vulnerable. The hiring of local staff, he said, is of particular importance, with the three McDermott projects mentioned previously featuring high percentages of locals making up each facility’s staff (99%, 97%, and 81%, respectively).

The breakfast’s last speaker was Bob Fryklund, chief upstream strategist of HIS, who defined what he termed the “resource paradox” and how it might be avoided in a promising area such as East Africa, with its high reserves (possibly 200 Tcf) of renewable natural gas resources and its fast-growing economy. According to Fryklund, the “resource paradox” occurs when multiple companies move into a developing area and begin to compete with one another for resources, training of skilled workers, and infrastructure enhancement, abandoning long-term goals for a faster rate of return and, in doing so, driving up costs and working against their own best interests. In the meantime, local governments are forced to consider whether to take a higher percentage of rents and fees up front to protect themselves from later obsolescence or abandonment, further driving up costs and establishing a detrimental pattern. Fryklund explained that more common and earlier cooperation between companies in this role will lead to sustainable development that will benefit all stakeholders and the local community, discouraging any existing patterns of local corruption or inefficiency while providing stable employment.

Chris Carpenter is the Technology Editor for the Journal of Petroleum Technology.