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BG Group`s Tanzania gas find raises LNG hub hopes

27th March 2012
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BG Group’s major gas discovery in Tanzania brings it a step closer to bankrolling a two-train liquefied natural gas (LNG) export plant along the prolific east African coastline, promising billions more worth of investments and raising hopes of the area’s export potential.

The proximity of east Africa’s second biggest economy to Asia makes it well positioned to reap the benefits of surging fuel import demand in Japan, China and India, enticing investors to fund export projects.

Operator BG Group and Africa-focused joint venture partner Ophir Energy said yesterday they discovered more gas than estimated off the coast of Tanzania, adding an estimated 3.4 trillion cubic feet (TCF) in recoverable reserves from the Jordari-1 well in block 1, a whole 55 per cent more than initially expected.

A source at the joint-venture said this brings results from all four wells drilled in blocks 1, 3 and 4 in Tanzania close to 7 TCF, just 2 TCF short of the minimum reserve threshold to build a two-train LNG plant.

The venture is targeting mean recoverable reserves of 4.6 TCF from the next exploration well to be drilled at Mzia-1, potentially paving the way for an export project.

“The plan to build a two-train LNG plant is a key focus for the companies,” the source said.

Analysts from Citi expect BG Group to invest some $10-$20 billion in Tanzania in the second half of the decade, according to a client note.

Neighbouring Mozambique, which last month estimated that energy firms will spend 50 billion dollars over the next decade to develop liquefaction plants, looks set to cash in on a gas bonanza as oil and gas companies flock to East Africa to tap the area’s potential.

At the same time as BG Group and Ophir Energy announced their expectation-beating find, Italy’s biggest oil and gas group Eni made a new giant natural gas discovery offshore Mozambique which will boost the potential of its Mamba complex to at least 1,133 billion cubic metres (bcm) or 40 trillion cubic feet of gas.

BG Group holds 60 per cent of the three blocks offshore Tanzania, with Ophir holding the rest.

Investec’s Stuart Joyner said 3.4 TCF recoverable at Jodari is the strongest possible start to the five-well Tanzania drilling campaign for this year.

“This is a very strong start to our five-well 2012 Tanzania drilling campaign and the Metro-1 drillship will now move to drill Mzia-1, which is targeting mean recoverable resources of 4.6 TCF,” said Ophir. That well will take 75 days to drill.

BG’s shares were up by about 1.3 per cent at 1512 pence at 1145 GMT on Monday on the London Stock Exchange, while those of Ophir rose by 19 per cent to 478.95 pence.

Meanwhile Kenya announced yesterday its first oil discovery, saying it was found in the northern part of the country where British Tullow Oil Plc has been conducting exploratory drilling.

The announcement sent the company's shares higher.

Kenya and its neighbours in east Africa have become an international hot spot for oil and gas exploration after commercial oil deposits were found in Uganda and natural gas in Tanzania and Mozambique.

President Mwai Kibaki said in a statement read on live television that Tullow had established oil at more than 20 meters deep, and would drill more wells in the area to ascertain the commercial viability of the find.

"This is the first time Kenya has made such a discovery and it is very good news," Kibaki said. "It is however the beginning of a long journey to make our country an oil producer, which typically takes in excess of 3 years."

Tullow said in a statement issued in London it had been drilling the Ngamia-1 well on block 10BB, in the Lokichar basin which is part of the East African Rift System in Turkana County.

Shares in the company were up 2.5 percent after it said it had found oil in Kenya.

Tullow Oil operates Kenya's block 10BB with a 50 percent working interest and Canada's Africa Oil Corp., which holds the remaining stake.

The company said the Ngamia structure was the first prospect to be tested as part of a multi-well drilling campaign in Kenya and Ethiopia.

"Many leads and prospects similar to Ngamia have been identified and following this discovery the outlook for further success has been significantly improved," the company said.

Tullow has confirmed 1.1 billion barrels of oil in Uganda and believes there are 1.4 billion left to find.

Tullow discovered oil in Uganda to the west of the country, along the border with the Democratic Republic of Congo, in 2006.

SOURCE: THE GUARDIAN
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