Once virtually ignored by the global oil & gas industry, East Africa now faces the prospect of becoming a global natural gas hub following a string of recent natural gas discoveries. The star of this past year’s exploration campaign was doubtless Anadarko Petroleum Corporation (NYSE:APC), which made four discoveries off the coast of Mozambique, together estimated by some analysts to hold 6+ trillion cubic feet (tcf) of gas. Farther north, in Tanzania, oil & gas companies continue to add to the country’s natural gas resource base, which presently stands at 7.5 tcf. With additional reservoirs being discovered throughout the region, the big question is how this resource will be monetized.

Limited Local Markets

The size of local markets for natural gas varies significantly across East Africa. In Tanzania, natural gas was introduced into the economy in 2004 and since then demand from industrial and power customers has grown. According to the Tanzanian government, demand for natural gas outstrips current supply by12 mmcf/d.

Demand for power is expected to grow by 10% to 15% per annum, which will further contribute to gas demand growth. These figures have inspired a rash of projects, including 340 MW of gas-fired generation expected to come online by 2013 and a USD460 million electricity distribution expansion scheduled for completion in 2015.

Orca Exploration and Production (CVE:ORC.B), which through its subsidiary PanAfrican Energy operates Songo Songo, Tanzania’s only significantly producing gas field, has announced plans to raise production by 60% to 144 mmcf/d, requiring expansion of existing pipeline infrastructure and processing capacity. But domestic demand for gas, despite projected growth, will only ever absorb a fraction of Tanzania’s 7.5 tcf of proven reserves. Producers must surely look further afield in order to monetize existing and new finds.

The domestic market in Mozambique offers even fewer options for gas producers. In the power market, Mozal, the BHP Billiton-operated aluminium smelter, is by far the largest single consumer with a peak-demand of over 900 MW. This is met largely through a long-term supply agreement with South Africa’s ESKOM.

Outside Mozal, power demand is limited, as only ~13% of the population has access to electricity. Though the government plans to increase this access in the future, the focus appears to be on hydroelectric generation.

Energy hungry South Africa offers an opportunity for Mozambique gas stakeholders. At close to 230 bcf/year, South African gas consumption is nearly twice domestic production, with…

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