While petro-states reel from plunging oil prices and gas producers brace for American exports to hit the market, two west African nations are forging ahead with potentially massive extraction projects others might fear to touch.
Energy firms say Senegal and Mauritania’s current oil and gas ventures will transform them into net exporters by 2020, betting on long-term demand and the eventual recovery of the slumped market, as well as their proximity to Europe.
Located off Africa’s western extremity, three oil wells drilled by Scottish firm Cairn Energy (LSE: CNE.L – news) have yielded a “significant resource base” in Senegalese waters, its chief executive Simon Thomson said in early April, confirming that work would begin on a fourth.
Meanwhile Texas-based Kosmos Energy (NYSE: KOS – news) has confirmed a single, very large pool of “high-quality gas” straddling the Senegalese-Mauritanian maritime border, and now plans to prospect for oil in the same area, the firm told AFP.
“We have excellent working relationships with both governments,” said Kosmos spokesman Thomas Golembeski, describing four years of work that have yielded a predicted 20 trillion cubic feet of natural gas.
The discovery of that “threshold” amount — considered the minimum for viable production — after digging just four wells was an encouraging sign in a business where dozens can be drilled and all found completely dry, Golembeski said.
– ‘Why rush?’ –
The Senegalese government has stressed it will take “every measure” to ensure the projects are carried out in the “best interests of all current and future generations,” President Macky Sall said in a recent speech.
Other nations such as Kenya and Tanzania are waiting for a better economic climate to exploit similar resources, said Nadine Kone of Oxfam International, a strategy she urged Senegal and Mauritania to heed.
“I don’t see a clear vision for the use of this resource,” Kone (LSE: 0II2.L – news) told AFP. Furthermore, “why rush with oil given where prices are now?”
World Bank country manager for Mauritania Gaston Sorgho told the Financial Times last month the project was potentially risky if not properly handled, with the Chinguetti oil field discovered 15 years ago in Mauritanian waters producing a fraction of what was hoped.
However, it offered a “huge opportunity” if the two governments were able to work together, Sorgho said.
Much remains to be done before the outcome is set: Cairn and Kosmos are negotiating with production firms to get the product out of the ground and onto the market, and attracting finance for such billion-dollar projects is “the real hard part”, according to Wood Mackenzie analyst David Thomson.
“These projects are massive and they’re very capital intensive,” Thomson said, adding that although it could take time in the current circumstances, he believed both firms would nonetheless secure the funding required.
There was enough gas alone found so far to last for three decades, he added.
– ‘Clear advantages’ –
Kosmos’ Golembeski said the firm believed demand will have risen by the time the gas site commences delivery, with ease of shipping to Europe a clear advantage on the export side.
“Demand for oil and gas will continue to increase over time as more and more people around the world move from rural areas into the cities and want the conveniences of modern life,” he told AFP.
The states’ 10 percent stakes in each of the projects will be more than welcome: both battle youth unemployment and persistent poverty, and are a long way from ensuring all their citizens have clean water, housing and access to education and health services.
Mauritanian economist Isselmou Ould Mohamed said his country had in 2005 signed up to the anti-corruption Extractive Industries Transparency Initiative.
“That considerably reduces the chances of large-scale corruption. (Mauritania) is required to reveal all the payments received from these companies, which in turn must report all payments made to the state,” he told AFP.
Nonetheless, Oxfam’s Kone believes the five-to-10 year window from exploration to sale is not enough to guarantee a legal framework to ensure the proceeds will be used correctly.
The two countries could look to the regional example of Ghana, she said, which has a dedicated fund from the proceeds of oil and gas directed to priority areas such as agriculture and education.
Kosmos also struck oil offshore there in 2007, and the west African countries are of a comparable size.
“The Ghanaian example is quite progressive because they were able to learn from several years of gold mining and the negative examples of Nigeria and other oil-producing countries,” Kone said.
