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PEAK OIL OFF: GREAT GAME ON…

Yet another mainstream article demolishing the Malthusian’s pet ‘peak oil’ scare (see below).

“Peak oilers have had a pretty hard time lately. Not only have global unconventional finds flattened Hubbard’s ‘peak’, more and more conventional plays are cropping up. ‘Running out’? We have more than enough of the black stuff to incinerate ourselves several times over.”

Also see:

MYTH OF ‘FOSSIL’ FUEL SCARCITY & ORIGINS

THE WORLD IS AWASH WITH OIL AND NATURAL GAS

 

Matthew Hulbert, Contributor, FORBES

4/19/2012

Peak Oil Off: Great Game On

Peak oilers have had a pretty hard time lately. Not only have global unconventional finds flattened Hubbard’s ‘peak’, more and more conventional plays are cropping up. ‘Running out’? We have more than enough of the black stuff to incinerate ourselves several times over. Such supply side bounty has been well documented in the Americas – not just in the US and Canada, but across Latin America, offering a second pass at resource riches. Head all the way over to Australia, and you’ll see a dazzling display of unconventional technologies rapidly increasing kangaroo LNG production. The North Sea can squeeze out a few more drops; Europe can finally get it’s ‘energy sovereignty’ back from shale plays, all while the Arctic offers Russia untold oil riches. Anywhere you look, the narrative is the same. But just when we thought the global hydrocarbon map was complete, another serious player has cropped up, and it comes in the form of East Africa. This is the new African oil rush, and the race to secure regional riches between East and West is on. Nobody wants to lose: Peak oil is dead, the Great Game is back.

What’s particularly interesting about East Africa finds in Kenya, Tanzania, Mozambique, Madagascar, Ethiopia and more established fields in Uganda and Sudan, isn’t just the size of the finds, but the fact that European players have been leading the charge to secure concessions. Looking at the map, you’d think this would become a pure play ‘Chindian’ affair between China and India; sign upstream deals, load tankers, ship hydrocarbons directly across the Indian Ocean to home markets. Both Beijing and Delhi have been busy bidding for assets, but European players aren’t taking this lying down. Having lost the Middle East, seen North Africa take a turn for the worse, Latin America slip, and Russia on edge, East Africa is fast becoming a key priority for European boardrooms. Forget wildcat minnows, if East Africa is going to feed Asian markets, it’s European ‘super-majors’ that want to control the terms, taps and prices entailed.

Madagascar was stitched up by Exxon and Norway’s Statoil back in the early 2000s, every time BG Group now drills in Tanzania, gas is found. The British based company has unearthed 7 trillion cubic feet of gas on the trot, with Statoil sitting on even bigger finds, toping a billion barrels of oil equivalent. The same fields stretch down into Mozambique where Italy’s ENI have found 1.3boe matching similar finds made by US outfit, Anadarko. The key question being asked is not whether this is commercially attractive, but where to locate LNG export plants to monetise new found gains. Little wonder that a bidding war for Cove Energy working in Mozambique has opened up. Royal Dutch Shell is showing considerable interest, not just in Cove’s Rovuma Offshore plays, but its world-scale LNG proposals to ship a minimum of 16tcf onto global markets. BP has expressed similar interest in Tanzanian LNG plants.

Higher risk markets such as Somalia and Ethiopia hold undoubted hydrocarbon promise, particularly in the Omo River Delta (Southern Ethiopia) but it’s further inland where things have really taken off: Uganda, and more controversially, Sudan. UK Independent, Tullow, has done most of the heavy lifting in Lake Albert (Uganda) alongside Total of France with belated contributions from CNOOC. Initial trickles of oil will start to flow next year, but the Albert basin has already unearthed a billion barrels of proven reserves, figures that could go significantly higher when surveys are conducted on the Congo border. That’s while the main plays China had secured in the region have turned horribly sour in Sudan. Separation between North and South has wiped out the vast bulk of Sudan’s 350,000b/d production: Word on the Juba Street is that a European hydrocarbon presence might be a good way of getting the diplomatic ball rolling.

That’s not gone down well in Beijing, but the real geopolitical clincher for the region is Kenya: it’s the swing state that will settle where regional control between East and West ultimately rests. In part, that’s because Nairobi has struck its own oil. Tullow is plugging away in the Rift Valley; serious offshore plays are being looked at in the Lamu Basin by US independent Apache, while trickier deep-water blocs have been taken by Total (France), BG Group and Ophir Energy. Thirty onshore and offshore areas are already under license, with a further eight deep-water tracts coming up for auction. But Kenya’s core strategic resonance isn’t just as a resource holder, but more as a transit state. Landlocked Uganda has little option but to ship its resources to Kenyan ports, and the same dynamic now applies to South Sudan – not unless a miraculous deal can be struck between Khartoum in the North and Juba in the South. Kenya will be the default energy hub linking East African production to international markets.

This is where China might be able to claw back some lost technological and geopolitical ground from Europe – notably by paying for the infrastructure involved. Sudan will need Chinese money to weld new pipes to the Uganda border towards Kenya, while Nairobi has already touted the so-called Lamu Port South Sudan Ethiopia Transport Corridor Project to act as a crude maritime and refining hub. Although unashamedly pitched as a project ‘in search of Chinese money’, if Beijing considers itself to be on the back foot securing equity deals, rather than paying top dollar to secure new concessions from smaller European players, sinking cash into Kenyan infrastructure could be a strategically astute move. What China has missed on upstream positions, it could regain in terms of ‘vertical integration’ – directly tying Kenyan exports into Chinese maritime presence across the Indian Ocean.

This underlying competition certainly isn’t lost on host governments. With Europe, the US, India and China all trying to cement their stakes in the East Africa, Uganda had been ramping up capital gains taxes from Lake Albert spin-offs, prompting protracted tax disputes between the parties involved. Mozambique has made clear 12.8% capital gains will be paid on the forthcoming Cove sale; similar taxes are likely to crop up in Tanzania and Kenya. Broader political instability, particularly in Sudan, Ethiopia, and Somalia will remain problematic, as will the omnipotent threat of piracy in the region. But irrespective of these minor foibles, there is no way big European oil is going to turn its back on elephant fields littering East Africa. What’s more, future potential remains huge. Fewer than 500 wells have been drilled in the region, compared with over 35,000 in the rest of Africa to the North and West. Oil remains the biggest prize, but with Asian LNG demand on the up, gas plays have become a highly attractive option.

Like it or not, East Africa has just added another serious swathe of hydrocarbon prospects to the global economy. Irrespective of whatever pace the donkeys nod and gas flows, it underlines the fact we are re-entering a period of hydrocarbon plenty. Hydrocarbon assets aren’t ‘stranded’; we aren’t living in a carbon constrained world. The question for East Africa isn’t whether oil will be pumped and gas condensed, but who will be the main market players doing it between East and West. The really bad news for the ‘peak oil faithful’ is that commodity prices might not become more expensive in future. High benchmark prices today, continue to drive investment into technological innovation for cheaper extraction tomorrow. Little surprise that future oil prices are dipping under spot market dynamics: East Africa has merely added an attractive prospect for bullish supply side expectations. Peak is dead. The Great Game lives on…

http://www.forbes.com/sites/matthewhulbert/2012/04/19/peak-oil-off-great-game-on/

2 Responses to PEAK OIL OFF: GREAT GAME ON…

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