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With natural gas prices currently trading at record lows, many exploration and production companies are taking the opportunity to source new gas reserves in areas including West Africa.
By Adam Currie — Exclusive to Gas Investing News
With natural gas prices trading at record lows, many within the sector are using this period to source new reserves before the anticipated “boom” in demand.
In the early 2000s, ten countries exported liquefied natural gas (LNG), with trade primarily based on long-term sales agreements between producers in Southeast Asia and consumers in Europe. However, in the last decade, natural gas has become a globally-traded commodity with new exporters from areas including Latin America and West Africa.
Until recently, West Africa has been plagued by ongoing political unrest and widespread violence, which has hindered the development of productive oil and gas sectors and resulted in a decreased risk appetite among foreign investors.
With most majors having already locked in reserves in areas including Canada, Russia, and the US, more and more companies are looking further afield in an attempt to prepare for any price rally. West Africa, a region already noted for its healthy crude reserves, has gained increasing attention from natural gas players and is set to cash in on this interest.
Significant reserves
According to the US Geological Survey’s recent World Oil and Gas Assessment, West Africa’s coast, which covers areas including Liberia, Sierra Leone, and Guinea, is home to an estimated 3.2 billion barrels of oil, 23.63 trillion cubic feet of natural gas, and 721 million barrels of natural gas liquids.
Regional market interest was highlighted recently when the World Bank and the West African Gas Pipeline Company (WAPCo) co-hosted West Africa’s first Gas Stakeholders Engagement Forum in Accra, Ghana.
A statement issued by the World Bank explained that the forum intended to build upon the completion of the West African Gas Pipeline (WAGP) project, which has enabled the supply of Nigerian gas to Benin, Togo, and Ghana. The pipeline system has a capacity of 800 million standard cubic feet per day (MMscfd), and will initially carry a volume of 170 MMscfd before peaking at 460 MMscfd.
The pipeline was a significant step in relation to the transportation of gas for export, as well as for use within the region. It links into the existing Escravos-Lagos pipeline at the Nigerian Gas Company‘s Itoki Natural Gas Export Terminal and proceeds to a beachhead in Lagos. From there it moves offshore to Takoradi, Ghana, with gas delivery laterals from the main line extending to Cotonou (Benin), Lome (Togo), and Tema (Ghana).
Increasing interest
Interest in West African natural gas has not been limited to juniors. French energy giant Total (NYSE:TOT) recently announced that it has inked a deal with the Ivory Coast’s national oil company, Petroci, for three ultra-deep offshore licenses.
Earlier this year the company also stated that it has begun the second phase at its Ofon project in Nigeria. The phase is aimed at unlocking the field’s undeveloped reserves to increase production to 90,000 barrels of oil equivalent per day. Most of the development is dedicated to recovering natural gas, which will be compressed and evacuated to shore.
Kosmos Energy Ltd. (NYSE:KOS), an oil and gas exploration and production company, has confirmed the presence of natural gas reserves in offshore Ghana.
In a press release, the company announced that its Teak-3A appraisal well confirmed a northern extension of the Teak discovery on the West Cape Three Points Block, with analysis indicating that the well encountered 35 meters of hydrocarbons in multiple good-quality reservoirs. The analysis also identified 13 meters of 36 to 39 degree API gravity and 22 meters of gas-condensate pay.
A long time coming
Natural gas exploration into regions such as this is not the result of a knee-jerk reaction.
Speaking at the Oil & Gas Africa 2012 conference earlier this month, Anton Botes, Deloitte South Africa’s oil and gas leader, highlighted the reasoning behind shifts in exploring fundamentals, stating that high crude prices are an incentive for producers to invest in exploration and production projects. It is becoming more economical for companies to go “deeper and to go riskier.”
According to some analysts, intensified natural gas exploration initiatives are already being undertaken in Ghana as the government seeks new ways to counter diminishing oil production following the discovery of the Jubilee field in the deepwater Tano Block.
Greater focus on natural gas production and refining in recent years has opened new export markets and generated additional revenues for West African economies, according to a recently published market report titled The West African Oil and Gas Market.
Despite this boost, West Africa still poses unique challenges, including low availability of refining capacity, adequate logistical infrastructure, and transportation. It is hoped that with an increase in revenue on the back of this exploration, some of these challenges will be overcome.
The report concluded that the development of LNG refining capacity within West African states – particularly Equatorial Guinea, Cameroon, and Nigeria – is indicative of the future development of the region’s natural gas export market.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.