New Gas and Oil exploration licenses: THE GOVERNMENT MUST ACT STRATEGICALLY AND RESPONSIBLY
May 23, 2013 § 2 Comments
I Support the contribution of The Extractives Industry Working Group over the ‘4TH TANZANIA OFFSHORE AND NORTH LAKE TANGANYIKA LICENSING ROUND: THE GOVERNMENT MUST ACT STRATEGICALLY AND RESPONSIBLY’.
Last week I was following up the arguments from the Minister of Energy and Minerals over why they are fast tracking the issuance of new licenses. In my view his reasoning was politically motivated and it lacked balanced views of the trends of investment in petroleum extraction. Some of the reasons he put forward are as follows:
1. Raising competition in exploration in the region. Claiming that if we are not fast/sharp enough investors will go elsewhere.
2. USA is working out to reduce importation of Gas and that global markets are worried of the trend.
3. Japan has discovered a new source of oil ‘Shale oil’ which will add into the current oil sources and reduce dependence on the traditional sources of oil.
I begged to differ with my brother and I registered my arguments in the social networks. I said his reasoning lacked balanced views of the trend of the global oil industry in the following:
1.The information about presence of gas and oil in EA region is not new. It isn’t in any a case a wow revelation. Even before independence we had the clues that the precious liquid and gas is within our vicinity. The amazing thing is the striking rate per number of wells drilled; it has exceeded investors’ expectations. In the past it hasn’t been economically viable to extract these resources. Some of the reasons being technology at the time, cost of exploration and extraction, political climate and commercial viability. The demand for oil and gas was low, prices were low and couldn’t offer viable ROI to the investors. For example in 1950 a barrel of crude oil sold at an average of USD 2.49, in 1960 it was USD 2.91 and in 1970 it was still just at USD 3.18 a barrel. This is however without considering inflation adjustment. During 1990 – 2000 the price plied between USD 20 – 26 per barrel. There has been a sharp rise in 2008 with a record of USD 90 and more per barrel. The lifting costs oil in Africa is estimated at slightly over USD 10 per barrel while finding cost goes up to USD 35 per barrel.
From a snapshot of these numbers you’ll therefore see that for long time our oil resources weren’t viable still. Things have changed our resources now offers potential lucrative gains to investors. In any case extraction of oil and gas in Tanzania is very competitive and that will not change in any foreseeable future. Wazungu wasitudanganye!
2. Shale oil as an alternative source of oil: I do not agree with Prof’s argument that this kind of discovery is going to result into less demand of the tradition oil resources. If Japan goes for full production the proven reserve of shale oil at its disposal is about 100million barrels, this is about 10% of Japan’s annual crude oil needs!
3. Global energy demand is estimated to increase by 58% in the next 25 years making our oil and gas (proven reserves) even more viable as the days goes by. The demand of energy in India and China is rising by scale; Africa is also catching up as its economy becomes more stable.
4. We really need to delve into these data and trends to avoid being misled by hungry investors who might capitalize on our ignorance. Information is key, when we go to a table of negotiation with the prospective investors. Tufanye u-CIA wa uchumi why not? When a prospective investor uses time to intimidate us that they will go somewhere else if we do not respond in certain material time, let us allow them to move on.
5. What we could fast track is the formation of the solid sub-sector policy to guide us how we and our generations to come will benefit from this resources. It surely doesn’t need over a year to develop a guiding policy and the necessary laws. Haraka haraka haina Baraka ingawaje ngoja ngoja huumiza matumbo pia. We will be taking panadols to cool our pain in this one year to create a stable economy and society in future. Hurrying will in future cause us more trouble. We don’t want to spend the proceedings of our resources to buy weapons to kill our own people!