The Game Changers Are Not Always the Most Expensive - Africa’s premier report on the oil, gas and energy landscape.

The Game Changers Are Not Always the Most Expensive

Toyin Akinosho

The cost of Jubilee field development, Ghana’s first sizeable oilfield project, is $4billion. From sometime around November 2010, as the plan goes, this elephant sized deepwater field will deliver a hundred and twenty thousand barrels of crude oil every day into a floating production storage and offloading (FPSO) facility. By February 2011, Ghana will be exporting over one million barrels of crude every 10 days into the world market.

The country will come from nowhere to become Africa’s 11th largest producer of crude oil, after Nigeria, Algeria, Angola, Libya, Egypt, Sudan, Equatorial Guinea, Congo, Gabon and Chad, in that order.

A project of Jubilee’s size, which creates a full, world class industry almost entirely on its own, provides the kind of scale that excites my cousin, Yemisi, a commercial lawyer with a going practice in Lagos, Nigeria.

Over lunch recently, she expressed deep disappointment about an interview on the CNN programme Marketplace Middle East. in which the CEO of Gulf Keystone. an American independent, was gushing with pride about the ability to source some $l2OMillion to prosecute a number of projects in the Kurdistan region of Iraq. “That’s peanuts!”, my cousin complained. I believe I could almost hear her murmur: “My God, what could you possibly do with $l2OMillion”. What she said loudly, though. was this: “This is not the kind of money I am used to hearing about, regarding oil and gas projects, at least here in Nigeria”.

I clearly understand where Yemisi, a keen observer of her surroundings, is coming from.

In the last 10 years, a lengthy list of awesomely expensive oil and gas projects have come on stream in the Gulf of Guinea area; in Angola, at least five field development projects of a scale equal, or bigger than the Jubilee field, have been commissioned.

In Nigeria alone, for specifics: The Nigerian LNG project was commissioned in 1999 after $3.8Billion had been spent; the Bonga field project (on stream date 2005) has officially been reported to cost about $3.6 Billion, and there is controversy as to whether the cost wasn’t far more. The total cost of Erha field development(2006) is in excess of $3.5Billion. Agbami deepwater development weighed in at over $4.2billion. In construction, as we speak, is the Bonga expansion, otherwise known as Bonga North West project, for which a $200Million contract had been awarded for subsea  development alone( provision of pipeline engineering, procurement, fabrication, installation and pre-commissioning services for pipe-in-pipe flowlines, water injection flowlines, umbilicals, as well as related production facilities on the seafloor and the deep marine environment).The cost of the entire Bonga NW work will not be less than $600Million, conservatively speaking.

In Equatorial Guinea, the Aseng condensate field development, granted official sanction in late 2009, will get into construction phase late in 2010. The bill for the project, aimed at producing 50,000Barrels of condensates per day at peak, is $1.3 billion.

The point, however, is that whereas these mammoth projects are headline grabbers, many of the game changing kind of projects are much smaller and, in the perspective of people like Yemisi, “inexpensive”.

Let me provide a shortlist of some of these projects-for they are projects too, whether they are just a wildcat exploration programme, a seismic acquisition shoot or a short distance gas pipeline construction- which are either going to be in construction, or in commissioning stage in 2010.

Construction of the proposed 56km natural gas pipeline from Uquo to IkotAbasi, both in Nigeria’s deep south is likely to start in 2010. At $120 million, it would be too cheap to excite my cousin, but it’s a trail blazing kind of project. As the Nigerian government talks about a gas masterplan to direct more natural gas to power plants and other intermediate, domestic uses, in place of a growing appetite for export as LNG, it is projects like Uquo-Ikot Abasi line that will become an integral part of the basic gas infrastructure.

At $65million the Agbami 4D seismic acquisition programme, which got underway in November 2009, is expensive by the standard cost of seismic acquisitions. The bill is double the cost of comparable acquisitions on similar, large sized deepwater fields. It will take four months for Seabird’s Hugin Explorer, to complete the acquisition. The cost of Agbami 4D lies in its uniqueness; the efficacy of the acquisition is not so much dependent on the vessel capability as it is about the cable reaching the seabed and capturing data that the best seismic vessel architecture cannot achieve. Operator Chevron wants to properly image a reservoir that is much deeper than the deepest known hydrocarbon reservoir and Seabird will help them do it through nodal analysis.

In Egypt, the combined solar and gas thermal project in Kureimat, located south of Cairo. is expected to be commissioned in 2010. This hybrid project will produce about 150 MW of power, 45 percent of which will be from solar parabolic troughs and steam turbines, the rest coming from natural gas turbines. The entire cost is $327 Million, of which the World Bank is providing $49 Million soft loan from its Global Environmental Facility. The Japan Bank For International Cooperation contributes $151 .29Million. The Egyptian government itself comes up with the balance of $126.48Million. If my cousin had seen Hassan Younis, the Egyptian minister of Energy and Electricity, explaining that the country was spending “only” $126.48 Million on an “important” energy infrastructure, she might have dismissed it. But this is a game changing kind of project; the largest solar energy project in the middle east and, for the record, in all of Africa. The South Africans, who have been so fixated on burning tonnes after millions of tonnes of coal in order to expand their power generation, don’t have such a project in sight in the short term. As important for me as anything else about the Kureimat plant is this: the project contractor is Orascom Construction; an Egyptian company listed on the Cairo and Alexander Stock Exchange.

Indeed, the large sized, money guzzling projects we read about every day in newspapers start, quite often. as modest efforts. When the American minnow. Triton, was about to drill its first well in Rio Muni basin, off Eq Guinea, in 1999, it could barely afford the money. The company was practically begging everybody to farm in. It was almost at the last minute that Energy Africa, the South African independent, bought 15°o. Now we all know that the discover-c of the Ceiba field opened the basin to the world, Today, nine years after first oil, the field and its satellite, Okoume, are doing 60,000 BOPD. On account of the project’s cash flow, Triton was bought over by a larger operator, Amerada Hess. The field is also the major reason why Tullow swallowed Energy Africa in 2003. As my friend, Emeka Ene, managing director of Oildata, the Oilfield Service Company, would say:  “Do not despise the days of small beginning.

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