Doubts persist over Lake Malawi exploration

By Miriam Malek 15 August 2016 9:44 GMT
Lake Malawi National Park is a UNESCO World Heritage Site. (Flickr/Christiane Birr) Lake Malawi National Park is a UNESCO World Heritage Site. (Flickr/Christiane Birr)

Malawi is struggling to push forward with upstream oil and gas development, finding itself stymied by inexperienced explorers, poor infrastructure, environmental concerns and an ongoing border dispute with Tanzania.

The Malawian government is searching for a new source of income as droughts worsen and a food crisis looms. Malawi suffers from widespread power shortages, and additional access to gas could kickstart domestic electricity generation.

The country lifted a ban on oil and gas drilling this year and has already granted exploration licences to a number of international companies. South Africa’s SacOil, the United Arab Emirates’s RAK Gas and Ghana’s Pacific Oil – as well as a joint venture between the UK’s Surestream Petroleum and Egypt’s El Hamra Oil – were granted licences to search for oil and gas across six blocks, five of which cover Lake Malawi.

However, doubt persists over the intentions of the companies.

"Malawi shouldn’t get [its] hopes up. None of these companies have a strong track record of exploration [and] that sends out an alarm for me," Luke Patey, research associate at the Oxford Institute for Energy Studies, said. "Perhaps [the companies] are speculating that if oil prices rise again then they could sell the [blocks] to a more experienced company," he added.

None of the licensed companies could be reached for comment.

With oil and gas prices at multi-year lows, some firms are being cautious with their development plans, while the volume of hydrocarbons under Lake Malawi remains uncertain.

SacOil has extended its exploration licence until August 2017 and opted to carry out onshore studies instead of more expensive offshore work, local media said.

RAK Gas is reportedly putting development plans on hold because of issues with the Malawian government. The government is suspicious of links between RAK Gas and El Hamra Oil, which has a 51% stake in Surestream. Surestream holds the licences for blocks 3 and 4, both of which are located almost entirely in the lake.

No further information on the concerns have been given, however, and the details of the individual company deals are shrouded in secrecy.

Another factor stymieing exploration is an unresolved dispute with Tanzania over the border between the two countries along Lake Malawi. Malawi insists its border with Tanzania doesn’t start until east of the lake, while Tanzania maintains that the lake should be divided equally.

The issue, which has been ongoing for nearly 50 years, flared up in 2012 when Malawi advanced plans to explore for oil and gas.

Complicating matters further is the staunch criticism the Malawian government is facing from environmental groups for allowing international oil companies to explore in the lake, which is a national heritage site.

UNESCO’s World Heritage Centre issued a private letter to a Malawian diplomat this week, urging the government to reconsider its position, local media reported.

The World Heritage Centre declined to confirm the letter to Interfax Natural Gas Daily, but said it "reiterates its concern over oil exploration activities throughout the lake, noting that an accidental spill would pose a potentially severe risk to the entire lake ecosystem".

The Tanzanian government could not be reached for comment on any of these issues.

Some bright spots

For optimistic observers, there are some reasons not to be downhearted. Bright Msaka, Malawi’s energy minister, unequivocally rejected calls to drop plans to drill under the lake this week, reaffirming the government’s position.

"Technology today makes it possible that we drill on the land not on the lake," said Msaka, quoted by local media.

The comment suggests the government could restrict exploration to land, but many of the blocks have a limited onshore area.

Despite government intentions to push ahead, experts have said Malawi’s lack of infrastructure makes its oil export ambitions unrealistic. Neighbouring Kenya and Uganda have struggled to find financers to build pipelines for proven oil reserves, an indication IOCs are reluctant to move into the region even on less risky projects.

Even if early seismic studies prove promising, sizeable additional incentives, such as a favourable tax scheme, could be necessary to attract serious investors. In the current commodity price slump, oil companies will need more than the lure of hydrocarbons to enter a country so engulfed with risk.

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