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The gas revolution

The fast-developing liquefied natural gas market could unlock the door to a new source of profits.
January 31, 2013

When PTT Exploration & Production, a Thai state-owned energy company, successfully outbid Royal Dutch Shell (RDSB) in a $1.9bn (£1.17bn) takeover of Cove Energy - holder of an 8.5 per cent stake in the highly rated Rovuma 1 block in offshore Mozambique, last year - the deal underlined East Africa's reputation as the globe's most compelling frontier energy destination. Following a number of huge natural gas discoveries off the coasts of Mozambique, Tanzania and Kenya, a host of integrated oil majors - along with smaller first-movers - are now active in the region, prompting some analysts to predict that it could eventually supplant Qatar (or more likely Australia) as the preeminent export hub for liquefied natural gas (LNG). Well, anything's possible, but given the paucity of the region's existing infrastructure, any such scenario would be some way off.

Capital considerations

All this activity has been generated in a little over five years since Heritage Oil (HOIL) and Tullow Oil (TLW) alerted the industry to the promise of the region through a successful exploration programme in Uganda's Lake Albert. The subsequent rate of change has been so rapid, that a significant portion of the estimated $169bn in capital expenditure earmarked for global LNG projects through to 2017 could be diverted to East Africa. It's certainly possible given the region is long on reserves; and short on production. But would that be in the immediate interests of the likes of Shell and BG Group (BG.), which have been pouring billions into the development of the Australian LNG industry?

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