Deepwater focus ‘may shift to west Africa’

26/05/2010 | Simon Pirani and Pauline Bax

The tougher US regulation that is sure to follow the Deepwater Horizon oil spill in the Gulf of Mexico could divert some attention to west Africa offshore oil regions, some industry observers believe

The tougher US regulation that is sure to follow the Deepwater Horizon oil spill in the Gulf of Mexico could divert some attention to west Africa offshore oil regions, some industry observers believe.

Others, more cautious, say it would take an incredible hike in US costs, or a quantum leap in west Africa’s business environment, to produce any substantial reallocation of capital.

Paul Stevens, senior research fellow at the Royal Institute of International Affairs in London, said: “For people interested in drilling in deep water, west Africa will become more attractive.

“There is no question that part of the fallout from the disaster will be tougher [offshore drilling] regulation in the US, and that will mean higher costs.

“West African producers will probably talk about tougher regulation too, but whether they will legislate it or enforce it is another matter – and even if they do, it will lag behind the US regime by miles.”

Julian Lee, senior energy analyst at the Centre for Global Energy Studies in London, said that the substantial increases in offshore production in recent years had been in the Gulf of Mexico and Brazil – and that “it would take something quite significant” for oil companies to switch investment away from those fields.

Asked about the possibility that companies might pay more attention to west Africa and other deepwater regions, he said: “It will really depend on how difficult the US government makes it to work in American waters.

“West Africa its own problems – particularly with transparency and corruption issues – that make the largest companies tread carefully there. In the US offshore companies have the possibility to prospect, the rule of law and sanctity of contract, availability of a skilled workforce – and a ready market for the oil.”

Mouhamadou Niang, division manager of the AfDB private sector department, said in Abidjan that the Deepwater Horizon accident would have a “major effect” in Africa.

He said he was concerned about safety standards. “The question is: if [an accident] had happened in Africa, how would this have been managed? I hope that governments in Africa will start looking very closely and critically at the quality of their wells.”

The causes of the Deepwater Horizon accident are not yet clearly established, mainly because it is the first major accident at the record depths at which the industry is now working. Once the industry has adapted its safety procedures, “deepwater drilling may become more expensive across the board – it’s too early to be sure”, Lee of CGES pointed out.

US president Barack Obama at the weekend launched an investigation into the Deepwater Horizon accident – which threatens to overtake the 1989 Exxon Valdez oil spill as the US’s worst ever ecological disaster – and said that new permits would only be issued if companies could give “assurances” that it would never be repeated.

Nigeria and Angola, west Africa’s oil giants, already produce oil offshore, but drilling is also in progress offshore of Ghana, Sierra Leone, Gabon, Ivory Coast and Liberia.

US-based Anadarko has found oil with its Venus B-1 exploration well in Sierra Leonean waters, while Tullow Oil of the UK expects to start producing oil this year from its Jubilee field off Ghana. Canadian Natural Resources Ltd of Canada is producing oil from the Olowi field off Gabon. Andarko has also struck natural gas off Mozambique, east Africa. Exploration companies also claim there are also possibilities offshore of Kenya and Somalia.

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