Feb 282012

In December 2011, I wrote an article for Seeking Alpha entitled, “Market Still Not Appreciating Eni’s Potential to Profit from Asian Natural Gas Demand.” In this article, I discussed how Italian oil and gas company Eni (E) can become a major exporter of natural gas to Asia. Eni can accomplish this through the development of the incredibly massive Mamba North and Mamba South gas fields off of the coast of the East African nation of Mozambique. Norwegian oil giant Statoil ASA (STO) now appears to have the same potential.

In a press release dated February 24, 2012, Statoil stated that they have realized a high impact discovery in Block 2 offshore Tanzania. The discovery took place at the Zafarani well in the block and has been proven to contain approximately 5 trillion cubic feet of gas. This discovery is the first ever Statoil-operated discovery in East Africa.

In my previous article, I discussed how natural gas is a growth industry on the Asian continent. The U.S. Energy Information Agency projects that OECD-member nations in Asia will increase their natural gas consumption by 1.0% annually between 2008 and 2035. Meanwhile, the non-OECD member nations in Asia promise to deliver much stronger growth. Natural gas consumption in these nations is projected to increase by 3.9% annually between 2008 and 2035. China and India are the biggest individual sources of this Asian growth but they are far from the only Asian nations expected to increase their gas consumption.

Natural Gas Consumption in non-OECD Asia by Country, 2008-2035
Source: Energy Information Agency

This discovery is nowhere near the size of Eni’s in Mozambique. That discovery is large enough that it is driving large-scale natural gas infrastructure development in Mozambique. That combined discovery (Mamba North and Mamba South) has proven to contain approximately 30 Tcf of natural gas. Thus, it is approximately six times the size of this Statoil-operated discovery in Tanzania. Despite the smaller size of this field though, Tanzanian authorities are quite excited about the potential that this discovery has for the nation’s development. Yona Killaghane, Managing Director of Tanzania Petroleum Development Corporation, stated that, “This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania.” Mr. Killaghane has a point. Although this discovery is not as large as the monster in Mozambique, 5 Tcf is no small discovery. This discovery positions Tanzania well to become a major supplier of natural gas to the growing Asian energy markets.

Statoil holds a 65% working interest in the partnership that drilled the Zafarani well and made this discovery. The remaining 35% interest is held by ExxonMobil (XOM) and Production Tanzania. Tanzania Petroleum Development Corporation has the right to a 10% interest in the partnership should the project reach the development phase. I would be rather surprised if this does not reach the development phase given the size and potential of this gas play.

Statoil is the majority owner and operator of this project and will remain so should it go to the development phase. Given the location of Tanzania relative to Asia and the size of the field, this should position Statoil well to be able to supply Asia and profit off of the growing demand for natural gas out of the continent.

Disclosure: I am long STO.

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