(Ecofin Agency) - Malawi is making effort to advance with upstream oil and gas development, as the country is currently suffering from power shortages, poor infrastructure, environmental concerns and an ongoing border clash with Tanzania.
The country this year lifted a sanction placed on oil and gas drilling and has granted exploration licences to several international companies.
SacOil, RAK Gas, Ghana’s Pacific Oil and a joint venture between Surestream Petroleum and Egypt’s El Hamra Oil were the international companies granted licences to explore for oil and gas across six blocks.
But there have been doubts as to the intentions of these companies.
With the fluctuation in oil and gas prices in the global market, companies are being careful with their development plans, as the quantity of hydrocarbons under Lake Malawi is still uncertain.
“Malawi shouldn’t get [its] hopes up. None of these companies have a strong track record of exploration [and] that sends out an alarm. Perhaps [the companies] are speculating that if oil prices rise again then they could sell the [blocks] to a more experienced company,” Luke Patey, research associate at the Oxford Institute for Energy Studies told Interfax news.
SacOil on one hand has extended its exploration licence until August 2017 and has decided to perform onshore studies rather than more expensive offshore works.
RAK Gas on the other hand has suspended development plans due to suspicions of a connection between the company and El Hamra Oil by the Malawian government. El Hamra Oil has a 51% stake in Surestream. Surestream holds the licences for blocks 3 and 4, both of which are situated close to the lake.
Malawi is also in an unsettled dispute with Tanzania regarding the border between the two countries along Lake Malawi.
The country is claiming that its border with Tanzania start from the east of the lake, but the latter is Tanzania is demanding that the lake should be divided equally.
This dispute has been going on for five decades now. The issue became worse in 2012, when Malawi moved forward with plans to explore for oil and gas.
Meanwhile the government has also been facing criticism from environmental groups for permitting international oil companies to explore in the lake.
The United Nations Educational, Scientific and Cultural Organization (UNESCO)’s World Heritage Centre has urged the government to reevaluate its position, saying that 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.”
Malawi’s Energy Minister, Bright Msaka, has rejected calls to let go of plans to drill under the lake, reiterating the government’s position.
“Technology today makes it possible that we drill on the land not on the lake,” Msaka said.
Regardless of the government’s plans to advance with exploration activities, Malawi’s inadequate infrastructure makes its oil export goals unlikely, according to experts.
Kenya and Uganda have fought to find investors to construct pipelines for proven oil reserves but to no avail, signifying international companies’ reluctance to operate in the region even if the projects are not risky.
Early seismic studies could be promising but generous incentives, like a favorable tax scheme for instance, would be needed to get serious investors. Also considering the current price fall in the global market, oil firms will require more than the enticement of hydrocarbons to operate in a country overwhelmed with risks.