Malawi’s oil, gas future still out of sight

By Wezzie Gausi:

Ten years after government issued the first licences for oil and gas exploration on Lake Malawi, the possibility of the country becoming an oil and gas drilling nation remains distant as companies keep abandoning the project.

In May 2011, Malawi awarded six licences for the project, amid fierce pushback by environmental activists who warned that oil drilling on the lake would have serious consequences on Malawi’s prized natural asset.

Such outcries have died down as years pass, and so has the momentum on the oil and gas exploration project, Malawi News has learnt.

Initially government demarcated the oil and gas prospect area into six blocks, with block one in Chitipa going to SacOil, blocks two and three from Karonga to Nkhotakota going to Surestream then Hamra, and blocks four and five—from Nkhotakota to Mulanje going to RakGas while block six— from Mulanje to Nsanje.

Today, three of the six blocks that were demarcated in 2012 were abandoned – with Hamra Oil Holdings Limited being the latest to close offices in Malawi.

Two weeks ago, the company issued a public notice, dated August 19 and signed by the company’s Director Abdullah Al Abdooli, announcing it would cease operations in Malawi on expiry of three months from the date of the notice.

Principal Secretary in the Ministry of Mining Joseph Mkandawire confirmed Hamra’s departure.

He said the firm made an application to surrender its Petroleum Exploration Licences for blocks 2 and 3 in line with the Petroleum (Exploration and Production) Act of 1983 and its associated Petroleum Regulations.

He was inconclusive on when Malawi can, at all, become an oil and gas drilling nation. But he indicated that the exploration work is far from complete.

“You may wish to know that exploration takes quite a number of years in order to hit oil or gas discovery. The company has acquired the much needed geological and geophysical data which will provide a better ground for further advanced exploration work, including drilling, to delineate and quantify oil/ gas reserves. Availability of this data will attract other investors to come to Malawi and continue from where the predecessor has stopped,” Mkandawire said.

He said since the inception of oil and gas exploration in Malawi, the government has benefited from the industry in various ways which include revenue that companies pay through taxes, fees and ground rent.

“Apart from these monetary benefits, the country has generated significant geological and geophysical data regarding oil and gas prospectively. This data is what will make the country attractive to investors who are interested to further invest in the upstream oil and gas industry,” he said.

Mkandawire said at an appropriate time, the government will demarcate and advertise all the vacant blocks calling for investors who can help advance the search for petroleum in the country which may result in discovery of oil or gas at some point in the near future.

Community Liaison Expert on oil and gas Undule Mwakasungula said Malawi does have potential in the oil and gas industry.

He said however that the operational challenges facing oil and gas development could be immense.

“As a nation we have inadequate management tools, guidelines, and resources to support legal, regulatory, and institutional frameworks. Inadequate capacity to address local content, exploration and production technology, research and development. Insufficient level of public awareness, participation and sensitisation with regards to the development of the oil and gas industry,” Mwakasungula said.

A mining activist Kossam Munthali said the country needs to go back to the drawing board and gather more information on oil and gas.

He said much of the country’s legislation on mining is over 30 years old now and therefore too outdated to enable Malawi bring the best out of the industry.

“The country needs to do proper homework. Let our laws be talking to each other,” he said, adding that there lack of capacity in the mining department is another serious challenge.

According to Munthali, the oil and gas exploration companies were paying about $50,000 licence fee per block annually since 2009.

“We don’t even know how the money was being managed. By now we could have been talking about progress but there is nothing. We must admit that the country rushed to signing the agreements with the companies,” Munthali said.

The Petroleum (Exploration and Production) Act requires that a licensee should conduct its operations in a manner which protects and/or preserves the environment.

There are no prescribed security deposits required in respect of future decommissioning liabilities.