19 March 2012 Last updated at 02:19 ET

Energy giants Statoil and Exxon target East African gas

By Russell Padmore Business reporter, BBC World Service

Offshore gas has become big business in East Africa

The balmy waters of the Indian Ocean, close to East Africa, are a long way from the cold and notoriously stormy North Sea, but Tanzania could soon be profitable territory for Statoil of Norway.

Statoil and its American partner Exxon Mobil have made the biggest offshore discovery yet of gas reserves off the coast of Tanzania.

The Zafarani field, which both companies hope will be bigger than first estimates suggest, is close to the region off the coast of Mozambique, where even bigger deposits of gas are being developed by Anadarko and ENI.

"This is the biggest discovery made outside Norway by Statoil ever," a delighted Statoil vice president, Tim Dodson, tells the BBC.

But beyond the impact on Statoil itself, Mr Dodson recognises how the discovery could transform the fortunes of an East African country that has in the past focused more on safari tourism than oil and gas.

"This is [also] the biggest discovery that has been made offshore Tanzania and in that respect it's extremely important for [both] Statoil and Tanzania," he says.

Significant reserves

The world's major energy companies are paying more attention to the waters of the Indian Ocean, off East Africa.

"Statoil thinks this is a new reservoir, different to the others found in the broad geographical region, and therefore [it] might well have very significant reserves," according to Nick McGregor, an oil and gas analyst with Redmayne Bentley.

Making a major discovery of gas under the ocean floor is only the beginning, however.

The discovery then produces the next challenge of pumping the commodity out and making it profitable.

"The big problem with gas is its relatively lower margin than oil, so it needs to be large discoveries to make it worthwhile," says Mr McGregor, noting that Statoil's find off Tanzania 's coast "certainly isn't as large as some of the stuff that's been found off Mozambique recently, where it's now expected [to be] 60 trillion cubic feet of gas".

Mozambique gas

In offshore drilling industry terms, Statoil's Tanzania discovery is a stone's throw from the lucrative gas fields off the coast of Mozambique, which are being developed by Italy's ENI and Anadarko of the US.

Former Mozambique President Joachim Chissano has high hopes for offshore gas

The fields are promising, so the industry's big players are clearly keen to secure their share of East Africa's offshore reserves.

Royal Dutch Shell, for instance, recently expressed an interest in acquiring Cove, whose main asset is an 8.5% interest in the block where Anadarko has found 30 trillion cubic feet of gas.

A former President of Mozambique, Joachim Chissano, knows the development of a vibrant energy industry could transform his country's economy.

"There are some very important discoveries in Mozambique and this is creating new jobs, new industries, new services," he tells the BBC.

Developing infrastructure

The energy companies will have to develop infrastructure, from pipelines to terminals for ships, to push their operations forward, Mr Chissano reasons.

East Africa's offshore gas

• Royal Dutch Shell offers $1.6 bn for Cove
• Anadarko says Rovuma field in Mozambique has 30 trillion cubic feet of natural gas
• Statoil says 5 trillion cubic feet of natural gas in Tanzania's Zafarani field

This work alone will create plenty of jobs in Mozambique.

"Even if they did discover more gas, what they have discovered now is already very good for the long-term development of Mozambique," he says.

"And if you couple this with the mineral resources like coal, where we are certain of huge quantities also, this is causing the need to develop more infrastructure like railways and roads and power lines."

Asia gas

The main markets for East Africa's natural gas are likely to be in Asia, and that might explain why Thailand's PTT Exploration & Production has trumped Shell's takeover offer for Cove.

Tankers carrying liquid natural gas will soon be common in East Africa

However, the Anglo-Dutch company has extensive experience of developing offshore gas and the Mozambique government, which will have to approve any deal, will recognise Shell's successful record of completing big liquid natural gas (LNG) projects.

The current operators of Mozambique's Rovuma gas field lack the experience of developing LNG operations.

Anadarko has a long history of exploration but little experience of taking an LNG project to its next stage.

Transforming economies

East African countries, especially Mozambique, are hoping their economies will be transformed by the growth of the gas industry.

But it will take significant investment to build infrastructure to support a vibrant energy industry in East Africa.

Billions will have to be invested pumping the gas from below the ocean floor of the Indian Ocean to terminals from where it will be transported on ships as LNG.

That is why the next phase of the developing the industry will need the involvement of the major players in the world's energy industry.

The big boys will also be attracted by the positive attitude from governments in East Africa. Dealing with the governments of countries such as Tanzania or Mozambique is probably a refreshing change from the confrontational challenge presented by national leaders such as Hugo Chavez in Venezuela.