Eastern High Seas

Piracy and the East African oil and gas industry

Piracy and the East African oil and gas industry.
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Recent discoveries of substantial natural gas reserves off the East African coast have captured the oil and gas industry’s attention – not least, the impressive string of discoveries in Mozambique’s Rovuma Basin by independent oil and gas producer, Anadarko Petroleum Corporation. But while the hunt for similar discoveries has intensified throughout East African waters , so too has another, far older and particularly infamous maritime activity – piracy. 

Piracy has, however, not been relegated to the history books and romanticised Hollywood productions. Contemporary piracy is thriving, particularly in the Indian Ocean where it poses a peculiar threat to the operations of the offshore oil and gas industry.

The objective of this article – which, due to its extensiveness, will be divided into two parts – is firstly to identify the nature of the threat that piracy poses to the East African oil and gas industry and, secondly, to discuss the laws governing piracy and the steps that are being taken in accordance with those laws to address the threat.

In terms of identifying the threat, it is important first to understand that for the offshore East African oil and gas industry, piracy is an expense. The financial burden that results from the industry operating in waters that are frequented by pirates increases marine insurance premiums. Not only have such premiums been said to have increased by as much as 50%, new piracy-related policies that cover kidnap and ransom have had to be developed.

Related hereto, the London-based Joint War Committee (JWC), which represents the interests of underwriters in relation to the writing of war risks in the London market has, in view of rampant piracy, specifically listed Somalia as a war risk area. The range at which these pirates now operate is impressive. By virtue of their being able to utilise previously captured commercial vessels as so-called “mother ships”, Somali pirates have been able to attack vessels in southern parts of Africa, including Tanzanian and Mozambican waters.

The International Maritime Bureau (IMB), a specialist division of the International Chamber of Commerce and which specialises in, among other things, the suppression of piracy, has reported that during 2011 there were as many as 237 incidents of piracy involving Somali pirates. Importantly, the East African oil and gas industry’s exposure to the threat of such incidents is not theoretical. Industry reports confirm that, during the course of 2010 and 2011, various operators had run-ins with pirates. Similarly, on 3 October 2011, Petrobras’s drillship Poseidon fell under siege.

The gravity of the risk to East African operations is accentuated by the substantial financial investments that have been made by members of the industry toward the development of their operations there. It must be borne in mind, however, that, aside from posing an unnecessary financial risk, piracy also poses a risk to the lives of the oil and gas industry’s employees and, indirectly, to the viability of other East African industries including tourism and commercial fishing. If pirates capture or damage an industry vessel such as a tanker, or even a rig, the possible resulting environmental contamination due to damage, mismanagement or sabotage becomes a significant concern. 

Naturally, the possibly substantial cleanup costs associated with incidents of environmental contamination would be a further financial concern for the industry.Provided Somalia remains a lawless state, the risks posed by piracy to offshore East African oil and gas operations will not disappear. For present purposes, however, it is worth noting that as recently as 15 November 2011, the governments of South Africa and Mozambique signed a memorandum of understanding (MoU) aimed at addressing the issue of maritime piracy.Although this MoU will be discussed in more detail in the second part of this article, it is noteworthy that Mozambican Defence Minister Filipe Nhussi and South African Defence Minister Lindiwe Sisulu signed the MoU at a meeting of the South Africa–Mozambique Joint Permanent Commission on Defence and Security.

Piracy is an issue that is being addressed by means of collaborative efforts at the highest levels of the relevant governmental departments. In other words, the governments of South Africa and Mozambique are alive, albeit indirectly, to the threat that piracy poses to the East African offshore oil and gas industry and, thus, the viability of the recently discovered natural gas reserves of Mozambique. The question remains, however, as to whether they, and the industry itself, are doing all they are legally capable of so as to suppress piracy. The answers to these questions will be provided in the second part of this article.

Luke Havemann
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Issue 39