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Victoria Oil signs 14 Cameroon gas offtake deals

By on February 27, 2010

Victoria Oil and Gas has signed offtake agreements with 14 Cameroonian firms for gas from its Logbaba project, due to begin production later this year, a company official told Reuters on Friday.

The agreements, most of which will run for five years, amount to supplying 226,000 cubic metres of gas per day to industrial city Douala, said Steven Jorgensen, general manager of Rodeo Development, Victoria’s Cameroonian subsidiary which operates the project.

Daily demand in the power-hungry city is estimated at 425,000 cubic metres, he said.

It will sell at $453 per 1,000 cubic metres, far higher than gas fetches on international markets, but less than prices Cameroonian firms pay for imported fuel oil.

“That before we start production we have already secured so many customers is an extraordinary development for us,” said Jorgensen. “It’s a very good sign and we can now move into the financial market with a lot of confidence, since there is a ready market.”

By contrast, Ukraine paid $208 per 1,000 cubic metres for Russian gas in the final quarter of 2009.

Firms to have signed deals with Victoria include brewers Societe Brasseries du Cameroun and Guinness Cameroon, food company Nestle and industrial firms PLASTICAM and CICAM.

POWER DEFICIT

Buyers say the startup of Logbaba, expected in mid-2010, will lessen their reliance on expensive imports of fuel.

“Every day we use 27,000 litres of imported fuel oil to power our generators, which is very costly for our company,” said Emmanuel Fouotso Adji, commercial manager of textile firm CICAM.

“The Logbaba gas will provide us a very viable alternative. It will be much cheaper, clean and more effective. This will cut production costs and lower prices of our goods.”

Victoria will sell all of Logbaba’s gas locally, Jorgensen said, as the energy deficit in Douala has created a big enough market. The firm plans to build a 12 km pipeline to transfer the gas to clients, some 85 percent of whom are within 10 km of the project site.

Inadequate power supply in economic hub Douala is a serious impediment to economic growth in the central African country.

A recent study by Cameroonian industrial federation GICAM said most businesses in Douala lost about 10 percent of revenue due to inadequate power supply, said the group’s senior economist Justin Fotsing.

“By constraining development of the private sector, insufficient power supply is hampering economic growth,” Fotsing said. “Not only is it raising costs for enterprises, some of them have folded up and others forced to cut down production, laying off thousands of people.”

Reuters.

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