East Africa’s emerging oil and gas boom
East Africa has never been known to have natural resources. Unlike its Southern, Northern and Western counterparts, the region’s economy has traditionally relied on agriculture and tourism. However, recent discoveries have proved otherwise. The region is well endowed with minerals, [...]
East Africa has never been known to have natural resources. Unlike its Southern, Northern and Western counterparts, the region’s economy has traditionally relied on agriculture and tourism.
However, recent discoveries have proved otherwise. The region is well endowed with minerals, including fossil fuels, oil and gas. Though the exact potential of these resources are yet to be established, there are signals that they could significantly transform East Africa’s economy.
The findings in locations never before thought to hold such resources in significant amounts like Turkana in Kenya and Songo Songo in Tanzania have proven that the area is still virgin in the exploration and exploitation of oil and gas.
According to experts, the East African region has about 28 prospective basins. Petroleum resources discovered in the region are estimated at two billion barrels of oil in place. There are also three trillion cubic feet of natural gas.
The first East African major oil find was made by Tullow Oil and Heritage Oil companies in Albertine basin in Uganda before Heritage sold its stakes to Tullow. Production is expected to start soon with an oil refinery being built in Hoima district in the western part of the country.
Recent appraisals show Uganda’s oil reserves to have shot up by close to 40 per cent. This brings the country’s oil inventory to 3.5 billion barrels. “There are signs we could hit between eight and ten billion barrels of oil soon,” said Ernest Rubondo, the commissioner at the ministry of energy incharge of petroleum exploration and production.
Uganda has so far invested $1.5 billion in oil and gas exploration. This represents about a dollar per barrel. This is far cheaper than the world average of between $5 and $10 of investment a barrel.
The discovery of vast reserves of natural gas in Songo Songo in Tanzania could eclipse Uganda’s lucrative oil deal. The $320 million project serves two onshore and three offshore natural gas wells. Construction and commercial operation of the pipeline started in 2004. Today, the plant generates about 190 megawatts (MW) of electricity for the national grid. This is 45 per cent of the country’s capacity.
The natural gas plant continues to propel Tanzania’s economic engine, which has for ages been slugged by erratic and costly power supplies. The overall electricity access in the country stands at 12 per cent with only two per cent of the country’s population having power.
Tanzania’s demand for electricity is forecast to grow by about 50MW a year for the foreseeable future. Recently, the country raised its estimate of recoverable natural gas reserves to 33 trillion cubic feet from 28.74 following recent big discoveries offshore.
“These discoveries show that Tanzania is becoming a natural gas hub; a new frontier in oil and gas exploration in the region and the world at large,” said George Simbachawene, the Deputy Energy and Minerals Minister.
Gas strikes off East Africa’s coastline have led to projections the region could become the world’s third-largest exporter of natural gas. With the discovery of methane gas in Rwanda, there are hopes of even more natural resources discoveries in the region. The methane gas discovered in Lake Kivu is being used for electricity generation. Eventually, its usage will be diversified into the manufacture of fertilisers and production of liquid fuel.
The lake has recently been found to contain approximately 55 billion cubic metres of dissolved methane gas at a depth of 300 metres. Until 2004, extraction of the gas was done on a small scale. But now negotiations are at advanced stages for massive extraction of the gas which scientistists have warned could cause thousands of deaths, as happened in Lake Nyos in Cameroon in 1986.
On the other hand, the regional economic tiger Kenya has four sedimentary basins. They cover both onshore and offshore areas. The basins had initially been divided into 36 exploration blocks of which 22 were licensed to 12 companies to undertake exploration.
In May, Tullow Oil said it had made a second discovery in Kenya, raising prospects the country will become an oil producer. The UK explorer found 30 metres of oil at its Twiga South-1 exploration. It also discovered a layer of “tight oil” 796 metres deep. The find makes the company more confident that it will uncover oil and gas in neighbouring areas of Kenya and Ethiopia.
Tullow Oil made Kenya’s first oil discovery at Ngamia well in the north of the country. The firm’s Chief Executive Officer Aidan Heavey said that Kenya may have more potential than neighbouring Uganda, where the
company and its partners have found about 3.5 billion barrels of resources.
But the new oil and gas discoveries may not automatically be a blessing. Challenges are imminent. The region is faced with insufficient institutional and legal frameworks as well as insufficient human and financial resources. This calls for a natural resources policy to help regulate the vast discoveries.
Ugandan President Yoweri Museveni has cautioned that without necessary policy, institutional and legal regimes in place, the region will not enhance sustainability of the otherwise promising sector.
“We must make optimal use of these resources to turnaround East Africa. But this must be done strategically. Prudent management of oil and gas revenues is critical to translate into better living standards for Africans,” he said.
In 2008, the East African Community partner states developed a strategy on regional refineries development. The blueprint addressed development of refineries and other infrastructure required to enhance storage and distribution of petroleum products in the region. Analysts say with robust oil and gas policies in place, the region is likely to avoid resource curse most of West African nations are facing.
“In Africa’s oil exporting countries, only a small fraction of revenues is used to fight poverty. It is widely seen that the black gold has actually become a huge hurdle to development,” said Manz Denga, a Harvard Business School Scholar and former CEO, United Bank for Africa.
Mr Denga argues that at the heart of these resources lie questions of good governance and development. A testimony of why huge cloud of poverty lies from the Gulf of Guinea to northwestern Sudan poverty. “Oil prices and revenues keep soaring but this has failed to bring better living standards for millions of poor,” he said.
According to Oxford University economist Paul Collier the only way to ensure African oil wealth transforms into growth is for “rich countries to apply pressure to ensure that checks and balance are put in place”.
By MARK KAPCHANGA 2013