If global prices don’t work, let’s keep EA oil for ourselves

All the countries in East Africa, including Ethiopia, have something to talk about oil. Except for Tanzania and Burundi, which are still prospecting and expecting good results, all the others have confirmed reserves of crude oil.

Ethiopia leads with confirmed reserves of at least 5.1 billion barrels, followed by South Sudan with 3.5 billion barrels, Uganda with 1.4 billion barrels, and Kenya 754 million barrels.

Rwanda has existing potential for oil deep under Lake Kivu. It was discovered in 2014. Exploration efforts were temporarily halted last October to first allow for a government-led geological survey.

We should expect some economic dividend from the oil at some point. We know the anticipated petrodollar may not amount to much according to calculations by economic experts, but it could be worth the effort for the region.

There are some hurdles and emerging circumstances to contend with before we can enjoy the petrodollar. This leads to the question how do we go from here.

First, while we are fairly certain of more oil being discovered in the region, we might have to be content with the reserves we already have.

The World Bank, one of the major financiers of energy projects, has already announced that it will no longer finance upstream oil and gas after 2019 under its Action Plan on Climate Change Adaptation and Resilience.

The multinational oil and gas companies are on cue in the emerging trend and have been edging towards low carbon investments.

The implication of this is an expected funding deficit to develop its resources putting the future discoveries in East Africa at stake. The countries will find it difficult to find licensees for the available exploration blocks.

The other is the economic issue of what the oil will be worth in boosting the countries’ exchequers.

This is an important issue which the Nairobi-based think tank, Institute of Economic Affairs, sought to look into.

Kenya provides a handy example, having already started extracting oil and transporting 600 barrels per day from its fields in Lokichar, Turkana County, to the coast in Mombasa, a journey slightly over 1000 kilometres.

As of May this year the Government had stored 87,000 barrels of crude oil with a target of 200,000 barrels to begin export by September.

Though the Institute of Economic Affairs analysis was last year, it is still valid. It noted that extraction and transportation cost Kenyan oil production operations $25 and $20 per barrel respectively.             

The global price of at the time was $73 per barrel. From the IEA calculations, this would have left the Kenyan producers with $24 in revenues.

IEA went on to show that assuming government revenues of $10 per barrel and that Kenya’s Turkana oil wells were extracted at the gazetted rate of 80,000 barrels per day (bpd), the National Treasury would earn daily revenues of $800,000 a day or $292 million in a year.

That figure would only make up an insignificant 0.004 per cent of Kenya’s GDP in 2016.

So far this month, the price of OPEC basket crudes stands at $64.06$ per barrel. This is well below the $73 per barrel in 2016.

Are these prices worth the effort?

Perhaps it is not so much the dismal revenue in current global prices if we looked inward in the region to be self-sufficient with our own oil with the likelihood of low cost of fuel at the pump.

The IEA had also looked at this. It notes that East Africa harbours an estimated total of 10.754 billion barrels of crude oil.

As per 2016 statistics, East Africa’s daily production potential exceeds the daily total crude oil consumption of Ethiopia, Kenya, Rwanda, Tanzania, Uganda, Burundi and South Sudan by 180,000 barrels.  

This seems to suggest that were the countries networked by a refined petroleum distribution pipeline, crude oil produced in Kenya, South Sudan and Uganda and processed in Uganda would find a ready market in East Africa. Furthermore, the region’s oil producers would be left with excess amounts to export.

This makes for quite a persuasive argument to some observers with that there is still time to choose this alternative.

The views expressed in this article are of the author.

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