Global Uncertainties Dampen East Africa’s Oil Potentials

January 27, 2015 Editor Business, Energy

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VENTURES AFRICA – In an upbeat and optimistic tone, the World Bank had posited in its 2015 global economic prospect report that a number of low-income countries may see an upgrade to middle-income status because of substantial oil and gas discoveries; these countries included those in Eastern Africa.
“East Africa, in particular, has emerged as a ‘new frontier’ for oil and gas in the past half-decade. Newly discovered oil reserves in Uganda and Kenya have the potential of coming on-stream by the end of the decade,” the report noted.
These were valid claims as the International Energy Agency estimated Uganda’s oil discovery at 2.5 billion barrels while multinational oil and gas firm Tullow estimated the reserves to be above 600 million barrels.
With these positive prospects, the region was already gearing up
to improve its portfolio of exports from the present set heavily dominated by agricultural commodities. With deposits large enough to make the region oil independent and an exporter of petroleum products, the balance of trade would certainly improve and fiscal deficits would likely reduce with the sort of huge cash flow that usually comes from the sale of oil.
These benefits would likely extend to neighboring countries including Rwanda through regional integration projects as economists also say that good fiscal policies and prudent investment of the oil revenues would greatly impact on the lives of the region’s poor through improved incomes and standards of living.
These were the expectations of the region until the drastic dip in oil prices, the remediation of which could take another couple of years to effect. As it stands, the region’s oil prospects may only be attained towards 2020 or beyond; thus, the present export configuration heavily themed around agriculture will likely continue.
At current price point of about $47 per barrel, it makes more economic sense to import oil than to produce it. The broad implications are that investors will be less likely to invest in building the sort of infrastructure required to fully harvest the oil finds. The construction of refineries, pipelines and roads necessitate huge funding that these countries simply cannot, at the moment, undertake on their own.
As the drama yet unfolds, oil exploration and production in the region may be delayed or even halted as investors watch the market; and this is the case in many other regions in the world as contained in the 18th annual global CEO survey recently released by PriceWaterhouseCoopers. According to the report, the number of business leaders who believe that the global economy will improve in 2015 dropped from 44 percent last year to 37 percent this year, therefore, investment decision makers around the world can be said to be skeptical.
If current speculations from Saudi Arabia which suggest that oil may never be expensive again are true, the entire region would need to rethink its stance on leveraging its petroleum assets going forward.