EastAfrica

East Africa’s oil boom

 

East African oil is promising big things over the next decade and oil companies from around the world are getting excited. The discovery of Proved  reserves in the area has lead to a bout of negotiations as exploration companies seek to claim a portion of this jackpot. Investors are courting Kenya and Uganda in particular. Growth in the local oil sector could spell significant development for this very poor part of the world, but there are some very real challenges that must be overcome if the investment by exploration companies is to yield profits and prove beneficial for the nations involved. The start of the story

Before the big 2006 oil discoveries in Uganda, East Africa was uncharted territory.backwoods . Local production was negligible, with no oil export sector at all. Since then large hydrocarbon basins have been discovered all over the region. These deposits have proved to be world-class, and East Africa has duly become a hotspot of interest and research by international oil and gas companies.

The second East Africa Oil and Gas Summit (EAOGS), held In October 2013, in Nairobi, Kenya and 350 delegates from over 200 companies attended, a clear indicator of the perceived potential of the area.

Foreign investment

Oil producers from North America, Europe and the Far East (China, in particular) are showing enthusiasm over upstream activities in East Africa. Investment from large international oil firms is pouring in, and more is expected.

Since 2011 the Irish company Tullow Oil has discovered an astonishing 1.7 billion bbl  near Lake Albert in west Uganda. Tullow has also discovered large oil basins in Kenya, and is exploring possible reserves in southern Ethiopia. Total (France), Exxon (USA), Africa Oil Corp (Canada), Chevron (USA) and China National Offshore Oil Corporation (NCOOC) have all already claimed their portions of the burgeoning East African industry, and more companies are expected to follow suit.

What does this all mean to East Africa?

Large oil companies are needed to maximise the potential of the newly discovered hydrocarbon basins, but for the region to benefit, these companies need to partner with and mentor fledgling local companies. Moreover, governments need to wisely handle trade regulations to ensure the local economy is developed as a result of the booming industry. Oil exports will diversify export earnings, foreign currency injections will aid local currencies, and reduced fuel imports will benefit society across the board.

A focus on improving local infrastructure, particularly transport networks, would mean long-term sustainable growth, while good labour agreements will equal upskilling for locals. In Somaliland, a big oil discovery could mean international recognition of its sovereignty.

East Africa is an area ravaged by disease (particularly AIDS, TB and malaria), there is a scarcity of potable, accessible water, and it has some of the world’s poorest populations. A booming oil industry should result in increased job opportunities, better infrastructure and growing industries and economies – all reasons for hope in a better tomorrow for the people of the region.

The challenge

None of these benefits are guaranteed. Corrupt officials, low-balling by foreign companies, lack of transparency, underhanded deals, absence of inter-regional cooperation, exploitation, greed, and so on could all undermine the opportunities. However, if carefully and wisely managed, East African countries have an unexpected and unprecedented opportunity to fast-forward the growth of their economies and infrastructure and also bring about significant social development.

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David Okwara

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