Is East Africa the next continent’s petroleum province?

Mr Ramathan Ggoobi, the Ministry of Finance permanent secretary (Left) stands next to oil  drilling conductor pipes in the KingFisher oilfield during a tour of the oil facilities in the Albertine Graben recently. PHOTO/Paul Murungi

What you need to know:

East Africa rising. The East African region is slowly morphing into the new ‘Middle East’ in regard to oil and gas. But this will entirely depend on how well East Africa can diversify her economies on the back of the resources.  

East Africa now straddles across a huge landmass divided into two oceans- the Atlantic and Indian oceans- after the admission of the Democratic Republic of Congo (DRC).

But there is more to this story. Experts project the region is set to become Africa’s petroleum province and a shining frontier in the oil and gas scene.

Most, if not all countries in the region are the latest entrants into the ranks of oil and gas producing nations on a global scale.

In fact, South Sudan, Kenya and Uganda hold the region’s 10.8 billion barrels, with more barrels expected during exploration of new blocks, according to a report from Institute of Economic Affairs in Kenya.  

Uganda is currently at close watch from global and regional financiers but of course taking keen observation at the wider region.

By the end of 2021, over $3.8b (Shs13.6 trillion) had been invested in Uganda’s oil sector, and about $15b (Shs54 trillion) is expected to be invested in the next five years.

In 2022, an initial investment of $3b (Shs10 trillion) is expected, as the country plans to achieve her first oil expected at the beginning of 2025, according to the Petroleum Authority of Uganda.    

Dr Rose Nakayi, a legal scholar in her analysis of the new oil developments indicates that only one zone in Eastern Africa has potentially enough oil for production: the Ugandan side of Lake Albert.

Uganda oil reserves currently stand at 6 billion barrels of oil, of which 1.4 billion barrels are commercially recoverable.

Kenya and Ethiopia are still at an early stage of exploration, as well as Burundi and Rwanda.

The Great Lakes region’s oil and gas interests extend to the Ruvuma basin on the border between Mozambique and Tanzania with gas discoveries since 2010.

UK’s natural gas company BG and Statoil managed to discover 57 trillion cubic feet of gas in Tanzania while more than 100 trillion cubic feet of gas in Mozambique was discovered.

For the sake of comparison, the entire reserves in the two countries represent approximately what Nigeria found in 60 years (180 cubic feet of gas).

 Tanzania and Mozambique are considered to be a major world-class gas province in a position to supply Asia and Africa’s gas needs.

 The Tanzania Petroleum Development Corporation shows a Liquefied Natural Gas Project (TLNGP) is being developed that will include a planned liquefied natural gas processing plant to be located on the Indian Ocean.

Dr Nakayi notes that soon, Tanzania and Mozambique economies will be driven mainly by the gas sector, creating a dominant revenue from hydrocarbons in the national income.

However, it would be a mistake to discuss oil in East Africa without remembering that oil production in the region historically began in 1999 in the southern part of Sudan, which became independent and formed South Sudan in July 2011.

Thanks to Chinese, Indian and Malaysian investors, South Sudan’s oil production currently stands at 156,000 barrels per day amid negative impacts of Covid-19 pandemic and heavy flooding since 2020, according to a February report.

The East African nation earned $1.4 billion in gross oil revenues of which $1.1 billion went to direct transfers and $148 million were paid to neighbouring Sudan as cost for processing, transportation and transit fees.

Kenya is also touted to be the next “big thing” in oil and gas in the region, according to geologists.

According to the National oil corporation of Kenya, petroleum exploration began in the 1950s within the Lamu Basin- an area covering over 170,000 kilometres of the Kenya and southern Somalia coastal region.

It was until 2012 when the first commercially viable oil discovery was made in the Tertiary rift, followed by significant gas discoveries in offshore Lamu basin.

To date, over 86 wells have been drilled with a majority being within the Tertiary Rift in the western part of the country.

An estimate of over 4 billion barrels of crude oil reserves have been encountered in the Lokichar sub-basin by Tullow Plc and its partners, with recovery oil estimated to be 750 million barrels. 

Even at an early stage, the wells drilled by Tullow around Lake Turkana in the northern region - Anza Basin - of the country are said to very promising.   

The World Bank projects Kenya’s economic prospects from oil fiscal revenues at about $9 billion annually, a bit higher than Uganda’s $8 billion in annual revenues from oil and cross sector linkages.

To put this in context, such revenue is enough to cover the cost of the Standard Gauge Railway line from Mombasa to Nairobi.

In 2020, Rwanda’s The New Times reported that the country was in ‘plans’ to start using locally produced cooking gas from Lake Kivu thanks to a project that sought to process methane into Compressed Natural Gas (CNG).

In the previous year of 2019, Rwanda had signed a $400 million deal to produce bottled gas from Lake Kivu.

The project led by Gasmeth Energy, owned by U.S. and Nigerian businessmen and Rwandans, would suck gas from the lake’s deep floor and bottle it for use as fuel.  

 Rwanda’s utilities regulatory authority indicates methane gas is currently being extracted in Lake Kivu which contains an enormous amount of methane dissolved in in its deep water.

The Lake Kivu methane gas reserves are estimated at around 55 billion cubic metres with an estimated renewal rate of about 120 million cubic metres every year.

The resource is equally shared between the two governments of Rwanda and the Democratic Republic of Congo with a power output estimated at 700 megawatts.

For now, Rwanda is prioritising the production of electricity from this unique resource to meet the growing electricity demand.

Africa’s ‘new middle east’

The International Monetary Fund predicts the East African region will enjoy 5.6 percent gross domestic product growth rate in 2022. That makes this region, the fastest growing region to the world.

This is a signal of foreign capital flow to the East Africa with such an accelerated growth of 300 million people.

Mr James Mwangi, Equity Group head is of the view the East African region is slowly morphing into the new Middle East in regard to oil and gas.

Mr Mwangi in a key note address at the recent oil and has convention in Kampala was cautious to note that the central question is how East Africa can diversify her economies on the back of the resources.  

“If the region with a current GDP of $240 billion can sustain its oil resources for the next 30 years,” according to Mwangi, “then it remains well-positioned for global capital.”

With the African Free Continental Trade Area, Mwangi notes, the region will have capacity to fill the gap for Africa’s petroleum caused by global supply disruptions in shipping petroleum products.

Africa’s petroleum needs range from gasoline and diesel used as primary fuels used in road transport to oil is used in power generation.

Households also use a variety of petroleum products such as kerosene for lighting, cooking, and heating; and liquefied petroleum gas for cooking and heating. 

S&P Global Platts Analytics shows African oil demand reached 4.75 million barrels per day in the fourth quarter of 2021, the highest since the fourth quarter of 2019 when it was at 4.94 million b/d. 

Capital and Infrastructure

Mr Mwangi says Equity Group has set aside $6 billion for the private sector to execute and drive regional cross border trade on the back of oil and gas developments.    

DRC IN EAC

The DRC joining the East African Community will have an economic implication with the doubling of the population. 

The significant catalyst in the oil mix is the infrastructure investments made and cross sector linkages that the oil sector will create.

During a recent visit to the oil fields, Ramathan Ggoobi, the Ministry of finance permanent secretary said the Kabaale International Airport expected to start operation in February 2023 will be a game changer.

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