Can East Africa still rely on oil, gas for growth in wake of prices tumble?

An oil exploration rig in Turkana, northern Kenya. FILE PHOTO |   NATION MEDIA GROUP

By STEPHEN KURIA and BENARD AYIEKO

In Summary

• Discovery of the mineral resources has potential of spurring development despite current turmoil in the sector.

The oil and gas market has been shaken and stirred by a raging storm that began in mid-2014.

Some multinationals are actually abandoning the rigs, especially offshore. The US rig count numbers are, for instance, down by 31 to 760 rigs on a month-by month count.

In some cases, exploration programmes have been put on the back burner. Analysts have argued that only the rich Arab nations have sufficient financial muscle to weather this raging storm.

According to the Daily Telegraph, a British Daily that is distributed globally, only the Saudi Arabia’s pockets are deep enough to surmount the current oil slump. Saudi Arabia derives 80 per cent of her total revenues from the sale of black gold.

Even with such financial muscle, the Arab nations have also diversified to other sectors to help them even out such odds. The recent efforts by the Organisation of Petroleum Exporting Countries (OPEC) nations to kill off the US shale have sent oil prices south further. What this situation has done is to make East Africa’s oil and gas prospects bearish.

But why is East Africa the new frontier for oil and gas?

The recent discovery of huge oil reserves in Kenya and Uganda tells the story. Tanzania too has discovered natural gas. It is estimated that Kenya has found more than 600 million barrels while Uganda has over 6.5 billion barrels of oil reserves.

Tanzania, the largest country in East Africa by geography, has discovered 50.5 trillion cubic feet of gas — which is among the largest in the World.

Kenya and Uganda are expected to start the process of oil commercialisation in 2017 while Tanzania’s dream of producing gas is expected to kick-off in 2019.

These discoveries are vital to the region and could help these countries to earn billions of dollars useful in paying our foreign debts, earn foreign exchange and help in balancing current account deficits.

The discovery of oil and gas in East African region has the potential of speeding up economic growth and development by attracting investments in roads, rails and other infrastructure projects.

The Lamu Port South Sudan Ethiopia Transport corridor estimated to cost $23 billion (Sh2.4trn) is such a key project involving the construction of network of roads, railways and pipelines linking Kenya, Ethiopia and South Sudan.

This feeds into the regional economic integration and opens up space for intra-Africa trade.

The only anathema to this positive forecast is the falling oil prices. It is not the timing that’s poor but it has also made it difficult for investors in the oil exploration sector to recoup their initial investments in the associated infrastructure.

The emergence and sudden increase in the supply of shale energy — a rapid growing trend in the US where domestic energy exploration and production of petroleum and natural gas is obtained from fine-grained sedimentary rocks, is not making the situation better.