A DECADE after its first big oil find, East Africa's emergence as a crude exporter has been hindered by security and cost concerns that left the region building two pipelines instead of one.
Uganda and Kenya are developing two new
basins and originally agreed to build one line to connect the landlocked
discoveries to the coast. That changed last year, when Uganda chose a
more southerly 870-mile route through Tanzania, citing lower transit
prices.
Kenya will go it alone with an
865-kilometer line to a port on the Indian Ocean. Two pipelines will
test the economics of the developments. Both projects probably need an
oil price of $50 to $55 a barrel to break even, while lower costs or
taxes may be required to justify a final investment decision in Uganda,
according to BMO Capital Markets.
The Tanzanian route will get some
funding help from France's Total , which owns a stake in the Uganda
reserves, but it still hasn't secured the financing it needs. Further
north, Kenya's explorers are under pressure to improve the project's
viability by finding more resources.
"The Kenyan pipeline seemed economically
viable when Ugandan oil was going to flow through it," said Jacques
Nel, an economist at NKC African Economics. With separate lines each
carrying less oil than planned and global prices remaining weak, the
economics "will continue to cast a shadow over the development of the
sector," he said.
While Africa produces more than 8.4
million barrels of crude daily from major exporters like Libya and
Algeria in the north and Nigeria and Angola in the west, eastern
countries weren't on the world oil map.
That changed in 2006, when Tullow Oil
Plc found what may be as much as 1.7 billion barrels of recoverable
reserves in landlocked Uganda's Lake Albert region. In 2012, Tullow made
another find in Kenya's South Lokichar basin that may contain 750
million barrels. Combined, Kenya and Uganda may be able to produce about
400,000 barrels a day once production begins.
That could catapult Uganda, which will
account for about two-thirds of the output, to upper-middle income
status by 2040 as economic growth rebounds to as much as 10 percent from
4.6 percent in the last fiscal year, according to the World Bank.
Kenya's government would generate
revenue of $650 million a year in the late-2020s, even with crude at
just $45 a barrel, said KCSPOG, a nongovernmental organization.
Originally, the two countries agreed to
share a pipeline running through Kenya's arid Lokichar basin to the
coastal town of Lamu. But parts of the route have been prone to attacks
by bandits and cattle rustlers.
It's also is close to Somalia, where
Islamist al-Shabaab militants have waged an insurgency against the
government for the past decade, as well as carrying out raids inside
Kenya.
Safety was a concern for Paris-based
Total, which in January increased its holding in the Lake Albert site.
The French company agreed to help finance part of an alternative route
through Tanzania that may cost about $4 billion.
Uganda government of ficials said the
switch was a business decision. The Kenyan route would have been "very
costly," with a tariff of $15.90 a barrel, compared with $12.20 for the
Tanzanian pipeline, according to Energy Minister Irene Muloni.
"We took a decision which is good for our country," Muloni said in an interview in Kampala, the capital.
Tullow's CEO-designate Paul McDade said
last week that Uganda's resources could be developed at a total cost of
about $20 a barrel, including capital expenditure on drilling and
pipeline construction plus operating costs. "Along with the offer of
better tariffs, Uganda argued that the Tanga pipeline would mean easier
land access, better security, and would open up another important trade
route," said Emma Gordon, an analyst for East Africa at Verisk
Maplecroft.
"Currently, the country is heavily
reliant on Kenya for its trade." Uganda's decision dented Kenya's
ambitions to develop a $26 billion regional transport corridor, leaving
explorers in the country under pressure to improve the project's
viability by boosting resources.
No comments :
Post a Comment