Monday, June 11, 2018

How much oil? Why East Africa’s bounty is neither significant nor exceptional

Crude oil Turkana Kenya
A police vehicle escorts tankers ferrying crude oil from Ngamia 8 oil fields in Turkana County to Mombasa in Kenya's Early Oil Pilot Scheme on June 3, 2018. PHOTO | JARED NYATAYA | NMG 
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The recent commencement of Kenya’s Early Oil Pilot Scheme confirms the country’s quest to join petroleum producing and...
exporting nations.
Comprising the latest entrants into the ranks of petroleum oil and natural gas endowed nations, Kenya, Tanzania and Uganda are touted by some to be on the verge of an economic revolution.
This first article of a three-part series puts into context the quantity of East Africa’s bounty, to show the significance, if any, of its resources to the rest of the world.
For the purpose of this analysis, we defined East Africa as comprising Ethiopia, Kenya, Uganda, Rwanda, Burundi, South Sudan and Tanzania.
British petroleum economists make technical distinctions between different measures of reserves. “Proved reserves” is the term used to refer to reserves that are geologically recoverable under current economic and operating conditions.
In other words, reserves that do not demand highly specialised techniques and technologies to extract and whose extraction leaves a reasonable margin of profit under “current” oil.
The absence of accurate statistics on Kenyan and Ugandan oil bounties on public databases of major oil producers like British Petroleum and information collecting agencies, perhaps bears testament to the novelty of those discoveries if not their triviality to total global reserves.
Quotations of Kenya’s and Uganda’s reserves are based on recent press releases and best estimates by exploration firms and scant government sources.
Proved Reserves at Global, Continental and Regional Levels
The quantity of proved oil reserves, rate of production and reserves to production ratio are the major variables that allow for the oil bounties of different regions and nations to be compared in a sensible manner.
Economic factors driven by market conditions, technology and geology of an area determine the quantum of a “proved reserve.”
On a global scale, every continent is endowed with a considerable bounty of oil.
Of the world’s 1.706 trillion barrels of proved oil reserves, the Middle East’s 813.5 billion barrels comprises 47.7 per cent of all proved reserves making this region the wealthiest in crude oil endowment.
Venezuela’s oil fields are the largest held by a single nation. That nation bears 300.9 billion barrels, making up 91.76 per cent of South and Central America’s total proved reserves and 17.6 per cent of the global share of proved oil reserves on the globe.
The world’s 1.706 trillion barrels of proved oil reserves amounts to 36,461 litres of unrefined crude for every living human based on 2017 population.
Finally, it is estimated that at the current average rate of production, global oil reserves will last another half century before they are depleted.
Though concentrated in the Middle East and South and Central America – regions that hold 66.9 per cent of proved oil reserves globally – oil is not a resource unique to any particular region of the world.
Africa’s endowment of 128 billion barrels is remarkable when it is noted that Libya’s 48.4 billion barrels is roughly equal to the endowment of the whole Asia Pacific region. That is to say, Libya and the Asia Pacific each equally hold 2.80 per cent of the world’s proved oil reserves.
South Sudan, Kenya and Uganda are the only East African nations with proved oil reserves. For scale, this region’s 10.754 billion barrels amounts to 22.23 per cent of Libya’s endowment and a mere 0.63 per cent of all the proved reserves in the world.
By virtue of the small size of its proved reserves – reserves that have yet to begin being sold in the market – oil discoveries in East Africa are not significant on the global map.
Stated differently, the six eastern Africa nations are small players in the global petroleum extraction and marketing league. This is essential to note especially after establishing the fact that crude petroleum reserves are liberally distributed globally.
As possessors of crude petroleum oil fields, Kenya and Uganda will join South Sudan as oil producers but they are all not entering an elite club. (See table 1)
CountryReserves bpd (Billion)Production bpd (Thousands)Lifespan (years)
South Sudan3.500118.00027.400
Total East Africa10.740490.00060.130
Total Africa128.0007,892.00044.300
Total World1,764.33192,150.00050.600
Lifespan = Reserves/Production ratio | Bpd - Barrels per day

The rate of production of an oil field is indicative of its potential as determined by the market. A large proved oil reserve attracts large investments.
Conversely, the larger proved reserve lends itself to higher rates of production before the point of depletion is reached. The rate of production is thus a determinant of the lifespan of an oil reserve.
In 2016, the world produced an average of 92.2 million barrels of crude oil a day. Predictably, the Middle East led in rate of crude production, extracting 34.5 million barrels of crude a day.
In that same year, the United States edged out Saudi Arabia as the leading national oil producer in the world, extracting crude at a rate of 12.35 billion barrels a day compared with Saudi Arabia’s 12.349 billion barrels a day. They each averaged 13.41 per cent and 13.40 per cent respectively of the global petroleum production for 2016.
In comparison, continental Africa produced 7.892 million barrels a day. South Sudan averaged 118,000 barrels a day while Kenya and Uganda hope to begin their own operations at the modest rates of 80,000 and 60,000 thousand barrels a day respectively.
At present day rates of production, the world’s oil bounties will all be depleted within half a century. When compared discretely, South and Central America’s reserves have the longest lifespan at 119.9 years based upon their present extraction rates.
On a national level, it is estimated that US reserves will be depleted in 10.6 years while Canadian reserves ill deplete in 105.1 years.
At 80,000 barrels a day, Kenyan reserves will be depleted in just under 25 years. Uganda’s and South Sudan will see depletion in 296.80 and 27 years respectively, based on the extraction rates that have been declared.
This goes to show that despite being the latest entrants into the global oil market, the eastern Africa countries together will not affect general supply of oil to the world market.
Reasoning from the facts, the region has far too little reserves to get invitation into that price-fixing cartel of Organisation of Petroleum Exporting Countries, where the countries with the largest reserves co-ordinate market activity to maintain supply and determine prices.
The range of future rates of production can be predicted by the size of the proved reserve which will itself drive the scale of investment in a given reserve.
As South Sudan’s’ proved reserves are higher than Kenya’s, it is likely and possible for South Sudan’s rate of production to remain higher than Kenya’s.
Based on the statistics released by the government of Uganda, it’s 6.5 billion barrels of proved reserves may attract the highest investment in the region, giving Uganda a higher production rate than its neighbours.
Based on its chosen rate of extraction, it appears that a choice may have been made to stretch the lifespan of these reserves instead of depleting them sooner. OPEC nations are price setters and can fix their rates of oil production.
For East African nations, however, the markets will decide the rates that these reserves should be extracted. (See table 2)
Countrybpd (Thousands)
South Sudan11.0
Total East Africa263.5
Total Africa3,937.0
Total World96,558.0

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