Dangers Lurk In Oil And Gas New Frontier

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VENTURES AFRICA – The great rush is on for oil and gas in East Africa after several discoveries in the region boosted hopes that the region may be a new frontier for exploration. Tullow Oil’s discovery in northern Kenya remains the most significant, followed by gas finds in Tanzania. There are hopes that these discoveries will further boost economic growth in the region.

Drilling in East Africa involves some 18 companies and is taking place in nearly 30 offshore areas. With only 500 oil wells drilled so far (compared to West and North Africa’s 35,000), the estimated volume of the gas reserves remaining is around 100 trillion cubic feet. This drilling does have some benefits, even before the desired discoveries. Every extraction company working in Tanzania must donate a $100,000 registration fee each tear to Tanzanian government, which is asking for 60 per cent of gas revenues. There could also be employment opportunities for local people, with Petrobas Managing Director Samuel Bastos de Miranda saying: “We will give employment opportunity to Tanzanians. To date, Petrobras has employed about 40 Tanzanians in fields of law, accounting, engineering, procurement and human resources.”

Yet the new frontier also poses its problems. Oil was discovered in Uganda a few years ago – exploration there is now hardening into production – but the volume of the new discoveries are more sizeable. This may well usher in an era of competition rather than cooperation. Uganda planned to financially benefit from its domestic refinery by selling the products to the crucial Kenyan market, though these hopes have now been dashed by Kenya’s own oil discoveries.

This regional competition over discoveries only serves to strengthen the hands of the companies involved, allowing smaller companies such as Heritage to negotiate hard. Contracts for exploration and production signed since the late 1990s have proved more favourable to businesses than governments. The difference with the latest batch of explorations is that major companies are entering the market, and these firms are seeking incentives to invest in one East African country rather than another. When the China National Offshore Oil Corporation (CNOOC) came to a deal with Tullow to develop Uganda’s oil fields, the company warned President Museveni that delaying to receive Parliamentary consent would mean losing the investment to Kenya or Ethiopia. The exploitation of the newfound oil and gas resources may well depend on such threats and gestures.

What East Africa really needs is for these new resources to translate into cash to tackle such problems as staple food inflation, youth unemployment and low agricultural productivity. Though fuel is certain to become cheaper, unless care is taken then the new frontier for oil and gas may bring out the worst rather than the best in East Africa.