The scope, scale and spread of current and future oil and gas infrastructure development projects in East Africa is positioning the region as a hotbed of oil and gas exploration, investment and infrastructure build
The knock-on effects of this growth will lead to a regionally integrated ecosystem for oil production, natural gas supply and distribution, which will increase efficiency and security of supply. It is also expected that the cost of refined oil and gas products to consumers will decrease in the long term.
The foreign exchange burden of importing and distributing refined oil and gas products will, “address regional balance of payments challenges while liberating much needed foreign exchange for more strategic human development,” said Maina Kigundu, East Africa head of oil and gas at Standard Bank.
With Tanzania currently returning annual GDP growth rates of anywhere between 5 and 10 per cent, Uganda maintaining annual growth at around 7 per cent, and Kenya and Ethiopia achieving growth rates in excess of 5 per cent, East Africa’s consumption of gasoline, diesel and jet fuel is rapidly increasing.
East Africa has been an importer of refined product, largely from the Middle East. The bulk of this product has entered the region via Mombasa in Kenya and also through Dar es Salaam in Tanzania. From these ports it has made its way, via pipeline and fuel trucks, across Kenya and Tanzania into Uganda, the Democratic Republic of Congo, Rwanda, Burundi, Ethiopia and even South Sudan.
The region, combined, spends in the region of at least US$5bn a year importing refined oil and gas products. Kenya alone accounts for 50 per cent of this spend. Given the foreign exchange impact of this outlay on most East African countries balance of payments, “the region has, traditionally, focused on import efficiency as a means of managing the import bill and costs for consumers,” added Kigundu.
The increasing slice of foreign exchange required to meet the regions’ growing need for refined product, “is driving home the imperative for East African governments to build an integrated oil and gas infrastructure capable of reducing the region’s refined product import dependence-as well as managing and distributing these imports more efficiently,” he noted.
Kigundu observed that this realisation is coming at a time when, “local economic conditions, new oil finds and increasing investor appetite are converging to realise the vision of a more sustainable and efficient East African oil and gas production, supply and distribution ecosystem.”
South Sudan has historically been the regions only significant exporter of crude oil. New oil finds in Uganda and Kenya are set to transform many of East-Africa’s previously refined-product importing countries into regional and global exporters of crude and ultimately refined product as well.
It is currently estimated, for example, that new oil finds around Hoima in northwest Uganda present a 1.4 billion barrels commercially viable opportunity over the next twenty-five years.
Uganda’s first production is expected in 2021, hitting peak production at around 200000 bpd by 2026. This will make Uganda the fourth largest oil producer in sub-Saharan Africa,” Kigundu further added.
Similarly, new finds in Kenya indicate the possibility for a billion barrels over the next two decades. The first phase of production is currently estimated to deliver 60,000 bpd by 2026. This will position Kenya as the ninth largest producer in sub-Saharan Africa.
Kigundu commented, “This increase in local East African oil production combined with rapid economic growth is transforming the oil and gas infrastructure mix while also driving investment and development, integration and growth in East Africa’s oil and gas sector.”
Kenya, Ethiopia, Tanzania and Uganda, for example, are all looking to develop the refining and regional distribution and export infrastructure required to process and market these finds locally, regionally and globally. At the same time, they are also looking to improve the efficiency of imports.
In addition to deepening its engagement with and support of East Africa’s sovereign efforts to develop the sector, Standard Bank is also working with leading local and global oil companies. All of these companies are currently investing in the exploration, production, importation, exportation, storage, distribution and sale of crude oil, gas and refined products, “either buying stakes in existing facilities or working with regional governments to build new facilities from scratch,”
Standard Bank’s presence across the region will assist East Africa to develop an integrated oil and gas infrastructure ecosystem capable of increasing the efficiency of importation and distribution. In addition to the savings that this will afford consumers, the bank is also well placed to effectively commercialise new crude oil discoveries in Uganda and Kenya.
Collectively these are expected to attract US$20bn in new investment over the next five years. “This will not only sustain the region’s high growth rates but will also release much needed foreign exchange for more strategic human development,” explained Kigundu.
